Marquee Background
Marquee Background

Offit Kurman Blogs

Franchise Law

Franchising for the Greater Good

July 21, 2023

By Thomas Pitegoff

Nonprofit organizations and franchised businesses operate in separate worlds.  But sometimes those worlds meet in a way that can be mutually beneficial.  When the franchise benefits the mission of the nonprofit, the organization might consider forming a separate entity that will become a franchisee.  The arrangement is sometimes referred to as “social franchising”.

Starting any new business is a risk.  Even a franchise business.  Not every nonprofit organization will be willing to expose a portion of its assets to business risk.  But in some cases, and with proper legal advice, the arrangement can work.

Here’s how it’s done:

The nonprofit should form and contribute the initial financing to a new for-profit entity, typically a limited liability company, that will sign the franchise agreement and become the franchisee.  The separate entity protects the nonprofit from the liabilities of the franchised business.  It also protects the organization’s nonprofit status.  Because the franchisee is wholly-owned by the nonprofit, the net profits go to the nonprofit to further its mission.  The franchise entity’s business income is taxed as such.  In fact, its local tax payments help support the community.

The nonprofit need not be expert in the franchisor’s line of business.  The franchisor will provide a business system in a package with training and support.  But the nonprofit should find an experienced and ambitious manager to operate the business.  Having the right management will benefit both the nonprofit and the franchisor.

The franchisor will likely benefit from the positive publicity that comes with its association with a good cause.  Customers will appreciate the fact that their dollars will benefit a social mission.  The franchisor may also benefit by finding a franchisee with deep community ties and an excellent reputation, which can help build the franchisee’s business and help the franchisor move into a new market.

The franchisor can discount or waive its initial franchise fee for entities owned by nonprofits, similar to the way many franchisors give discounts to veterans.  But the franchisor should not lower its standards in awarding the franchise.  The franchisee prospect should meet the same qualifications that the franchisor requires of for-profit franchisee candidates.  The franchisee’s management should have the requisite experience, aptitude, ambition and team compatibility, and the entity must be adequately financed.  In addition, the franchisor should be satisfied the nonprofit is committed to taking the risk of starting the new business.  Beyond that, the mission and culture of the nonprofit organization should be one that the franchisor is proud to support.

Here are some examples of franchising to nonprofits taken from articles in the QSR Magazine, New York Times, Entrepreneur Magazine, NonProfit Times, Wall Street Journal, Franchise World, and Franchise Times:

  • Ben & Jerry’s was the trail blazer when it began working with select nonprofits in its “PartnerShops” program for youth-development and job training nonprofit organizations in 1987.
  • Subway began working with nonprofits in 1996, opening franchises in school cafeterias and hospitals, some of which are owned by the institutions.
  • The YWCA of Greater Pittsburgh opened a Nathan’s Famous restaurant within its facility in 2010.
  • Affordable Homes of South Texas, which constructs homes for low-income families, opened a Blimpie shop in Weslaco, Texas, in 2013.
  • The Dale Rogers Training Center owns a Papa Murphy’s franchise in Oklahoma City to train and employ people with disabilities.
  • CMARC, a nonprofit in Woburn, Massachusetts, that provides job opportunities for disabled people in its community, bought a Money Mailer franchise in 2008.  Money Mailer is a direct mail marketing company.  It helps the local businesses market, which creates more job openings.  And the fact that CMARC was already working with the local businesses made it easy to introduce the Money Mailer program to those businesses.
  • Beaver County Rehabilitation Center (BCRC) Inc., in New Brighton, Pennsylvania, owns a Candy Bouquet franchise to “teach work with work”.
  • Washington Vocational Services bought an Auntie Anne’s pretzel franchise in an outlet mall near Seattle in 2005.
  • Share Our Strength, a charity based in Washington, D.C., that fights childhood hunger around the world, opened a Wine Styles shop in Washington, D.C., in 2007.  The wine connection enabled the organization and its for-profit subsidiary to host fund raising events together featuring great wines, thereby appealing to the nonprofit’s donors.
Categories: Franchise Law

Related People

Related Services

  • Posts
  • About
  • Subscribe

Firm Highlights

  • Events
    RE+ Mid-Atlantic Opportunities: Market Trends and Business Development Tips
    RE+ Mid-Atlantic is where developers, financiers, investors, project buyers, utilities, and technology providers come together to evaluate opportunities, advance transactions, and build relationships that move clean energy projects forward. Whether you're looking to secure financing, identify partners, position projects for sale, or expand your network, the conversations you have at RE+ Mid-Atlantic can have a lasting impact on your business. Join this exclusive webinar, hosted by Offit | Kurman, to preview key topics that will be explored during the event and learn practical strategies for preparing for productive business conversations. By the end of this webinar, attendees will be better equipped to: Discuss emerging trends and opportunities in the regional solar and storage landscape. Learn how to communicate project readiness, regulatory strategy, and development milestones to build investor and buyer confidence. Understand strategies for reducing perceived project risk and strengthening financing conversations. Maximize meetings and networking opportunities at RE+ Mid-Atlantic to advance partnerships, financing, and project sale discussions. Whether you're a developer, investor, project buyer, or business development professional, this webinar will help you arrive at RE+ Mid-Atlantic with the knowledge, messaging, and strategy needed to turn conference conversations into meaningful business opportunities. Speakers: Lindsay Cherry  Director of Regulatory, NineDot Energy Lindsay Cherry is the Director of Regulatory Affairs at NineDot Energy, where she leads efforts at the intersection of clean energy policy, regulation, and distributed energy development. With a background in energy policy and public affairs, Lindsay works closely with regulators, policymakers, and industry stakeholders to advance innovative energy solutions and support the transition to a more resilient and sustainable power grid. She holds a master's degree from Columbia University’s School of International and Public Affairs (SIPA). Matthew Karmel, Esq. Principal, Offit Kurman Matthew Karmel is the Practice Group Leader of Offit Kurman’s Environmental & Sustainability Law Group. He advises businesses, developers, and property owners on environmental compliance, site remediation, renewable energy, sustainability, and environmental risk management. In the renewable energy industry specifically, Matthew leads a national team that handles mergers and acquisitions, site control, land use, permitting, financing, and more.  A recognized leader in the field, Matthew, is a frequent speaker and author on environmental and sustainability issues and serves on the boards of several industry organizations, including the Mid-Atlantic Solar Storage Industries Association. David Murray Director of Business Development, Turning Point Energy David Murray is the Director of Business Development at TurningPoint Energy, where he leads business development efforts in Maryland and emerging markets. With more than 15 years of experience in clean energy and environmental policy, David has held leadership roles with the Chesapeake Solar & Storage Association and the American Clean Power Association, advancing solar energy, land use, and community engagement initiatives. He holds a B.A. in Public Policy from the University of North Carolina at Chapel Hill and an M.A. in Renewable Energy & Development from the University of Cape Town and currently serves on the boards of the Chesapeake Solar & Storage Association and Wallace Centers of Iowa. Alec Ward Senior Director of Regulatory Affairs, SEIA Alec Ward is Senior Director of Regulatory Affairs at the Solar Energy Industries Association (SEIA), where he represents the solar and energy storage industry before federal agencies on key energy policy issues. He brings extensive experience in clean energy, regulatory affairs, and public policy, having previously led legislative and federal affairs efforts at Ava Community Energy, served at the California Public Utilities Commission, and worked on federal conservation and climate policy initiatives with The Nature Conservancy and congressional campaigns. Alec holds degrees from the University of Virginia and Johns Hopkins University and is based in Richmond, Virginia.