“Social enterprises are businesses whose primary purpose is the common good. They use the methods and disciplines of business and the power of the marketplace to advance their social, environmental and human justice agendas. … In its early days, the social enterprise movement was identified mainly with nonprofits that used business models and earned income strategies to pursue their mission. Today, it also encompasses for-profits whose driving purpose is social. Mission is primary and fundamental; organizational form is a strategic question of what will best advance the social mission.” – Social Enterprise Alliance
Entrepreneurs with social goals must consider many factors in determining the appropriate structure – whether it involves a nonprofit organization, a for-profit entity (including the so-called hybrid entities — benefit corporations, social purpose corporations, and L3Cs — and Certified B Corps), or both. Understanding the different forms and utilizing the appropriate ones may be critical in the implementation of the social/business plan.
Nonprofit Social Enterprises
Nonprofit social enterprises are businesses whose primary purpose is the common good operated within a nonprofit or as a wholly-owned subsidiary of nonprofit. Utilizing the definition of a "social enterprise" developed by the Social Enterprise Alliance, a nonprofit social enterprise has 3 characteristics that distinguish it from other types of businesses, nonprofits and government agencies:
- It directly addresses an intractable social need and serves the common good, either through its products and services or through the number of disadvantaged people it employs.
- Its commercial activity is a strong revenue driver, whether a significant earned income stream within a nonprofit’s mixed revenue portfolio, or a for profit enterprise.
- The common good is its primary purpose, literally “baked into” the organization’s DNA, and trumping all others.]
Read more here.
Benefit Corporations - California
A benefit corporation is a relatively new corporate form allowing for-profit entities to pursue social and environmental goals along with the traditional objective of maximizing profits. The benefit corporation movement grew out of the business community – where social entrepreneurs felt that the traditional corporate forms did not allow them to incorporate their social values into their businesses.
The conventional wisdom has long been that maximizing shareholder value is synonymous with the board’s duty to act in the best interest of the corporation, regardless of the impact of the board’s decisions on employees, the environment, customers or the public in general. The benefit corporation movement questions this fundamental assumption, and in fact, advocates that considering the interests of all stakeholders (by considering profits, people and the planet) is in the best interest of the corporation. Perhaps most important, laws authorizing benefit corporations provide corporate directors and officers protection from shareholder lawsuits if they choose to prioritize people and the environment over profits.
Benefit corporations differ from traditional corporations in three major ways:
- Purpose: A benefit corporation must have a purpose of creating a general public benefit, which is defined as having a material positive impact on society and the environment, taken as a whole, from the business and operations of a benefit corporation.
- Accountability: When making decisions, members of the board of directors and officers are required to consider the effects of their decisions on shareholders, workers, suppliers, customers, the community and society at large, the local and global environment, and the short and long-term interests of the corporation.
- Transparency: A benefit corporation is required to annually report on its environmental and social performance using independent third-party standards.
See also Model Benefit Corporation Legislation With Explanatory Comments (v. 4/4/16)
Social Purpose Corporations - California
The social purpose corporation provides another business entity option to entrepreneurs who want to combine profitability with broader social and environmental objectives. Formerly known as the flexible purpose corporation, the social purpose corporation requires directors to consider, in addition to any lawful business purpose, one of the following special purposes in its articles of incorporation:
- One or more charitable or public purpose activities that a nonprofit public benefit corporation is authorized to carry out.
- The purpose of promoting positive effects of, or minimizing adverse effects of, the social purpose corporation’s activities upon any of the following, provided that the corporation consider the purpose in addition to or together with the financial interests of the shareholders and compliance with legal obligations, and take action consistent with that purpose:
- The environment.
- The community and society.
- The social purpose corporation’s employees, suppliers, customers, and creditors.
Read more here.
Certified B Corps
Any type of for-profit company structure, including a sole proprietorship, partnership, or corporation, can apply to B Lab to be a Certified B Corp. To apply, the company must complete the B Impact Assessment Survey, which measures social and environmental impact, and score at least 80/200 points. The applicant will also be required to sign a Term Sheet and Declaration of Independence. Additionally, if the applicant is a corporation or limited liability company, it may also need to amend its governing documents to include the proper legal framework so that the company considers the impact of its decisions not only on shareholders but also its employees, customers, suppliers, community, and the environment. Certification is for a two-year term and subject to an annual certification fee ranging from $500 – $50,000 annually (based on the Certified B Corp’s annual sales).
It's important to note that a Certified B Corp is very different from a benefit corporation though a company can be both. See What it means to be a “B”: B Corp v. Benefit Corporation.
Read more here.
For a deeper dive, read Social Enterprises: Tax Implications for Nonprofits.