Equity Investment in Small Business

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X is a small business enterprise located in a deteriorated urban area and owned by members of an economically disadvantaged minority group. Conventional sources of funds are unwilling to provide funds to X at reasonable interest rates unless it increases the amount of its equity capital.

Consequently, Y, a private foundation, purchases shares of X's common stock. Y's primary purpose in purchasing the stock is to encourage the economic development of such minority group, and no significant purpose involves the production of income or the appreciation of property.

The investment significantly furthers the accomplishment of Y's exempt activities and would not have been made but for such relationship between the investment and Y's exempt activities.

Accordingly, the purchase of the common stock is a program-related investment, even though Y may realize a profit if X is successful and the common stock appreciates in value.

This is an illustration modified from examples provided by the Internal Revenue Service. It is not a legal opinion on the tax treatment of any specific agreement between a private foundation and other entity.

Social Entrepreneurship

Youths in the Middle East Address Unemployment By Creating New Businesses

Youths in the Middle East Address Unemployment By Creating New Businesses

Youths in the Middle East deal with the world’s social problems such as high youth unemployment rates. As a solution, some are creating new businesses with a social purpose, such as tackling environmental issues, illiteracy or health, while also spurring job creation.

Jobs in the Social Sector

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Edited by: Michael Saunders

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