Conversion from nonprofit to for-profit legal status: Why does it happen and should anyone care?
✍ Scribed by John H. Goddeeris; Burton A. Weisbrod
- Publisher
- John Wiley and Sons
- Year
- 1998
- Tongue
- English
- Weight
- 173 KB
- Volume
- 17
- Category
- Article
- ISSN
- 0276-8739
No coin nor oath required. For personal study only.
✦ Synopsis
The conversion of a nonprofit firm to the for-profit form is commercialism carried to an extreme. Conversion is increasingly common, most notably in health care. We seek to advance understanding of why nonprofit conversions occur and what public policy should be toward them. A transfer of controlthe essence of a conversion-over nonprofit assets can be accomplished in various ways. Thus, it would be a public policy mistake to focus narrowly on formal legal conversions or outright sales. We explore the possible motives for conversion, and speculate about the reasons for the flurry of conversion activity in hospitals and health maintenance organizations (HMOs). We conclude that there are three central public policy questions raised by conversions: ( ) under what circumstances is conversion appropriate-when does it represent an efficient reallocation of resources and when only a redistribution of wealth?; (2) how should the nonprofit's assets be valued ?; and (3) what should happen to the financial assets that remain after a conversion?
INTRODUCTION: CONVERSION AS THE ULTIMATE COMMERCIALISM?
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 they question whether conversions can ever serve the public interest. Others are more concerned about the terms, arguing that public assets must remain devoted to the purpose for which nonprofit status was originally granted, and not redirected toward private gain.
This article seeks to advance understanding of nonprofit conversions and the public policy implications. To set the stage, we introduce some key issues by reviewing briefly conversion activity in health care. We then consider the concept of conversion more closely, discussing various means of transferring con-