When It Comes to Philanthropy, Is the Nonprofit Dead?

Since I started working with arts nonprofits (startups and established ones), I’ve become increasingly suspect of the tax-exempt model, usually called the 501(c)(3). There are too many constraints to this model, particularly when it comes to the nonprofit’s ability to adjust to the complex nature of the global art world and business practices. Let’s face it, a nonprofit is a business.

Just because a nonprofit must have a public purpose, and an arts nonprofit has a particular art-related public mission (e.g.- making an artist’s work available to the general public or having educational programming for the general public) doesn’t mean it cannot think like a for-profit. In fact, I would say that after the 2008 financial downturn, if arts nonprofits want to not only survive, but thrive, it is crucial that they think like a for-profit.

The for-profit/non-profit misunderstanding begins with the name allocated to a tax-exempt entity, that of “nonprofit.” But all that means, in general, is that a nonprofits revenues do not serve a private purpose or provide a private benefit (this in itself is a complicated issue, but generally what it means is that there are no shareholders but a nonprofit could provide meals to homeless individuals, certainly a private benefit, but you get the point). Nonprofit does not mean that a tax-exempt entity is supposed to struggle financially, live on shoe-string budget or, worse, always end up with a deficit. The Museum of Modern Art in New York is a nonprofit, and so is the New Museum, and both are certainly not struggling financially (at least not to my knowledge).

The New York Times published an article last week (Dec. 2nd) on how Mark Zuckerberg and his wife, Priscilla, have formed a limited liability company to manage their philanthropic interests rather than the usual nonprofit vehicle, such as a private foundation. So why the so-called, LLC? There are quite a few benefits to the LLC, such as tax perks, but also that owners of an LLC will maintain more control of the entity as well as ownership of the entity’s property, particularly its intellectual property. How it wishes to spend it’s money is also a huge perk; it can now invest or donate, a huge difference.

I’ve noticed an increase in wealthy individuals’ desires to establish their own philanthropic entities rather than simply donating to established nonprofits. Given the current financial health, even visual artists are establishing their own philanthropic entities (see Mark Bradford’s, for example). It will be interesting to see how the LLC model works and who else appropriates that model.

Tags: 501(c)(3), art, arts, charity, Education, law, mark zuckerberg, museums, nonprofits, philanthropy, private foundations, public charities, tax-exempt