Document Type
Article
Publication Date
2026
ISSN
0006-8047
Publisher
Boston University School of Law
Language
en-US
Abstract
For many, the university serves as a crucial guardian of democracy. Still, the capitulation of leading American private universities to authoritarian pressure from the Trump Administration should not be terribly surprising. This Essay offers one reason why. It does so by focusing on the law governing private nonprofit universities. It examines both the origins and the impact of a fundamental tension between their charitable missions and their need for capital. It shows how the legal framework designed to protect these nonprofit universities from market pressures can actually intensify their vulnerability.
The so-called “nondistribution constraint” stands at the core of U.S. nonprofit law.1 It prohibits nonprofit entities from distributing their profits to those who control them, thereby focusing those governing them on pursuing charitable missions, not lining their own pockets. By eliminating the availability of traditional equity financing, the nondistribution constraint also protects a university’s stakeholders, including students and faculty, from the hypothetical threat shareholders pose. By its terms, the nondistribution constraint does not prohibit the existence of shareholders. In practice, however, the crucial role financial returns play in the decision-making of equity investors ensures that the notion of a nonprofit shareholder remains an oxymoron.
That said, the nondistribution constraint emphatically does not put profitseeking by nonprofits out of bounds.2 It merely eliminates one reason that a university might pursue capital and profits—to distribute them to shareholders or others with a role in governance. Effectively forbidding private nonprofit universities from raising equity capital spares them from the relentless pressure faced by for-profit ventures to deliver financial rewards to equity investors. Unfortunately, the nondistribution constraint offers such universities only imperfect immunity from the threat capital—or, more precisely, the absence of it—poses to their missions.
Along with its protections, the nondistribution constraint produces weaknesses. Although legally bound to pursue their educational missions, private universities still operate as market actors. Without access to equity capital, such universities must depend on donors, lenders, state funding, and revenue-generating activities to secure the capital essential to pursuing their charitable mission. This financial vulnerability can create a susceptibility to, among other dangers, authoritarian pressure.
Simply put, universities face many of the same competitive pressures as forprofit entities while being expected to prioritize stakeholder commitments in ways conventional companies ordinarily are not.3 The unavailability of equity capital eliminates one threat, but it simultaneously heightens others. Institutional capture by donors or state actors represents the most salient threat in today’s political context. But mission drift, as universities scramble to find the capital necessary to thrive, can take many forms. To the extent that we expect universities dependent on government financing to preserve democratic values by resisting authoritarian interventions against students and faculty, the nondistribution constraint becomes both a vulnerability and a strength.
Recommended Citation
Steven Dean & Dana Brakman Reiser,
Universities, Capital, and Democratic Vulnerability
,
106
Boston University Law Review
1041
(2026).
Available at:
https://scholarship.law.bu.edu/faculty_scholarship/4299
