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I have seen many results for a for profit being a subsidiary of a non profit, but not the other way around. I know there are some conflict of interest laws and was wondering if any of you can link me to any legal documents regarding this.

My question again is, can a for profit company form a nonprofit subsidiary?

  • You seem to have a separate question regarding conflict of interest laws for non-profits. In the United States, state laws vary on the level of disclosure required for conflicts of interest. Around the world, I don't believe conflicts of interest are strongly protected against, and it remains more of an ethical/best practices issue. This page (councilofnonprofits.org/tools-resources/conflicts-of-interest) should be a useful starting point, but we'll need to know your jurisdiction before helping you figure out what laws apply to you. – Sam Jan 6 at 0:52
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A for-profit company cannot technically have non-profit subsidiaries, but it can do so effectively by design of non-profit by-laws.

According to IAS 27, a subsidiary is an entity that is controlled by a parent. Control is defined accordingly:

  • over more than one half of the voting rights by virtue of an agreement with other investors, or
  • to govern the financial and operating policies of the entity under a statute or an agreement; or
  • to appoint or remove the majority of the members of the board of directors; or
  • to cast the majority of votes at a meeting of the board of directors.

Unlike a for-profit business, non-profits do not have any shareholders. They are not owned by anyone in particular, although governance responsibilities are vested in the board of directors, who are in turn accountable to state and federal authorities.

Technical control (ie. points 3 and 4) is exercised through share ownership. Majority shareholders naturally have the right to appoint/remove a majority of directors, and by definition cast the majority of votes at a meeting of the directors. Since non-profits do not have any shareholders, for-profits (or any other kind of organization) cannot exercise technical control over non-profits.

However, effective control (ie. points 1 and 2) can be exercised by for-profits over non-profits. For example, a for-profit could design its non-profit subsidiary's by-laws to ensure that a majority of board seats are appointed by the for-profit.

The best example of non-profits being effectively owned by for-profits are corporate foundations like the Walmart Foundation.

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  • Are you sure the for profit can have control of the non-profits board? This is from the Ford Foundation "Our Board of Trustees is currently composed of 15 members, including the president. Nominated by the Nominating and Governance Committee and appointed by the full board, trustees may serve up to two six-year terms. " It looks self-governing; like many other non-profit boards. – George White Jan 6 at 17:04
  • While for-profits can have effective control over non-profits, it doesn't mean that they have to just because of name affiliation. You are right in pointing out that the Ford Foundation isn't controlled by Ford Motor Company, since its bylaws suggest complete independence. Nonetheless, I've realized that the example I initially provided (the Rockefeller Foundation) wasn't the best one, so I've edited my answer to use the Walmart Foundation, which is "overseen by a committee of Walmart executives" and whose President is Walmart's Chief Sustainability Officer. – Sam Jan 6 at 23:30
  • "Unlike a for-profit business, non-profits do not have any shareholders." That may be true in the US, but it is not really true in other jurisdictions. In England and Wales, a popular structure for non-profit organizations is a "company limited by guarantee". Each member guarantees to pay a limited amount (typically £1) towards the debts of the company if it becomes insolvent. There is nothing in principle to stop the creation of a company limited by guarantee where the sole member is a legal person (it's quite likely there are other rules which prevent that). – Martin Bonner supports Monica Jan 7 at 8:59
  • @sam - I stand corrected by your Walmart example. A small point - the "committee of Walmart executives" oversee giving from Walmart corporation to the Foundation, not the Walmart Foundation itself, according to the link you provide. – George White Jan 7 at 22:10

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