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Rural Health Information Hub

Incorporated Networks and Coalitions

Some networks determine their goals can best be met by incorporating, which makes them legal entities and outlines ownership, control, and earning distribution. Following this path minimizes personal liability of individuals involved in the network (see Liability Issues for more information on this topic) and protects personal assets. A network's goals determine what structure best suits their needs.

This toolkit will briefly examine the cooperative model, nonprofit status, and for-profit status, but there are other business structures that can be adopted. Networks should seek legal advice when determining which organizational option best meets the needs of the network or coalition as a whole and how to best move forward with incorporation.

Cooperative (Co-op)

A cooperative is an independent business entity that is owned and democratically controlled by its member patrons. Depending on the nature of the service being provided, a cooperative may or may not be tax-exempt. Members buy into the business by purchasing shares. In return, they receive a portion of all profits earned (based on patronage of the cooperative's services rather than percentage of investment) and voting rights, which allows all members to elect the governing board and have a voice in determining the direction of the group.

Examples of networks that operate using the cooperative model include:

Nonprofit and For-Profit status

Although there are 29 different types of organizations that fit under the title nonprofit, the one that is most commonly referenced is 501(c)(3) status, which is a classification assigned to organizations that provide a charitable service to their community. There are benefits to holding nonprofit status, including tax exemption, liability protection, and autonomy. Applications must be filed at both the federal and state level to acquire nonprofit status.

Nonprofit organizations are able to independently apply for grant funding without relying on a fiscal sponsor. They are also able to accept direct donations from individuals and corporations. All money generated and raised by nonprofit organizations is required to be reinvested into the business. Most health networks that choose to incorporate operate within a nonprofit model.

Examples of health networks and coalitions organized under the nonprofit model include:

A network may choose to organize as a legal for-profit entity if it provides a service or product that has the capacity to generate more money than it spends. There are a variety of for-profit business structures, each with unique tax and legal implications. Most services and activities can be organized within a for-profit framework, and earned profits can be distributed as determined by business owners. Because for-profit organizations do not generally qualify for grant funding, they rely on private funders and investors to provide capital for organizational start-up and maintenance costs. Investors typically expect a return on their investments, which may come in the form of a percentage of ownership of the organization or shares of their stock.

There are far fewer examples of networks operating under a for-profit model, but they do exist. See Montana Health Network, Northland Healthcare Alliance, and Community Care Network of Virginia dba Cenevia.

Resources to Learn More

Cooperative Services
Provides information about cooperatives that is relevant to cooperatives currently under development as well as existing cooperatives. The information ranges from the broad and general to specific tax law information to theory.
Organization(s): USDA Rural Development

Cooperatives are Everywhere! Take Ownership
Provides an overview of how coops get started, who uses them and the benefits of being a member of a cooperative.
Organization(s): Cooperative Network
Date: 8/2015

How to Decide Whether Your Start-up Should be Non-profit or For-profit
Presentation Slides
Four steps to determine if your corporation would fit better as a nonprofit or for-profit status.
Author(s): Wirz, B
Organization(s): Knight Foundation
Date: 5/2011

Programs and Services for Businesses
Overview of financial assistance programs available for Rural Businesses
Organization(s): USDA Rural Development

Understanding Nonprofit Status and Tax Exemption
Details about what it means to incorporate as a nonprofit entity; the pros and cons of achieving nonprofit status; and how to go through the process of applying.
Organization(s): Community Tool Box