[AI-assisted for speed.]
A social enterprise is an attempt to pursue mission-driven outcomes using the tools of capitalism. These organizations seek to generate positive change in the world while engaging in traditional revenue-seeking activities: selling products, providing services, developing markets. They live in the tension between purpose and profit, and their founders often imagine they can blend the two.
But just beneath the surface of this activity lies a binary choice. Legally, every organization must declare itself as one of two things: a for-profit entity (corporation, LLC, benefit corporation, etc.) or a mission-driven nonprofit (a 501(c)(3) or 501(c)(4)). There is no third category. You must pick a side when you register the organization.
Most people make this decision based on money. They assume structure dictates where revenue will originate or for-profits have access to tools nonprofits lack. But this misses the point. The nonprofit/for-profit decision has very little to do with how money is earned. It has everything to do with control, governance, and fealty. Who does your organization ultimately serve — shareholders or mission?
Myth 1: You need to be a for-profit to launch products
This is false. Nonprofits develop products, enter markets, and sell services. The only limitation is that those activities must substantially relate to the charitable purpose you filed with the IRS. If your mission is to advance the physical welfare of children in communities, you can offer swimming lessons. If your mission is to advance privacy online, you can build and offer secure messaging apps.
Proceeds from those products can be reinvested. If the activity is related to your mission, those proceeds are exempt from federal income tax. If the activity is not related, it may be subject to Unrelated Business Income Tax (UBIT). Either way, the IRS framework allows nonprofits to generate and reinvest revenue from products and services.
Nonprofits can also access a wide range of financing structures: recoverable grants, income-contingent loans, and other repayment mechanisms that replicate many of the dynamics of equity or debt. These tools let nonprofits raise capital in flexible ways while staying anchored to mission.
The real limitation is that no one can privately profit from a nonprofit. You cannot issue equity. You cannot distribute surplus to insiders through dividends or unreasonable compensation. But if someone’s only motivation is profit, they are not the right person for the job in the first place.
Myth 2: For-profits are more legitimate
For-profits are often treated as the “serious” choice. The cultural signals are everywhere: Silicon Valley venture capitalists, billionaire founders, Wall Street success stories. The mythology of private enterprise is so deeply ingrained in American life that it feels natural to assume a business structure is more stable, more credible, and more adult. A nonprofit, by contrast, is often cast as secondary — a hobby, a passion project, something less real than the hard edge of business. At best, it is treated as a fragile stopgap until a revenue model can be identified or a business can take over.
In reality, fundraising is not a stopgap. It is a perfectly valid, long-term form of revenue generation and organizational sustainability. The Red Cross, YMCA, and countless churches have thrived for decades through fundraising alone. Meanwhile, corporations fail at extraordinary rates — roughly 90% of startups never make it past the early stage and even large companies collapse when markets shift. Earned revenue is not inherently more permanent.
Similarly, legitimacy is not about whether revenue is “earned” or “donated.” It is about the nature of the work being done. The private sector pursues what is easy and profitable. The public sector delivers what is foundational and required. The nonprofit sector shoulders what is complicated, fundamental, and unaddressed. Which one of those sounds harder? Which one of those sounds more consequential? Which one of those sounds like a career and a life well spent?
Consider the difficulty of raising capital. It is easy to imagine how 20% of a company can be sold for $200,000. That transaction makes sense to investors because there is a clear promise of return. Now convince someone to give you $200,000 with no promise other than the chance to help. Which is more impressive?
Myth 3: There’s more money available to for-profits
It is true that the global pool of capital for for-profits is vastly larger. Investors, private equity, venture funds, and lenders control many trillions of dollars while the philanthropic pool looks small by comparison. This reality often convinces founders that if they want real money they need to be on the for-profit side of the line.
This logic breaks down the moment you try to mix mission with revenue. If you are a social enterprise seeking to balance positive impact with market participation, you are far more likely to find a philanthropic funder willing to experiment with revenue models than a for-profit investor willing to accept lower returns. So while it is technically true that the total pool of money is bigger on the for-profit side, the accessible pool for blended ventures is larger on the nonprofit side.
Beyond the Binary: Blended Models and Their Limits
One way that groups try to navigate this choice is by operating as multiple entities at once. A single brand may sit on top of several inter-related legal structures:
- A 501(c)(3) for charitable work
- A 501(c)(4) for advocacy
- A for-profit subsidiary for earned revenue
Mozilla is structured this way, with a foundation that owns a corporation. IKEA and Patagonia have their own complex legal arrangements. Steward ownership, perpetual purpose trusts, and co-determination models all aim to enshrine mission in governance, but they carry risk.
Once profit-seeking investors are allowed into the room, pressure to maximize return inevitably follows. Structures may slow that pressure but they rarely eliminate it. OpenAI is the cautionary tale. It was designed as a capped-profit subsidiary governed by a nonprofit. But once the enormous potential for profitability became apparent, investors did everything they could to break the cap, unlock the structure, and take control.
For a long time, I tried softened my stance and accept these blended models as a workable compromise. But the lessons of OpenAI have hardened my opinion again. If you care about mission-driven work you cannot let profit-seeking actors into the room.
The Real Choice: Control, Governance, and Fealty
The nonprofit vs. for-profit decision is not about revenue models or legal paperwork. It is about the most basic question any organization faces: to whom are you ultimately accountable?
On the for-profit side, fealty is to shareholders. You can stack your board with allies, write stirring value statements, even design governance hacks that delay the inevitable. But once outside capital enters the room, the gravitational pull toward profit takes over. Investors will demand seats and influence. You may start as a community garden but if the board decides McDonald’s franchises are the better way to maximize value, then you will be in the burger business. The structure dictates the outcome.
On the nonprofit side, the board’s fealty is to mission. The charitable purpose filed with the IRS becomes the north star that governs every decision. Boards can argue, directors can rotate, priorities can shift — but the mission holds. That anchoring is not a side detail. It is the foundation that ensures a nonprofit will always exist to advance its purpose rather than enrich its investors.
I saw this contrast up close early in my career, when I had the unfortunate experience of working in corporate social responsibility. Individual directors often wanted to do more for their communities but around the board table those impulses were crushed. Fiduciary duty to shareholder value prevailed every time. Not because the people were cruel but because the structure left them no choice. A nonprofit board is different: even when members disagree about strategy, they are legally obligated to put mission first.
This is why the nonprofit/for-profit decision matters so deeply. It is not about what products you launch, what revenues you pursue, or how creative you are about structuring deals. It is about where ultimate control resides. If you choose the for-profit path, you are saying: our highest loyalty is to profit. If you choose the nonprofit path, you are saying: our highest loyalty is to mission. That is the real choice.
Geoffrey MacDougall 