Institutional designs for third‐party governance have proliferated in the US and Europe, but there has been little systematic analysis of their democratic performance. A comparative analysis of business improvement districts (BIDs) in the US and UK documents an approach to the democratic analysis of third‐party public governance institutions and finds variation in institutional designs and democratic performance within — as well as between — countries. BIDs accommodate the democratic imperatives for legitimacy, consent and accountability in different ways. In many ways, the democratic aspects of the BID design reflect those found in a private membership organization, but there is also evidence of actual and potential engagement with residents and local governments in BID governance. US BIDs continue a tradition of informally privileging business interests in local governance, but may potentially increase democratic purchase. UK BIDs may have the potential to increase the role of businesses in local governance at the cost of democratic performance.