The following description is a common example of Corporate Development in the for-profit sector: two individuals initiate a project with a simple Partnership between them in which each individual pays their own taxes and is personally liable of the risks involved. The project then evolves into a LLCwhere both individuals contribute money, following which the LLC pays the taxes, thereby limiting the overall liability for each individual. At a later time, if these partners find outside investors, the company might evolve into a C-Corporation. Finally, companies with great growth prospects typically become public companies through an IPO. Thus, a common order of increasing complexity in the for-profit sector is: Partnership, LLC, C-Corporation, and IPO.
An important element to consider is that management costs typically increase as a corporate structure becomes more complex. This same condition applies in the non-for-profit sector: as project grows in size, the complexity of its corporate structure might evolve and become more complex. The most common order of complexity observed in Water Funds is: Memorandum of Understanding (MOU), Collaborative and Administration Agreement, new legal entity (Civil Association), and Trust Fund.
Examples of the stages for Human Resources and Corporate Development Plans
Context: 0 employees, but all participants commit 50% of its people to work in a coordinated manner without exchanging or transferring funds.
Legal mechanism: MOU.
Example: Rio Grande Water Fund(as structured in 2016).
Context: 2 employees (Executive Director, conservation manager), the initial participants commit the grantee the funding for the next 2 years, and one of them, usually a local nonprofit with expertise in the region, commits to lead and hire the employees directly.
Legal mechanism: Collaborative and Administration Agreement, where the local non-profit receives resources from others and is committed to report back.
Example: 4 of the Colombian Water Funds have been operating in this way for several years and no change is expected in the near future.
Context: 6 employees and the project already has identified permanent surces of income to secure their minimum cost of “doing business”
Legal mechanism: a new legal non for profit entity (Civil Association)
Example: in Peru, Aquafondo operated for more than five years in the above scheme and is now in transition to a new legal entity.
Context: 6 employees and a more significant funding that require more expertise to administer the funds.
Legal mechanism: a Trust, formed within the existing “new legal entity”.
Example: the FAMM is between this stage and the previous ones, given that, although a trust and a Civil Association exist on paper, they do not have the operational capacity that would be given by a HR plan.
Context: 12 employees, and the local public and private sector recognizes the result of the Water Fund, that is actually competing with other organizations that offer solutions based in gray infrastructure, and other individuals decide to offer in the market the same solutions offered by the WF.
Legal mechanism: while this type of entity has not actually been established yet, it is possible that a WF could be restructured as a for profit entity. Particularly in watersheds where the nature based solutions can achieve clear results in a short term, for example with storm water management.