Why isn't Mcdonalds non for profit?

Factual Questions
21

Lemme see if I can give a cogent description of a situation that I think happens, and could be seen as a fraud.

Any company, even a NON-profit, might hire or contract with a third party for some goods or services, and that third party might be a FOR-profit company. So the money you donate to the NON-profit (or the government grants, or whatever source of capital) might go, in part, to that 3rd party FOR-profit company.

Can you see where this is going? The directors (or other big-wigs) of the non-profit might actually want to make some money. So they set up a third-party for-profit company with themselves (or their buddies) as directors, and contract with that company for some services at mutually agreed upon but exorbitant rates. So they are funneling money away from the non-profit to the for-profit, of which they are also directors (or at least investors). So they and all the investors in the 3rd party company are getting profits that are, in fact, actually defrauding the non-profit company.

This is (supposedly) blatantly illegal, but so shot full of loopholes that I think it happens, with variations, a lot.

Possible case in point: I am a “member” (e.g., customer) of a major NON-profit HMO which owns and operates its own network of hospitals, other facilities, and hires the doctors and other staff. But not really! The company really does only the administration of the HMO, and contracts out to third parties who own and operate all the facilities and hires all the doctors, nurses, lab techs, etc. They do, like, 99% of their business with just ONE such third party, and the general public typically sees the HMO and that 3rd party as one big company with a long name. This 3rd party that actually provides the medical facilities and services is a FOR-profit company (if you look closely enough at the right documents).

So the money you pay the HMO is really getting mostly spent in a FOR-profit company, with (I would assume) only a small portion of that money being spent by the NON-profit company for administration. I think there must be some kind of a racket going on there.

22

The McDonalds outlet in the hospital is very likely not owned by McDonalds Corporation of Oakbrook IL. It is most likely owned by a franchisee who pays McDonalds franchise fees and agrees to abide by McDonalds operating rules and regulations in exchange for the right to use the McDonalds name for its restaurant.

I don’t know if McDonalds allows non-profits to become franchisees. If it does, I suppose the hospital could have held out until it found a non-profit that was willing to open a restaurant in its hospital. But the hospital would have made a lot less money leasing the space to a non-profit since they generally don’t have any profits to spend. The hospital, even though it is non-profit, has substantial expenses and needs whatever sources of revenue it can generate. I’m sure that the management of the hospital weighed the pros and cons of leasing the space to various restaurant operators and looked at the impact of its decision on the hospital’s mission and then decided, rightly or wrongly, that this was the best decision.

23

Burger Chef was a not-for-profit fast food chain. Not intentionally. It just worked out that way.

24

Senegoid, this is the type of thing that happens in the US government all the time. The Government contracts work out to different groups. High ranking gov. officials usually profit in some way from this, whether they are share holders or direct members.

25

Moderator Note**********************

Farmer Jane.

This is a highjack of the OP, or, if you prefer, a “political” comment. It has no bearing on answering the OP.

No warning issued.

samclem, Moderator

26

I don’t think that was necessarily a political comment, samclem. As kenobi 65 a non-profit is usually set up with some public service in mind. I saw “making America fat” as just a humorous hypothesis of what such a goal might be for McDonald’s. I like McDonald’s and think it gets a bad rap most of the time, but it clearly doesn’t have a primary goal of providing a wholesome, healthy diet. Nor does it focus on spreading the gospel (a possible alternate motive for In-N-Out and Chik-Fil-A) or providing the homeless with a place to sit during the day (libraries and Starbucks). If it has to have some motive besides making money, what else would it be? Spreading the joy of clowning?

27

What Alan said. I too saw it as a humorously-phrased question as to why on earth someone might want a fast food restaurant to be non-profit.

28

There may be a benefit to McD’s being non-profit. Granted, it’s not in the US, but behind IKEA is a complicated web of for-profit and non-profit corporations that in the end pays no tax on a few billion profit. The family that owns it can’t profit directly from that, but the company that gets franchise payments pays a millions to a holding company that is believed to essentially go straight to the family’s pocket.

