Is there such thing as a "profit for charity" corporation?

[Boojatta]

One selling point for lottery tickets in some countries is the fact that a certain percentage of the profits go to charity.

Imagine that you are now establishing a new corporation. You could put in the corporate constitution a requirement that the part of any profits that exceed some specified level will go to some specified kinds of charities.

If and when the corporate shares are traded on a stock exchange, some people might see that policy as a reason to buy shares in the corporation. The odds are better in the stock market than in lotteries and buying stocks will motivate people to learn about financial matters.

Under existing tax law, would charitable contributions made by such a corporation entitle shareholders to some kind of income tax credit? Alternatively, would there be a tax credit just for the corporation itself?

[Selatius]

1. For sure, the corporation could write off charitable contributions

But I don't think the individual shareholder could claim that. The corporation is essentially considered an individual under the law separate from the shareholders or the executives on the board. (corporate personhood)

I would think that if the corporation donates to charity as a matter of policy, then the corporation, as a person, would be writing off a portion of its taxes each year. You, the shareholder, are not the corporation. You are not the same entity as the corporation under the law. I don't believe you could claim somebody else's tax credits as your own. (That somebody else being the corporation)

I could be wrong here, so somebody who knows the taxs laws more fluently than I can correct me.

[enigma000]

2. There is the argument individuals not corporations should give to charity

The job of a corporation is to make money, not to fund causes, no matter how noble. This surplus income should be distributed to shareholders who in turn can decide where this money should go.

Its difference for private corporations.

Billionaires have given away their fortune to their own pet causes, not from their publicly traded corporations

[Danascot]

4. Wealthy people often use Family Charitable Trusts

to give their money away. Not susprisingly there are very significant financial benefits to the wealthy for setting up these trusts. They can shelter lots of assets from taxes. Most wealthy families have such trusts. I have heard it said, but don't know for a fact that the moajority of congress members have such trusts.

[Danascot]

3. I don't have all the answers

but here are a couple:

Corporations are free to contribute a portion of profit to charity. As an example Patagonia clothing contributes part of its profit to environmental causes.

Some investors like to buy companies that are good corporate citizens who contribute to social good works. In fact there are socially responsible mutual funds that choose such companies for their portfolios.

Charitable contributions are tax deductable to the corporation against their revenues (with certain limitations). However doing a lot of that would tend to make the corp less profitable and therefore less attractive to buyers of their stock.

Also the corp can't generate profit using charitable deductions. You can only deduct up to the amount of revenue the corp makes.

Deductions for contributions by a corporation cannot be passed on to their shareholders.

There are legal entities that do allow deductions to be passed through. For example a limited partner in a limited partnership can take the deductions and tax credits due the partnership. Typically this is a real estate deal and the limited partner provides upfront cash in exchange for real estate losses that are part of the project, and that are worth more to him/her as deductions to their personal taxes than the upfront cash, usually 20% or more.

Charities are often organized under tax section 503c. There is no prohibition against a charity making profits are part of its activities. But charities are tax exempt, so don't have deductions and don't have stockholders.

I'm not sure where you're going with this but your intentions are in the right place so good luck.

[Boojatta]

7. Even a single answer is worth posting.

Charitable contributions are tax deductible to the corporation against their revenues (with certain limitations). However doing a lot of that would tend to make the corp less profitable and therefore less attractive to buyers of their stock.

Yet people buy lottery tickets even though every kind of lottery ticket is known to be a net loss for the collection of all purchasers of that kind of lottery ticket. Who would buy stocks if the vast majority of shareholders lost money and a few shareholders were chosen at random to receive huge dividend payouts? In that case, even a very profitable corporation would not be a good investment.

Note that I am not talking about a corporation giving anything to charity unless the total profits are above a certain level. If they are above that level, then the excess could be given to charity. The level would be specified from the moment that the corporation is established. So there would be no surprises.

Deductions for contributions by a corporation cannot be passed on to their shareholders.

That seems unfair. What if the charity policy is a fixed and irrevocable part of a particular corporation? Then the decision to buy shares is a decision to be a partial owner of an organization that, should certain situations arise, will automatically give to charity. I would think that, when those situations do arise and the policy forces a specified amount to be given to charity, the shareholders of that corporation should get some kind of tax credit.

There is no prohibition against a charity making profits as part of its activities.

Is there really no prohibition on that whatsoever? Could a charity make profits and keep all the profits for the first twenty years of its existence in order to build up seed money for its planned, future charitable activities?

But charities are tax exempt, so don't have deductions and don't have stockholders.

Not having stockholders is a problem. That makes the initial fundraising difficult.

[SharonAnn]

5. "Newman's Own" and Ben and Jerry's. Others?

[Danascot]

6. ALL of Newman's Own profits go to charity

"Actually, Newman's Own, Inc. makes no gift to charity, but Paul Newman, who receives all the profits and royalties from Newman's Own, Inc., distributes all of that personally to the charities of his choice. Since the inception of the company, it is our understanding that the total amount of those gifts to charity has been approximately $175 million."

Really admirable. He could have just kept it.

Though young folks say "Paul Newman was an actor? You mean the salad dressing guy?"