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Knowledge Base
Q:
Can my organization have a subsidiary?
A:

With so many different organizational structures in the tax-exempt spectrum, and in the growth and development process of certain nonprofit organizations, there may be valid reasons for establishing a subsidiary organization. This entity may be created as a for-profit or a nonprofit structure.

For-profit subsidiaries of nonprofits

A nonprofit parent may establish a for-profit entity because, as one example, they wish to engage in unrelated business acitivities that do not directly pertain to the stated mission of the nonprofit. Or, they may wish to avert possible risk and liability that might be directed at the original organization if the activities were carried out under its tax-exempt status.

Nonprofit subsidiaries of nonprofits

In the case of nonprofit subsidiaries, these may be established in order to carry out activities that are divergent or that significantly differ from the original mission of the parent corporation. Learn more about subsidiaries of nonprofit organizations»

For-profit parents

When a for-profit organization chooses to create a nonprofit entity, the typical outcome is the creation of a corporate foundation, which is a totally separate, independent entity but which receives its principal endowment from the parent company. Corporate foundations give grant money for charitable purposes to tax-exempt organizations and causes that the company supports. Learn more about corporate foundations»

A for-profit corporation is less likely to create a nonprofit subsidiary that is not wholly independent from the parent. Because 501(c)(3) tax exempt charities exist to benefit the greater public good, must be headed by an independent board of directors, and generally draw the bulk of their support from public sources, legal conflicts of interest may arise in having an association with a for-profit parent. In order to ensure full IRS compliance, the viability of such arrangements should be investigated only with the assistance of trained legal counsel.

See our related Knowledge Base articles:

- How do I start a nonprofit organization?
- Can I convert my for-profit business into a nonprofit organization?
- What is earned income and how do I learn more about it?
- What is social enterprise?

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