Are Enterprise Foundations Possible in the United States?

in Anne Sanders & Steen Thomsen (eds.), Enterprise Foundations Law in a Comparative Perspective (Intersentia Cambridge, 2023)

Duke Law School Public Law & Legal Theory Series No. 2022-59

Posted: 23 Sep 2022 Last revised: 17 Mar 2023

See all articles by Ofer Eldar

Ofer Eldar

University of California, Berkeley - School of Law; European Corporate Governance Institute (ECGI)

Date Written: September 20, 2022

Abstract

This book chapter discusses the ability of entrepreneurs to form enterprise foundations in the US and the hurdles for forming them. The US regime for tax-exempt private foundations is very restrictive and does not practically allow them to have substantial ownership of for-profit firms. As a result, there is a perception that enterprise foundations are not feasible in the US. However, enterprise foundations, broadly defined as industrial firms controlled by any nonprofit firm, need not involve ownership by a private foundation (as it is defined in the US Tax Code) and could also be owned by other types of nonprofits. Such enterprise foundations are unlikely to benefit from key tax exemptions (such as tax-deductible donations or income tax exemptions), which probably explains their unpopularity. The chapter evaluates recent developments to liberalize the law of enterprise foundations, including (1) the "Newman's Own" exception that permits private foundations to own business firms under certain restrictive conditions, and (2) the perpetual purpose trust, which was recently utilized to transfer the ownership of Patagonia from the founder to a trust and a non-exempt nonprofit. The chapter is available at https://www.intersentiaonline.com/publication/enterprise-foundation-law-in-a-comparative-perspective/10

Keywords: Enterprise foundations, nonprofits, social enterprise, trusts

JEL Classification: L21, K22, K34

Suggested Citation

Eldar, Ofer, Are Enterprise Foundations Possible in the United States? (September 20, 2022). in Anne Sanders & Steen Thomsen (eds.), Enterprise Foundations Law in a Comparative Perspective (Intersentia Cambridge, 2023), Duke Law School Public Law & Legal Theory Series No. 2022-59, Available at SSRN: https://ssrn.com/abstract=4224237

Ofer Eldar (Contact Author)

University of California, Berkeley - School of Law ( email )

215 Law Building
Berkeley, CA 94720-7200
United States

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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