Stop Starting Nonprofits: A Case for Structural Choice

I have spent my career inside nonprofit institutions, running them, funding them, and serving on their boards. I directed a program that distributed more than $125 million annually to arts nonprofits. I founded one of the country’s leading university-based performing arts programs as a nonprofit. I believe deeply in what the best of these institutions do, and I have seen firsthand the public value they can create.

This is not an argument against nonprofits. It is an argument against the reflex.

In the sections below, I lay out what the nonprofit model does well, how it became the default in the arts, what it constrains, and what alternatives cultural workers can consider before incorporating.

When artists and cultural leaders want to “make something real,” most of us reach instinctively for the same tool: we form a 501(c)(3). Not because we have rigorously analyzed the options. Not because the structure best aligns with what we are trying to build. But because it is the structure the field recognizes, the structure philanthropy understands, and the structure that signals legitimacy to boards, funders, press, and peers.

That reflex has become so normalized that it often goes unquestioned. And that is precisely why it deserves scrutiny.

What the Nonprofit Structure Does Well

Nonprofits exist for good reasons. Some work is genuinely a public good and cannot be sustained through earned revenue alone. Some services require insulation from private ownership to maintain public trust. Some missions must be protected from market pressures in order to remain credible and durable.

For these kinds of work, the nonprofit structure is not simply appropriate, it is essential.

The 501(c)(3) model offers real advantages. It allows organizations to receive tax-deductible donations and foundation grants. It provides a governance framework that signals accountability and permanence. It offers exemption from most federal and state income taxes. It establishes legal mechanisms designed to prioritize mission over profit maximization. And it carries credibility with governments, universities, and civic institutions that still matter deeply in public life.

For organizations providing essential community services, stewarding cultural heritage, or operating programs that will never generate sufficient earned revenue, nonprofit status may be exactly right.

The problem is not that nonprofits exist. The problem is that nonprofit status has become the default container for cultural work, often without deliberate consideration of whether the structure aligns with what founders are actually trying to build.

How the Default Took Hold

The nonprofit model did not become dominant in the arts because it was always the best fit. It became dominant because it aligned neatly with mid-20th-century philanthropy, tax policy, and elite governance norms. Those norms were shaped overwhelmingly by white, male, upper-class leadership, whose cultural preferences, institutional authority, and access to capital came to define not only how cultural work was funded, but which forms of culture were deemed legitimate, serious, and worthy of preservation.

Over time, nonprofit status came to function not just as a legal designation, but as a moral signal: if your work serves others, you should not own it.

That assumption has shaped generations of cultural leaders. It has trained artists and organizers to equate legitimacy with charitable status, even when their work depends heavily on earned revenue, entrepreneurial activity, or asset development. It has reinforced the idea that sustainability must come from donors rather than from ownership, equity, or community-based wealth.

As a result, we have built an arts ecosystem in which nonprofit status is treated less as a strategic choice and more as a rite of passage.

Where the Structure Creates Constraints

The nonprofit structure also introduces constraints that are often poorly understood at the moment of incorporation.

A nonprofit is legally owned and governed by a board of directors, not by the founder who built it. Founders cannot accumulate equity or ownership stake. Assets belong to the organization in perpetuity. Rules governing private benefit and private inurement constrain how founders and insiders can participate in the long-term value created. Earned revenue is regulated and scrutinized. Political advocacy and lobbying are limited. Sustainability depends, in most cases, on continuous fundraising.

These constraints are not flaws. They are design features intended to protect charitable assets from private extraction.

But that design makes the nonprofit structure fundamentally incompatible with certain aims: ownership, wealth-building, and long-term asset formation for artists, founders, or communities.

The Ownership Question

Over time, a familiar pattern emerges.

Founders invest decades building organizations. They create programs, develop relationships, raise capital, and generate intellectual property. Buildings are purchased with funds they helped secure. Methods, curricula, and artistic works become institutional assets.

Yet the nonprofit structure itself contains no built-in protections for founder sustainability or long-term economic participation. Ownership of assets rests with the organization in perpetuity. Intellectual property typically accrues to the institution. Compensation is limited to salary during active employment, not participation in the long-term value created.

