Conversion
from Nonprofit to For-Profit Legal Status:
Why Does It Happen and Should We Care?
John
H. Goddeeris and Burton A. Weisbrod
Abstract
If to behave commercially is to act like a for-profit
firm, then the ultimate expression of commercialism for a nonprofit
is to convert its legal status to the for-profit form. Conversion
is increasingly common, most notably in health care, and is now
attracting considerable public attention. Some observers believe
that nonprofits and for-profits inevitably behave in fundamentally
different ways, and question whether conversions can ever serve
the public interest. Others are less concerned that conversions
occur at all than about the terms at which they take place, arguing
that it is essential that public assets remain devoted to the purpose
for which nonprofit status was originally granted, and not redirected
toward private gain.
This paper seeks to advance understanding of nonprofit conversions
and their public policy implications. To set the stage, we introduce
some key issues through a brief review of conversion activity in
health care. We then consider the concept of conversion more closely,
concluding that transfers of control of nonprofit assets can be
accomplished in various ways, so that it would be a mistake to define
things too narrowly. Next we explore the possible motives for conversion,
and speculate about the reasons for the flurry of conversion activity
in health care. Finally, we discuss at some length some important
public policy questions raised by conversions: (1) Under what circumstances
is conversion appropriate? (2) How should the nonprofit s assets
be valued? and (3) What should happen to the financial assets that
remain after the conversion? We frequently raise issues that deserve
greater attention, but which we do not as yet know how to resolve.
John H. Goddeeris, Department
of Economics, Michigan State University Burton A. Weisbrod, Department
of Economics, Northwestern University
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