Where Nonprofits Incorporate and Why It Matters

59 Pages Posted: 25 Mar 2022 Last revised: 25 Aug 2022

See all articles by Peter Molk

Peter Molk

University of Florida Levin College of Law

Date Written: March 17, 2022

Abstract

Nonprofit corporations account for over a trillion dollars of American annual GDP, employ twelve million people, and include some of the most well-known organizations in the world. Yet despite their significance, many core corporate governance issues about nonprofits remain a black box. This Article, using newly available data, begins to remedy this gap in the literature.

Using filing data from 300,000 charitable nonprofits, I examine the foundational issue of where nonprofits incorporate, a decision that determines both the law of nonprofit corporate governance affairs and public oversight apparatus for governance and compliance. Unlike publicly traded corporations, I find nonprofit incorporation choice is not a vigorously competitive race to the top or bottom, but instead is better characterized as a stroll. A nonprofit’s headquarters jurisdiction is the most popular incorporation destination - far more common than for publicly traded corporations. However, among those nonprofits that incorporate out-of-jurisdiction, Delaware is the most popular destination, with the District of Columbia a surprising second. The findings are consistent with nonprofits’ selecting weaker governance and oversight rules, suggesting a potential “stroll to the bottom” among nonprofits. Using these results, I offer evidence-based policy implications to improve governance of nonprofits, to reverse the potential stroll to the bottom, and to invigorate beneficial state competition for nonprofit incorporations.

Keywords: incorporation, nonprofits, race to the top, Delaware, governance, regulatory competition

JEL Classification: K22

Suggested Citation

Molk, Peter, Where Nonprofits Incorporate and Why It Matters (March 17, 2022). Iowa L. Rev. (forthcoming, 2023), University of Florida Levin College of Law Research Paper No. 22-22, Available at SSRN: https://ssrn.com/abstract=4060192 or http://dx.doi.org/10.2139/ssrn.4060192

Peter Molk (Contact Author)

University of Florida Levin College of Law ( email )

P.O. Box 117625
Gainesville, FL 32611-7625
United States

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