Wednesday, April 20, 2022
Peter Molk (Florida; Google Scholar), Where Nonprofits Incorporate and Why It Matters, 108 Iowa L. Rev. __ (2023):
Nonprofit corporations account for over a trillion dollars of American annual GDP, employ twelve million people, and include some of the most well-known organizations in the world. Yet despite their significance, many core corporate governance issues about nonprofits remain a black box. This Article, using newly available data, begins to remedy this gap in the literature.
Using filing data from 300,000 charitable nonprofits, I examine the foundational issue of where nonprofits incorporate, a decision that determines both the law of nonprofit corporate governance affairs and public oversight apparatus for governance and compliance. Unlike publicly traded corporations, I find nonprofit incorporation choice is not a vigorously competitive race to the top or bottom, but instead is better characterized as a stroll. A nonprofit’s headquarters jurisdiction is the most popular incorporation destination — far more common than for publicly traded corporations. However, among those nonprofits that incorporate out-of-jurisdiction, Delaware is the most popular destination, with the District of Columbia a surprising second.
The findings are consistent with nonprofits’ selecting weaker governance and oversight rules, suggesting a potential “stroll to the bottom” among nonprofits. Using these results, I offer evidence-based policy implications to improve governance of nonprofits, to reverse the potential stroll to the bottom, and to invigorate beneficial state competition for nonprofit incorporations.