The Entrepreneurial Establishment of a Nonprofit Organization

The purpose of this paper is to offer an analysis of the nonprofit sector from the entrepreneurial point of view in order to show why the organizational form of nonprofit has arisen and, more precisely, why rational entrepreneurs choose to incorporate their business enterprises under the nonprofit regulation. Since nonprofit associations were formed before the emergence of the tax code, the favorable tax-status alone cannot explain an entrepreneurial preference for the nonprofit form. Tax considerations have then to be combined with other elements. The alternative view proposed in the paper is that the supply of factors such as capital and entrepreneurship provides the motivation for the rise of nonprofit enterprises. The entrepreneur and the managers enjoy control of the activity and see to it that service are produced in such a way as to maximize their net income. They do not ignore nonmonetary income in the sense that they find it rewarding to seek pecuniary gains as well as nonmonetary profits in any given period. To explain why an entrepreneur organizes his business as a nonprofit entity we investigate a theater production process.