Chapter 16: Funding and Legal Structures
When you’re done with this section, you’ll be able to...
Identify the various legal structures for Social Problem-Solving Organizations (SPSOs) and understand their characteristics.
Evaluate the impact of legal structures on an SPSO’s ability to fulfill its mission and address social issues effectively.
Determine the most appropriate legal structure for an SPSO based on its practices, funding sources, and mission.
INTRODUCTION
An SPSO is any organization dedicated to solving social problems, regardless of its official designation or tax status. Since “SPSO” is an unofficial and relatively unused term outside of the Ballard Center, there are no strict criteria for classifying an organization as an SPSO. They can vary widely from one another but are united by a common focus: producing a positive social impact. The true worth of an SPSO lies in its measurable outcomes, not its appearance, branding, name, or tax status.
There is a general misconception about which types of organizations can address social problems. That’s why the term SPSO is preferable to traditional labels like NGO (non-governmental organization) or NPO (nonprofit organization) because it encompasses a broader, more inclusive category of companies, agencies, and organizations intentionally engaging in social impact work.
As such, SPSOs can adopt various legal structures, including nonprofit, for-profit, governmental, hybrid, or informal organizational forms. Because each structure carries distinct advantages and disadvantages, understanding which best fits your SPSO’s mission and goals is crucial for effectively solving social problems.
WHAT ARE LEGAL STRUCTURES?
Legal structures refer to the organizational frameworks that define how an entity is established, governed, and operated within the law. These structures directly shape the organization’s funding options, tax obligations, and legal liabilities.1 Within social impact work, legal structures play a critical role in how SPSOs obtain funding, collaborate with other organizations, and fulfill their mission.
A myriad of legal structures exist worldwide, each one differing in purpose, access, benefits, and limitations. While great variation exists among which legal structures are offered and what their specifics look like from one country to another, these five common structures exist globally:
- Sole Proprietorship: A sole proprietorship is the simplest legal structure, where one individual owns and operates the organization. Often referred to as a “sole trader” in some countries, the owner has full control over decisions and operations but is also personally responsible for all debts and legal obligations. This structure is easy to establish and maintain, but it offers no separation between personal and organizational liability.2
- Partnership: A partnership is a legal structure in which two or more individuals share ownership and responsibility for the organization. There are several forms of partnerships, including general partnerships, limited partnerships, and limited liability partnerships (LLPs), each offering different levels of responsibility and liability protection for partners. Partnerships allow for shared decision-making and pooled resources but require clear agreements to manage roles, profits, and liabilities.3
- Corporation: A corporation is a more complex legal structure that exists as a separate legal entity from its owners. In some contexts, particularly outside the United States, this may be referred to as a public limited company (PLC). This separation provides strong liability protection and allows the organization to raise capital through investors or shareholders. Corporations are governed by formal structures and regulations, but they offer significant potential for growth and scalability.4
- Limited Liability Company (LLC): A limited liability company is a flexible legal structure that combines elements of both partnerships and corporations. In some countries, this structure is referred to as a private limited company. It provides limited liability protection, meaning owners are generally not personally responsible for the organization’s debts or legal obligations. This structure is widely used due to its balance of flexibility, protection, and relative simplicity.5
- Cooperative: A cooperative is an organization owned and governed by its members—those who use its services or are directly impacted by its work. Often described as member-owned, cooperatives operate with a focus on shared benefit rather than profit maximization. Decision-making is typically democratic, with members having a voice in how the organization is run, making this structure well-suited for community-based and collaborative efforts.6
While legal structures define how an organization is formally established and operates, it can still be difficult to see how those structures relate in practice. One helpful way to understand the broader landscape is through sectors.
Sectors serve as umbrella categories, grouping legal structures based on their general orientation, funding approaches, and role in society. Rather than replacing legal structures, sectors help organize them into more intuitive groupings, making it easier to see patterns in how organizations operate and pursue impact. Many organizations fit more naturally into one sector than another, but some also operate across sectors or use hybrid models. Each legal structure previously mentioned can be categorized within the following general sectors:
- Public Sector: This sector includes all levels of government—local, state, and federal—along with specialized districts like school districts, water districts, and military installations. Governments are inherently tasked with maintaining societal peace and functionality, focusing on the needs of society as a whole. their specific mission addresses social issues and furthers positive social change. Their social impact efforts are supported by public funds, tax revenue, and grants.7
Real-World Example: The Centers for Disease Control and Prevention (CDC) operates as a public sector SPSO, addressing public health crises through disease prevention and health promotion. Similarly, a local public school district functions as an SPSO by working to solve educational inequality in its community.
