Another Theory of Nonprofit Corporations

Michigan Law Review, Vol. 80, p. 999, 1982

52 Pages Posted: 8 Oct 2009  

Ira Mark Ellman

Arizona State University College of Law; Arizona State University (ASU) - Department of Psychology; Center for the Study of Law and Society, Berkeley Law, University of California, Berkeley

Date Written: 1983

Abstract

This article considers parts of Professor Henry Hansmann’s rationale for the existence of nonprofits. He sees no reason to distinguish donors and customers, for both in fact enter into an exchange. This article argues that the distinction between donors and customers is critical, and that the contract failure model is therefore seriously flawed. It distinguishes two types of nonprofit corporations - those structured to satisfy donors' needs ("donative nonprofits") and those structured to satisfy customers' needs ("mutual benefit nonprofits"). This dichotomy suggests a very different nonprofit corporation law than the one urged by Hansmann. Once the concept of contract failure is limited to donors, it can be refined to serve as part of the rationale for donative nonprofits. Refining the concept of contract failure reveals, however, that it confuses the analysis of mutual benefit nonprofits, which actually solve a different problem for customers and thus require a different corporate structure.

This article places the discussion in context by outlining the purposes of a nonprofit corporation law, summarizes the Hansmann, or "contract failure," theory, and develops an alternative theory and contrasts it with the Hansmann thesis, considering first the donative nonprofits and then the mutual benefit nonprofits.

Keywords: Non-profit Corporations, Professor Henry Hansmann, Corporate Law

Suggested Citation

Ellman, Ira Mark, Another Theory of Nonprofit Corporations (1983). Michigan Law Review, Vol. 80, p. 999, 1982. Available at SSRN: https://ssrn.com/abstract=1484810

Ira Mark Ellman (Contact Author)

Arizona State University College of Law ( email )

Box 877906
Phoenix, AZ
United States
480-965-2125 (Phone)

HOME PAGE: http://www.law.asu.edu/HomePages/Ellman/

Arizona State University (ASU) - Department of Psychology ( email )

Tempe, AZ 85287-1104
United States

Center for the Study of Law and Society, Berkeley Law, University of California, Berkeley ( email )

Berkeley, CA 94720-2150
United States

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