When founders transition out, whether through retirement, leadership change, or board decision, the structure offers no default mechanisms for equity, royalties, or asset participation. Any such arrangements must be custom-designed in advance, often in tension with legal caution, donor sensitivity, and governance norms that prioritize organizational protection over individual continuity.

This is not a failure of individual organizations. It is a structural feature of the nonprofit model itself.

And when multiplied across an entire field, it produces a predictable outcome: talented cultural workers spending decades creating value without building assets or long-term security.

The starving artist is not a romantic cliché. It is a policy failure.

What Nonprofits Are Not Designed to Do

This is the point where many conversations stall. Defenders of the status quo argue that nonprofits were never meant to build wealth, only to deliver services. That is true. But it is also the problem.

Nonprofits can manage programs. They can distribute resources. They can preserve and present culture. What they cannot easily do is help individuals or communities build assets that appreciate over time, particularly those historically excluded from ownership and capital formation. They cannot transfer ownership across generations. They cannot create durable economic security without continuous fundraising.

In a field where precarity is widespread and persistent, this limitation is not incidental. It is central.

Models That Build Assets and Reciprocity

My parents joined the New Jersey Korean American Mutual Aid Association, a sangjo system that has operated quietly and effectively for decades. When my father passed away, all funeral expenses were covered. Each month, my mother receives a statement showing who has been supported and how her ongoing contributions circulate within the community. She will contribute monthly until she too, passes away.

This model does something most nonprofits cannot. It creates reciprocity rather than charity. Members both give and receive. Resources circulate within the community, supporting local businesses and services. The system builds mutual obligation and shared security, not dependency.

Similar models exist worldwide: rotating credit associations, lending circles, cooperatives, mutual aid societies, and community land trusts. These are not fringe experiments. They are durable structures that have allowed communities historically denied access to banks and capital markets to build assets and resilience over generations.

Nonprofits are rarely designed to do this kind of work. They are structured to deliver services, not to build ownership. They manage need, but they do not create wealth.

Three Questions Before You Incorporate

Before filing incorporation paperwork, founders should ask three questions:

Do we want founders, artists, or community members to own assets long-term?
Does the model depend primarily on earned revenue or on contributed income?
Are we building programs, or are we building assets that can appreciate over time?

For many organizations, honest answers will point clearly toward nonprofit status. But for others, those same answers reveal a mismatch between intent and structure that is rarely acknowledged at the outset.

Structural Alternatives

Alternatives exist, and they are neither radical nor untested. Fiscal sponsorship, cooperatives, LLCs, low-profit entities, community land trusts, and hybrid structures are widely used in other sectors. Private foundations can legally fund for-profit entities through expenditure responsibility. The barrier is not law, but institutional habit.

During my time at the Mellon Foundation, we made expenditure responsibility grants to for-profit entities because some artists needed to retain ownership of their work and build long-term security. The administrative burden was real but manageable. What stood in the way was not feasibility, but familiarity.

Choosing Structure as Strategy

Choosing a legal structure is not a moral act. It is a strategic one.

Nonprofit status should be selected when mission protection and charitable subsidy are essential. But it should not function as the price of legitimacy, nor as the default assumption for cultural work.

If we are serious about sustainability, ownership, and resilience in the arts, we must stop confusing the nonprofit industry with the arts sector itself.

The best community support may not be tax-deductible. But it may actually work.

For founders, boards, and funders alike, the task now is not to defend any single model, but to choose structure with the same care and intentionality we claim to bring to mission.

Choose accordingly.

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APPENDIX: OWNERSHIP MODELS TO CONSIDER

For readers interested in exploring alternatives to the 501(c)(3) structure, the following models offer different approaches to ownership, governance, and value creation. They are ordered roughly from most accessible to most complex. This list is illustrative, not exhaustive. Each model involves tradeoffs and legal complexities that require professional guidance for your specific situation.

