Several businesses have found it difficult to align their profit making and increasing duties to contribute to the good of society. What this means is that while most businesses are concentrated on the task of increasing and improving on their profits, they end up going against the principles of building the community. For this reason, for several years companies have had to identify as either for-profit of nonprofit. For-profit firms are solely concentrated on making profits and not the responsibilities to the society while the non-profit organizations are entirely focused on social responsibility. This is how it has been for several years until the emergence of hybrid organizations or businesses.
What is a hybrid business?
Hybrid businesses are those that mix several elements of businesses including values and the action logistics taken by a variety of organizations in the society. Such elements include the impact made on the society as well as the profit generation endeavors of the organization or business. Other characteristics of hybrid businesses include the fact that they have shared ownership, they have goals that are not in congruence and different institutional logistics, they get their financing from different sources and have different forms of social as well as the economic control. The main aim of hybrid businesses is to turn in profits while contributing to society.
There are five main entities of hybrid businesses which are; nonprofit organizations with a subsidiary that is solely for profit, nonprofit organizations with UBIT, Social Purpose Corporations, benefit corporations as well as L3Cs.
- Nonprofit organizations with for-profit subsidiaries- this is a means in which nonprofit organizations make money without going against their tax exemption status. The nonprofit organization, therefore, has ownership over the subsidiary.
- Non-profit organizations with UBIT- nonprofit organization are exempted from paying taxes on income that is acquired through its nonprofit activities. However, when the nonprofit is running activities aside from its core business which earns it profit the income it accumulates is known as Non-Related Business Income. The profit they make for such is taxed under the Non-Related Business Income Tax.
- Benefit corporations- these are businesses with two main purposes which are to make profits and to pursue a social mission. This means that they combine the aspects of nonprofit organizations and for-profit organizations.
- Social Purpose Organizations- they are similar to benefit corporations. However, they offer more flexible approaches to balancing profitability and pursuing a social purpose. They provide an annual report that is free from the influence of a third party.
- L3C- this is short for low profit limited liability Company. These companies are profit-oriented as long as their objectives are aligned with their social goals. Their agenda is to do well while doing good. These organizations have to make distributions that qualify them for tax exemption. While doing so, these firms also have to avoid as much as possible investments that are very risky. A qualified distribution is that that is purely for charity, and has no political intentions.