Steward Ownership and Non-Profit Organisations

A comparison

Non-profit organisations are entities that are freed from the obligation of paying taxes due to their charitable activities that benefit the common good (defined by the country the company operates in). A non-profit is not a legal form but a tax-exempt status that can be applied to different legal entities. In order to keep the non-profit status, non-profit organisations have to ensure that the company is using their assets for charitable activities. As long as the non-profit status is held, shareholders cannot receive dividends.

Steward ownership and the non-profit status fundamentally differ from each other on several accounts. 

• The non-profit status does not influence who can become shareholder of the legal entity. This means that the principle of self-determination (the majority of voting rights are always held by people closely connected to the company) implemented in steward ownership is not automatically upheld. 

• There is a form of asset lock and purpose-orientation in a non-profit organization, as the assets and profits of the organization are only to be used for charitable purposes. However, this is only a tax status, not a legal obligation in itself. If the organization does not uphold the regional obligations that secure their tax status as a charitable entity, they lose this classification. This usually results in additional tax payments. With the loss of the charitable status, the asset lock and purpose-orientation is lost. Therefore, there is no legally secured asset lock in the long run. Of course, in some cases the additional tax payments might be prohibitively high, resulting in a factual asset lock.

• Additionally, the non-profit status limits the usability to companies that pursue charitable purposes. This is different from steward ownership which is open to companies with all different types of purpose, independent of the charitable status.

• Steward-ownership does not give any tax benefits.

Steward ownership as a structure can be used by and combined with the charitable status. The operational entity could for example be charitable. Additionally, in many foundation and trust models, the owning entity is charitable.