Is such a thing impossible in the US?

29

Let me third that sentiment. I was honestly confused when I saw the mod note; her comment read pretty straightforward to me.

30

While the McDonalds question has been answered, I have a side question. Why not more companies operating on the Newman’s Own model? A presumably for-profit company that gives all after-tax profits to charity.

While you can’t exactly pull in a lot of equity, which limits your growth potential, Newman’s Own hasn’t had a problem getting their product out to every grocery store in the country. And, assuming you provide a competitively priced / quality product, folks like giving to charity, it can be seen as a competitive advantage over for profit products.

31

Guest Note**************

samclem.

Farmer Jane’s post was anything but a hijack. When you are discussing a non-profit organization’s reason to exist, that non-profit organization needs a specifically-detailed mission. The reason McDonald’s as a non-profit is ludicrous is because there is no single category of the IRS’ 501(c)(3) tax code that McD’s would come close to fulfilling. To speculate on what McD’s non-profit mission would be is absolutely on topic.

32

Would you invest your money into that company without any monetary return? The reason people don’t set up companies like that is that most people are looking for a return on their investments. There’s a limited marketplace for charity ventures.

33

Obviously, Newman decided to invest in this as an alternative to giving money to charity, and perhaps he’s managed to give a great deal more to charity by using this money to make more money.

Plenty of super rich folks give money to charity, I just wonder why he seems to be the only one to set up a company to earn money for charity. Rather than go to people with hat in hand, hoping they give you a dollar, sell them a good product and make a dollar.

34

I’d wager a guess that the cost to raise a dollar for the non-profits that the Newman brand donates to is far less than the cost that it takes Newman to make that dollar.

35

This is the first I’ve ever seen or heard of In-N-Out being on any “spreading the gospel” mission. What is the story there?

36

This is a GQ?

37

[aside]In-N-Out prints Bible verses discreetly on some of its packaging.[/aside]

38

They expressed their intent by establishing a for-profit commercial operation.

39

Wow! Love those burgers whenever I’m in that area of the country, but never noticed that. Pretty discreet.

As others have said, a non-profit needs a purpose; there are tax code lists of what it can and cannot do. You cannot just be a non-profit conglomerate.

Another important consideration - and why McD’s would not be a non-profit. A non-profit is exactly that - it either charges less for services so it makes no money, or its “profit” is passed to a connected worthy cause.

A nonprofit (assuming USA is like Canada) cannot accumulate money. They might be able to accumulate reasonable capital (i.e. we have to replace the roof on our daycare within 5 years, start saving) but they cannot simply make scads of money like McD’s and have it pile up in the bank. They can’t pay it out as dividends to private individuals, since that’s the definition of making a profit. The IRS does not want some group collecting a huge wad of cash untaxed (the antithesis of “non-profit”) that they can dole out slowly in future years to average out the tax payable. The IRS want their money now!

Without that wad of cash, a corporation could not easily do what for-profits do best - expand, experiment with bigger and newer…

Plus, as mentioned - except in some big cities, McD’s tends to be a franchise operation. They have standards as to who is their franchisee, and they want to own him body and soul. He is personaly responsble for the restaurant, its operations, its adherence to McDonalds standards and brand quality. He even usually has to live within 50 miles of the restaurant so he isn’t an “absentee landlord”. They don’t give that to a group or a bunch of rotating board members where nobody is personally accountable, really does not have their life invested in the operation, and real control might dissolve in in-fighting (ever been involved in a non-profit board?).

There are times when aligning someone’s personal profit with corporate direction works best.

40

I must also disagree with this assessment. I can see where an earnest attempt to change the discussion to the issue of fast food contributing to societal obesity would be a hijack, but I don’t see that in Jane’s remark. And while there is some current politicking about restricting or regulating certain fat-inducing foods, that’s not even hinted at here.

Surely when considering why an entity might be non-profit, its non-profit mission is a germane topic. I took the comment as a dark-humor speculation on that which suggests that there likely is no suitable non-profit mission.