- Private Sector: Known as for-profit entities, this sector includes companies, corporations, and businesses that provide goods or services with the goal of generating profit. While these organizations are traditionally focused on financial gain, there is an increasingly large number of social enterprises and businesses that aim to solve social problems while still generating sustainable revenue.8 These organizations, though profit-driven, can function as SPSOs by embedding social impact into their business models. They offer solutions to societal challenges through market-driven solutions and corporate social responsibility initiatives.
Real-World Example: Saie Beauty operates as a for-profit company creating clean, sustainable cosmetics while simultaneously addressing environmental concerns in the beauty industry through plastic-neutral practices and reef-safe formulations. Similarly, Blueland disrupted the cleaning products industry by creating reusable bottles with dissolvable tablets, reducing single-use plastic waste while still earning a profit.
- Nonprofit Sector: The nonprofit sector includes organizations that operate for purposes other than making a profit. These include charities, churches, humanitarian organizations, and others focused on human services such as disaster relief, healthcare, and education. Nonprofit organizations generally rely on donations, grants, and volunteers to fulfill their missions.9 They play a crucial role in social impact work, as they typically reinvest the majority of their revenue back into their programs. As SPSOs, nonprofits can directly address social issues by focusing on root causes, providing essential services, and advocating for systemic policy changes.
Real-World Example: Feeding America operates as a nonprofit SPSO, coordinating a nationwide network of food banks to address hunger and food insecurity. The organization relies on donations, corporate partnerships, and grants to distribute billions of meals annually. Similarly, Habitat for Humanity mobilizes volunteers and charitable contributions to build affordable housing, address homelessness and housing insecurity, and empower families toward self-sufficiency.
- Hybrid Sector: Hybrid organizations operate at the intersection of multiple legal structures, creatively integrating elements from both nonprofit and for-profit models. Unlike traditional organizations that work within one specific sector, hybrids are designed to balance social impact with financial sustainability and operational flexibility. They take various legal forms, such as benefit corporations (B Corps), low-profit limited-liability companies (L3Cs), or social purpose corporations, depending on their goals and state regulations. By combining mission-driven work with revenue-generating strategies, hybrids can reduce dependency on grants and donations while maintaining a strong focus on solving social problems.
Real-World Example: Greyston Bakery operates as a B Corp, employing a unique “open hiring” policy that provides jobs to people regardless of their background, including those with criminal records or experiencing homelessness. The bakery generates revenue by selling baked goods while simultaneously addressing unemployment and social exclusion. Another example is Patagonia, a certified B Corp social enterprise that has a 501(c)(4) non-profit built into its structure. Through this model, the proceeds of the for-profit, which are not reinvested back into the business, go to environmental conservation and advocacy efforts.
- Informal Sector: The informal sector includes loosely organized groups and individuals such as grassroots movements, community groups, and individual activists who work to address social problems without the formal legal status of a registered organization. These efforts can be powerful and responsive, often rooted in local knowledge and the immediate needs of a community. Though not registered or structured in the legal sense, these informal entities can serve as effective SPSOs by organizing volunteers, creating awareness, mobilizing community resources, and catalyzing social change from the ground up.
Real-World Example: Many community fridges and free pantry initiatives operate as informal SPSOs, with neighbors gathering together and organizing efforts to stock refrigerators and shelves with food for anyone in need. In this way, they address food insecurity without any formal organizational structure. Similarly, local “Buy Nothing” groups on social media connect neighbors to share resources, reduce waste, and build community resilience through gift economies. Another example is the community-led disaster response networks that form organically after natural disasters. This occurs when neighbors organize supply distribution, wellness checks, and mutual aid without waiting for formal organizations to arrive. These informal groups often demonstrate remarkable agility and responsiveness because they’re deeply rooted in local knowledge and relationships, though some eventually formalize their structure as they grow and scale their impact.
