When Not-For-Profits and For-Profits Unite
Joint ventures can provide many opportunities for not-for-profit organizations. First of all, linking up with a corporation can be a great branding tool. People put more trust into organizations that are associated with a “brand name,” and investors may be more willing to provide support. Corporations may have greater access to resources and can help the not-for-profit accomplish fundraising or program-related goals. Additionally, some alliances may even benefit from tax incentives.
The New Market Tax Credit (NMTC) has benefited many joint ventures, including charter schools. The program provides a 39% tax credit on capital investments in a Community Development Entity (CDE) over a span of seven years. To be eligible for the NMTC program, the projects must be in low-income communities or serve low-income individuals, which is generally the case for charter schools. The CDE can partner with a charter school and provide financing at lower rates and more favorable terms. Schools still need to seek other sources of capital, such as grants, debt and equity, but the NMTC program can be a great way for not-for-profits to receive financing for charitable operations.
Unfortunately, the IRS does not provide clearly-defined rules for joint ventures, so this can fall into a gray area. However, there are some guidelines to follow to avoid a pitfall. First of all, the activities of the partnership MUST further the charitable purposes of the not-for-profit. The joint venture must be structured to avoid conflicts between the exempt organization’s charitable purposes and its general partnership obligations. The alliance cannot create a private benefit to the corporation and must protect the not-for-profit’s assets from exposure to risk for the benefit of for-profit partners. It is imperative that a joint venture policy is in place to avoid red flags from the IRS.
Despite the risks, a joint venture can be just what your not-for-profit needs. If you have additional questions about whether a joint venture is right for your organization, contact Tamara Partridge at 312.670.7444 or [email protected].