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Tips and Answers to Your Questions
The Forms of Strategic Restructuring
What is the difference between a Joint Venture and a Parent/Subsidiary
structure? Can a 501(c)(3) organization strategically restructure with subordinates
(adopt identical mission statement) and still gain the support from the grantees;
collaboration or strategic restructuring?
A joint venture is an alliance in which the primary focus is the sharing of
both programmatic and administrative capacities between two or more independent
organizations--often around a specific initiative or project. This type of
alliance involves a commitment to continue for the foreseeable future, shared
or transferred decision-making power, and some type of formal agreement (it
need not be a legal contract.)
When a joint venture leads to the establishment of a new organization, that
new organization is often set up as a subsidiary of the founding organization(s).
The parent/subsidiary model implies that the parent organization(s) have some
degree of control over the governance of the subsidiary organization - the
subsidiary is not completely independent. The parent may appoint the board
of the subsidiary, or representatives from the founding (parent) organizations(s)
may make up the board in its entirety. The subsidiary organization can be set
up as a membership corporation, with the parent(s) as sole member(s).
Parent/subsidiary structures can form as a result of other motivations as
well. Sometimes a single organization wants to pursue an activity outside of
its own organizational structure, but still maintain overall control over that
activity. This can also lead to the establishment of a parent/subsidiary relationship.
An example might be a large nonprofit with very solid administrative abilities
and excess capacity. It might decide to set up a separate organization to provide
administrative services to other nonprofits - an MSO, in other words. It could
do this on its own, or in partnership with one or more other organizations.
In either case, it would set itself up as the parent - perhaps along with its
partners, perhaps not - and the new corporation, the mission of which is to
provide administrative services to other nonprofits, as the subsidiary.
There are also times when two organizations wish to merge, but some legal
or financial reason makes a legal merger unwise. They may choose to set themselves
up as parent and subsidiary instead.
You asked if it is possible to restructure with subsidiaries or other organizations
with identical mission statements , and still gain the support of funders,
donors, and clients. Yes, it is possible. This is a question every organization
should ask itself as part of the initial assessment process, however. If the
strategic restructuring effort is being pursued for the right reasons, i.e.
is mission-driven and will allow the organizations to pursue their missions
in a more efficient, effective manner, it will most likely be supported by
the constituents. You will need to communicate the rationale and benefits clearly,
however, and be ready to answer questions and address concerns throughout the
process.
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