Each sector presents distinct advantages and constraints for SPSOs, making it essential to understand how different legal structures operate and the contexts in which they are most effective. Careful alignment between an organization’s structure and its mission, goals, and funding strategy enables more strategic decision-making. This alignment not only strengthens operational effectiveness and long-term sustainability but also enhances an organization’s capacity to generate meaningful and lasting social impact.
How might the legal structure of an SPSO impact its ability to address social issues effectively? Think of an SPSO you know and evaluate how its structure supports its mission.
WHICH LEGAL STRUCTURE DO YOU CHOOSE?
Each legal structure has its own unique strengths and limitations, as well as the capacity to create positive social change. Selecting a structure depends on your SPSO, the social issue you’re addressing, and the specific needs that exist within your community. While no single legal structure is universally best, the right structure will meet your SPSO’s needs and maximize the good you can do. When considering which structure and sector are right for your SPSO, keep the following in mind:
How does your intervention interact with your legal structure?
The type of intervention you plan to implement plays a significant role in determining the most appropriate legal structure for your SPSO. Different interventions require varying levels of funding, flexibility, and licenses. For example, a healthcare organization may need to operate as a nonprofit entity to procure certain grants, qualify for tax exemptions, or meet regulatory requirements. In contrast, interventions that provide social impact solutions through innovative products or services may need to adopt a for-profit structure to secure private investment, attract venture capital, or generate sustainable revenues through sales. A social enterprise in the private sector could also combine social goals with profit-making activities, enabling access to both traditional business funding and impact investors. Understanding what resources and funding are necessary for your intervention can help clarify which legal structure would be most compatible.
Real-World Example: Partners In Health, a nonprofit healthcare organization, leverages its nonprofit status to secure grants from foundations and government agencies, allowing it to provide free healthcare services in impoverished regions. Conversely, 23andMe operates as a for-profit company, using revenue from genetic testing services to fund research that contributes to medical breakthroughs and personalized healthcare solutions.
How will you fund your work?
Funding is another major consideration when choosing your legal structure. Different sectors have distinct sources of funding, which can greatly impact your SPSO’s financial sustainability and growth potential.
Public sector organizations typically rely on taxpayer funding, government appropriations, and public grants, which provide stable but sometimes inflexible funding streams.
Private sector entities may depend on investors, sales, venture capital, or social impact bonds, offering potentially unlimited growth but requiring profitability and returns on investment.10
Nonprofit sector funding is more reliant on donations, grants, and fundraising, which can create financial uncertainty but also provide access to special tax exemptions and philanthropic support.
Understanding your ideal funding sources—whether individual donors, impact investors, government agencies, corporate sponsors, or the community—will help determine the most effective structure for your SPSO. Additionally, you should consider whether your funding model needs to be flexible enough to adapt to changing donor priorities, economic conditions, or policy shifts.
Real-World Example: Improving education access is a social issue that can be approached from each of the above sectors, as shown in the following examples. Teach For America operates as a nonprofit, relying heavily on foundation grants, individual donations, and corporate partnerships to fund its mission of educational equity. In contrast, Coursera functions as a for-profit social enterprise, generating revenue through course fees and partnerships with universities while making education accessible globally. Some organizations, like Khan Academy, have adopted a hybrid funding approach, operating as a nonprofit but generating some revenue through partnerships while primarily relying on philanthropic donations.
Hybrid Models and Cross-Sector Collaboration (CSC):
Many organizations are adopting hybrid models, strategically blending different sectors to leverage the strengths of each while mitigating their individual weaknesses. For instance, a for-profit company may establish a nonprofit arm or foundation to carry out social impact programs and access charitable funding, while a nonprofit organization may operate some revenue-generating activities within a for-profit subsidiary to reduce dependency on donations. This flexibility allows SPSOs to access more diverse funding streams and better meet the needs of the communities they serve.
Similarly, CSCs bring together organizations from the public, private, and nonprofit sectors to tackle large-scale social issues that no single organization could solve alone. These strategic partnerships allow organizations to pool resources, share expertise, leverage collective networks, and combine their unique strengths to achieve transformative change.11 For example, governments often partner with nonprofits to deliver public health programs or social services, combining public funding with nonprofit operational expertise and community trust; whereas, private businesses may work with community organizations to address local environmental challenges. This could include contributing corporate resources to the cause while benefiting from community knowledge and relationships.
