Entity and Identity

Abstract

The function, indeed the very existence, of nonprofit corporations is under-theorized. Recent literature suggests that only preferential tax treatment adequately explains the persistence of the nonprofit form. This answer is incomplete. Drawing on psychology’s social identity theory, this Article posits that the nonprofit form can create a special "warm-glow" identity that cannot be replicated by the for-profit form. For example, a local nonprofit food cooperative is selling more than the free-range eggs or organic strawberries that Whole Foods and other for-profits market so effectively. The co-op offers community participation and an investment in local farms, a distinctive ethos that is incompatible with the profit motive. Ascribing a special meaning to the nonprofit form allows us to view afresh a variety of issues regarding the appropriate legal treatment of nonprofits.

Keywords: nonprofit, social identity theory, tax, corporations, business organization, business association, low-profit limited liability company, L3C

JEL Classification: K34, L30