ACADEMIA DE STUDII ECONOMICE DIN MOLDOVA

Business Law
Compared study
Legal entities operating for profit and the non-profit organization

Lilian Iliev
18.02.2019

Professor: Ciochina Elena

Contents
I. Introduction
II. Main types of for-proft entity structure
III. Non-profit organization
IV. Comparison
V. Conclusion
 I. Introduction
How to organize a social enterprise is an important element in the process of foundation of a new
entity. The form of legal entity must be suitable for concrete activities and operations.

The type chosed legal entity is can impact, among other things, the amount of money you have to
spend in order to form the organization, where will be obtain the capital/funding, the type of tax
treatment, owner, officer and director protection against liabilities of the business, etc. Because
the type of legal entity is chosen can have such an important impact on the operation of the
business, it is important to understand the material attributes of the legal entities commonly
utilized by social entrepreneurs.

One of the most fundamental decisions it is needed to make is whether to establish the social
enterprise as a nonprofit or for-profit entity or utilize both structures. As will be discussed below,
there are a number of different for-profit legal entities to choose from; however, there is only one
form of nonprofit legal entity. This decision is critical because if it is started as a nonprofit, it can
be difficult to later change it to any of the for-profit entity structures.

II. Main types of for-proft entity structure

1.LLC

The limited liability company is a newer form of legal entity which combines the limited liability
attributes found in corporations with a more flexible governance structure. This is a corporate
structure whereby the members of the company are not personally liable for the company's debts
or liabilities. While the limited liability feature is similar to that of a corporation, the availability
of flow-through taxation to the members of an LLC is a feature of partnerships.

The governance structure of an LLC is primarily created through the LLC’s organizational
documents. An LLC may be “member-managed” or “manager-managed.” In a member-managed
LLC, each member of the LLC has managerial powers and decision making authority in
proportion to such member’s ownership in the LLC. In a manager-managed LLC, a manager (or
managers) is designated, appointed, or elected by a majority of the members. Such manager then
has the management rights pertaining to the LLC and can govern the day-to-day operations of
the LLC, subject to any restrictions contracted for in the Operating Agreement (or any similar
instrument). An LLC is not required to have a board of directors or to hold shareholder meetings.
Whether the LLC is member-managed or manager-managed, the holder of the management
rights owes certain fiduciary obligations to the company, which your attorney can explain in
further detail.
2.JSC

A joint stock company is an organization falling between the definitions of a partnership and
corporation regarding shareholder liability. In the United States, shareholders of joint stock
companies have unlimited liability for company debts. In the United Kingdom, shareholder
liability is limited to the nominal value of shares held by each shareholder.

Corporate governance in the Company is based on the following principles:

- Accountability. The Code envisages accountability of the Board of Directors of the Company
to all shareholders in accordance with the effective legislation and serves as an instruction
manual for the Board of Directors in developing strategy and exercising management of and
control over the activities of the Company’s executive bodies. The Management Board and the
Chairman of the Management Board are accountable to the Board of Directors of the Company
and to the General Meeting of Shareholders.

- Fairness and an equitable attitude towards all shareholders. The Company undertakes to defend
the rights of shareholders and to ensure an equitable attitude towards all shareholders. The Board
of Directors provides all shareholders with an opportunity to receive effective protection in the
event of violation of their rights.

- Transparency. The Company provides for timely disclosure of accurate information about all
material facts relating to its activities, including its financial status, social and environmental
indicators, the results of its activities, ownership structure and management of the Company, as
well as free access to such information for all interested parties.

- Conscientiousness. Conscientious exercise by all shareholders, the Company, its bodies,

officials and other interested parties of their rights and preclusion of rights abuse.

III. Non-profit organization

The Non-profit organization is a type of entity that applies for and receives federal income tax
exemption from the Internal Revenue Service. A Nonprofit must be created in order to support
the public and, unlike traditional for-profit entities, is not created for the benefit of the
shareholders; in fact, Nonprofits don’t have any shareholders or owners. In order to qualify to
become a Nonprofit, the business must be a charitable organization.Any charitable organization
must be organized and managed only for the purposes of religious, charitable, scientific, testing
for public safety, literary, or educational purposes.

The board of directors manages the Nonprofit on behalf of the public good. Although a
Nonprofit does not have any shareholders, it is still required to provide a high level of disclosure.
Since Nonprofits are corporations dedicated to the public good, such entities must disclose their
financial records and governance records.

Such an organization can, and do engage in many activities that result in income or profit.
However, the profits that these organizations make must be held in trust for the organization and
can only be used in carrying out its goals and objectives.
 IV. Comparison

For-profit Non-profit

Official To make profit for personal To make profits for serving the society.
purpose fulfillment.

Assets Assets can exit the business and go Assets have to stay in the non-proft
into shareholders hands. space. All assets that the nonprofits own
must be used to achieve their charitable
purpose.

Taxation Usually not exempt from paying Can often be exempt from federal taxes,
federal, state/provincial, and local andsome state/provincial and local taxes,
taxes . if thenonprofit was granted tax-exempt
status from the appropriate
governmental agency.

Revenue The revenue source is of selling The revenue sources are donation,
goods and services. subscription, grants.

Deductibility If a taxpayer pays cash to a for-profit Any money the donor gives to
of donations business, it is generally not nonprofits can be used to offset his
deductible. taxable income. The government allows
donors to deduct their contributions to
nonprofits to encourage charitable
giving.

V. Conclusion
In conclusion it can mentioned that, because of totally different objectives, flexibility, liabilities,
responsibility and process of administration, at the stage of foundation of an enterprise, or
investing in one, there can not be doubts concerning the chose between legal entities operating
for profit and the non-profit organization.