Real-World Example: The Partnership for a Healthier America brings together government agencies, private corporations, and nonprofit organizations to combat childhood obesity. Companies like Walmart and Subway have committed to offering healthier options while government agencies provide policy support, and nonprofits deliver community programs. Another powerful example is Gavi, the Vaccine Alliance, which combines public sector funding from governments, private sector pharmaceutical partnerships, and nonprofit implementation through organizations like UNICEF to increase vaccine access in developing countries. The program has immunized over 888 million children since its inception.
Choosing the right legal structure hinges on selecting the model that aligns with the SPSO’s specific goals, available resources, and planned interventions. Whether through a traditional single-sector approach, hybrid model, or cross-sector collaboration, the most effective structure enables your organization to deliver its mission sustainably, adapt to challenges, and operate at the scale necessary to create meaningful change.
Your organization has developed an eco-friendly fertilizer from recycled food waste, designed to be affordable and accessible for everyday households. Which legal structure would you choose, and why? Consider factors such as funding sources, scalability, pricing strategy, and how you would balance social impact with financial sustainability.
SUMMARY
Choosing the right legal structure is critical to the long-term success and impact of a social problem-solving organization. An organization’s structure—and the sector it operates within—influences its funding opportunities, operational flexibility, and ability to collaborate with others. It also shapes how the organization positions itself within a broader ecosystem of partners and stakeholders. In some cases, hybrid models or cross-sector collaborations may be necessary to leverage the strengths of multiple approaches.
Although each legal structure involves trade-offs, all can drive meaningful social change when aligned with an organization’s mission, resources, and strategic priorities. The key is to assess your intervention, funding strategy, and partnership needs, and select the structure that best supports sustainable and scalable impact.
ENDNOTES
1 - U.S. Small Business Administration. “Choose a Business Structure.” U.S. Small Business Administration. March 7, 2025. https://www.sba.gov/business-guide/launch-your-business/choose-business-structure.
2 - Internal Revenue Service. “Sole Proprietorships.” Internal Revenue Service, 2020. https://www.irs. gov/businesses/small-businesses-self-employed/sole-proprietorships.
3 - Internal Revenue Service. “Publication 541, Partnerships.” Internal Revenue Service, February 2022. https://www.irs.gov/publications/p541.
4 - LibreTexts. “21.3: The Corporate Veil—The Corporation as a Legal Entity.” Business LibreTexts, October 7, 2019. https://biz.libretexts.org/Bookshelves/Civil_Law/Foundations_of_Business_Law_and_the_ Legal_Environment/21%3A_CorporationGeneral_Characteristics_and_Formation/21.03%3A_The_Corporate_ Veil-_The_Corporation_as_a_Legal_Entity.
5 - Red Flag Alert. “A Public Limited Company (PLC) vs a Private Limited Company (Ltd).” Red Flag Alert, 2025. https://www.redflagalert.com/articles/a-public-limited-company-plc-vs-a-private-limited-company-ltd.
6 - Promise Legal Staff. “When a Cooperative Might Be the Best Legal Structure for Your Business.” Promise Legal Insights, January 27, 2026. https://blog.promise.legal/startup-central/cooperative-businessstructure-guide/.
7 - Bryson, John M., Barbara C. Crosby, and Laura Bloomberg. “Public Value Governance: Moving beyond Traditional Public Administration and the New Public Management.” Public Administration Review 74, no. 4 (2014): 445–56. https://doi.org/10.1111/puar.12238.
8 - Centre for Social Enterprise. “What Is Social Enterprise?” Centre for Social Enterprise, September 2, 2024.
9 - Worth, Michael J. Nonprofit Management: Principles and Practice. 5th ed. Thousand Oaks, CA: SAGE Publications, 2019.
10 - Emerson, Jed, and Joshua Spitzer. Blended Value: Integrating Social and Financial Returns. Oxford, UK: Skoll Centre for Social Entrepreneurship, 2007.
11 - Austin, J. E., and M. M. Seitanidi. “Collaborative Value Creation: A Review of Partnering between Nonprofits and Businesses.” Nonprofit and Voluntary Sector Quarterly 41, no. 5 (2012): 726–755. https://doi. org/10.1177/0899764012444478.
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