The Pro-Society Company

The lessons and suggestions of Maximum New York and Fractal Tech

This post was written in about 17 minutes as part of the Fractal Tech barn raising. I will revise it later!

In many people’s minds, the corporate world is artificially divided into “for profit” and “non-profit.” As most understand these terms, “for profits” are all about meeting the bottom line no matter what, and “non-profits” are about doing good in the world.

This framing is completely wrong, and relies on widespread misunderstanding of what a “corporation” is in the first place. It also ignores that there are many kinds of non-profits that do very different things.

The better frame: every corporate form has a set of affordances attached to it—things that are possible given their legal structure, their societal context, and the people involved in them.

If you want to “do good” in the world, it would be odd if the best way to do that in all cases was to incorporate as a 501c3 non-profit corporation. Clearly that is wrong, not least because 501c3s were only invented in 1969.¹ America went to the moon before the modern non-profit was even understood!

Corporations doing good

If you use the more productive frame—it doesn’t primarily matter what your corporate form is, rather what you are able to do—you’ll quickly realize that 501c3s and other non-profit forms are incorrect for many tasks.

Unfortunately, people reflexively reach for them for their social approval and legibility. It’s easy to convince people you have good intentions if you’re a “non-profit,” even if you don’t.

As I wrote recently, I converted my civics school from a non-profit to an LLC:

I have been a fiscally sponsored non-profit for the past year, and it has served me well in that time. But it will not serve me as well going forward. Every incorporated form has a set of affordances, and a business or association should use the form that gives it the best results. MNY is not just a civic school, but an experiment in finding the best form for effective civic groups. This is not a typical path, but I believe it is worthwhile. If you would like to learn more about all of the many corporate forms (including the municipal corporation, which NYC is), indicate that you’d like to take my corporations class.

It’s been an immense benefit, and has allowed me to further my own educational mission.

You don’t need the administrative overhead and compliance of a non-profit do benefit the community: the lesson of Fractal Tech

I’m writing this at the barn raising for Fractal Tech, a business that trains excellent software engineers. But the don’t only do that. They open up their space to others to host events, convene great minds, and more. They already have the lease and the space—why not let friends and others put it to productive use?² As a result of their public spirit, many other great things have been accelerated, including my own Maximum New York.

Business does not need to be legally required or incentivized to do good. The business owners can just do it. Many already do, but many more could.

And if you just do it, you’ll likely have more flexibility, autonomy, and ability to respond to circumstances than other corporate forms that trade tax advantage for compliance and administrative burden.

I’m not against non-profits, just reflexively reaching for them

I’m not against non-profit corporate forms. I’ve used them myself. But people should consider whether the set of affordances that come along with that legal instrument really match their needs.

You might think “but the legal form requires the good!” No it doesn’t. You all know plenty of useless non-profits that waste money, and plenty of for-profits that have greatly benefited our society. The opposite is also true. At the end of the day, it just matters who runs them, how they run them, and what culture they inspire.

For-profit corporate forms are often much better placed to drive forward a bright, civic future. They are nimble, flexible, and easier ways to reward performance. I know. I’ve lived it.

Reach out if you have any questions.

1. “A Brief History of Nonprofit Organizations”:

The government also became much more involved in social and cultural welfare programs. In 1969, the Tax Reform Act gave us Section 501(c)3 in the Internal Revenue Service Code, which said that every charity in the U.S. that fits certain requirements is a “private foundation,” meaning they have a principal fund managed by their own trustees or directors.

When organizations found that they could legally have status as a charitable organization and offer tax exemptions to their donors, there was a surge in applications for 501(c)3 status. With the development of an official “nonprofit sector” came the development of more rules, regulations and policies.

2. Many companies have other considerations, like client confidentiality, space insurance, and more. Take these into consideration, of course.