1. Social Enterprise (Not a Legal Structure)

• Often used to describe: Mission-driven business activity supported by earned revenue

• Legal status: Not a legal form on its own

• Reality: A descriptor of intent, not a container

The term “social enterprise” is often used as shorthand for organizations that pursue social or cultural goals through revenue-generating activity. It can be a useful description, but it is frequently misunderstood as a legal structure. It is not.

A social enterprise can operate as a nonprofit, an LLC, a cooperative, a Public Benefit Corporation, or another legal form. The term refers to what the organization is trying to do, not how it is legally structured.

2. Fiscal Sponsorship

• Allows: Nonprofit benefits without incorporating

• Structure: Established organizations sponsor emerging initiatives

• Best for: Testing ideas before committing to a permanent structure

3. Artist-Owned Enterprises

• Allows: Artists retain ownership and control of their work

• Structure: Can be LLC, S-Corp, or partnership

• Best for: Artists who want to own their means of production

4. Worker Cooperative

• Allows: Shared ownership and democratic governance

• Structure: Members own and control; profits distributed to members

• Best for: Worker co-ops, housing co-ops, artist collectives

5. L3C (Low-Profit Limited Liability Company)

• Allows: Revenue generation with explicit social purpose

• Structure: Available in certain states; foundations can fund through expenditure responsibility

• Best for: Social enterprises with earned revenue potential

An L3C is best understood as a philanthropy-adjacent structure, intended to signal that mission comes first and profit is secondary. In practice, it is most useful when you expect concessionary capital, especially from foundations, and modest earned revenue, not traditional equity investment.

6. Public Benefit Corporation (PBC)

• Allows: For-profit ownership with a legally defined public benefit

• Structure: A for-profit corporation required to balance shareholder value with an articulated public purpose

• Best for: Mission-driven cultural work that needs access to investment capital while retaining ownership and embedding purpose into governance

A PBC is a market-facing structure. It allows founders and investors to participate in ownership while legally committing the corporation to a stated public benefit. It is often a better fit than an L3C when you anticipate growth capital or outside investment and want mission protection that survives leadership changes.

Why the distinction matters: L3Cs are optimized for blending charitable, impact-first capital with earned revenue. PBCs are optimized for attracting market capital while protecting purpose over time. Choosing between them is largely a question of capital strategy, ownership goals, and long-term ambition.

7. Mutual Aid Society

• Allows: Members supporting members through systematic contribution

• Structure: Based on reciprocity and shared obligation

• Best for: Communities with strong social bonds and shared needs

8. Worker-Owned Business

• Allows: Employees own the company and share profits

• Structure: Can be cooperative or Employee Stock Ownership Plan (ESOP)

• Best for: Building wealth for workers, not just founders

9. Revenue-Based Financing

• Allows: Investment repaid through percentage of revenue

• Structure: Investors get return without taking ownership

• Best for: Businesses with steady revenue wanting to retain ownership

10. Special Purpose Vehicle (SPV)

• Allows: Pooling resources for specific project

• Structure: Can structure ownership creatively

• Best for: Single projects with multiple stakeholders

11. Community Land Trust

• Allows: Community ownership of land and buildings

• Structure: Protects against displacement, builds permanent community assets

• Best for: Ensuring long-term affordability and community control

12. Community Development Corporation (CDC)

• Allows: Community-controlled development

• Structure: Can combine nonprofit and for-profit subsidiaries

• Best for: Comprehensive community development

13. Community Development Financial Institution (CDFI)

• Allows: Community-based lending and investment

• Structure: Can be for-profit or nonprofit; focuses on underserved communities

• Best for: Communities needing capital access outside traditional banking

14. Real Estate Investment Cooperative (REIC)

• Allows: Collective property ownership and wealth building

• Structure: Members pool resources to buy property, share appreciation

• Best for: Communities facing gentrification or wanting to build assets

15. Perpetual Purpose Trust

• Allows: Assets held in trust for specific purpose indefinitely

• Structure: No owners, only stewards (used by Patagonia)

• Best for: Protecting mission-driven assets from market pressures

16. Islamic Finance Models

• Allows: Profit-sharing without interest

• Structure: Based on shared risk and reward

• Best for: Communities seeking ethical finance alternatives