The absence of clear legal guidance has been a major challenge to the architects of social entrepreneurship. As we explained in our last post, traditional models of business put the shareholders’ needs first. Since socially conscious business is a melding of for-profit business and philanthropic purpose, structural challenges arise. The movement is still relatively young and unknown to many, but for it to succeed, corporate structures for social entrepreneurship must exist.
There have been two major attempts in the past decade to provide a legal structure for social entrepreneurs to utilize: the L3C company and the Benefit Corporation. States legislators have given attention to this in an effort to enable the pursuit of social and environmental goals in a for-profit business enterprise.
Let’s briefly explore some of the common structures for a socially conscious business in the USA.
The Low Profit Limited Liability Corporation (L3C)
Since the state of Vermont first allowed an L3C registration in 2008, about half of the states have enacted this liberating legislation. The L3C structure is built on an LLC framework with the goal of giving for-profit, mission-driven companies the ability to attract philanthropic funds.
“Low-profit, limited liability corporations (L3Cs) are designed to be a hybrid between a charity and a for-profit business. The creation of the L3C structure started with nonprofits that face a rapidly shrinking pool of charitable funds, grants, and foundation resources. But although public funding is quickly evaporating, the number of private interests willing to invest in socially-driven endeavors is multiplying in leaps and bounds. However, the catch has been that private investors won’t participate unless they can achieve a return on investment – an impossible feat for a traditional nonprofit.
The L3C business structure is unique in that it allows the organization to diversify its funding pursuits and allocate risks to allow a higher rate of return to private investors. Although this structure is still in its infancy, it holds the potential to become a powerful tool for entrepreneurs eager to combine their business savvy and social passion.” (1)
This is a very limited description, but you can study more details on how this works here.
Benefit Corporation (B-Corp)
Since 2010 there has been a U.S. state legislation developing providing for the Benefit Corporation class of business. It is now in about half of the U.S. states. This new class of corporation is required to create a material positive impact on society and the environment. Most simply their purpose is to:
- Create general public benefit
- Have a right to name specific public benefit purposes (e.g. 50% of profits to charity)
- Create public benefit which is in the best interests of the benefit corporation
Green Mountain Power is the country’s first Public Utility B-Corp. They say on their website:
We became a B Corp to demonstrate our deep commitment to creating positive change in the community and the environment through our work to make clean energy more affordable and reliable. We embrace the mission to “do good” in all things we do, put customers first, and seek to make Vermont and the world a healthier place to live.
According to the B Corporation website, B-corps:
- Voluntarily meet higher standards of transparency, accountability, and performance
- Offer a positive vision of a better way to do business
- Translate ideas into action
- Create higher quality jobs and improve quality of life in communities
- Are powerful agents of change to pass laws and drive capital
- Create value for society, not just shareholders
You can study the difference between B-corps and traditional corporations in more depth here.
If you’re interested in becoming a B-corp, check out this page.
Triple Bottom Line (TBL)
A term which has become increasingly used in the social enterprise domain and certainly in the values-driven and mission-driven spheres is the “Triple Bottom Line”, credited to John Elkington in a 1994 article (2). The following excerpt from a more recent article quotes his original definition (3):
The TBL is an accounting framework that incorporates three dimensions of performance: social, environmental and financial. This differs from traditional reporting frameworks as it includes ecological (or environmental) and social measures that can be difficult to assign appropriate means of measurement. The TBL dimensions are also commonly called the three Ps: people, planet and profits.
Well before Elkington introduced the sustainability concept as “Triple Bottom Line,” environmentalists wrestled with measures of, and frameworks for, sustainability. Academic disciplines organized around sustainability have multiplied over the last 30 years. People inside and outside academia who have studied and practiced sustainability would agree with the general definition of Andrew Savitz for TBL. The TBL “captures the essence of sustainability by measuring the impact of an organization’s activities on the world … including both its profitability and shareholder values and its social, human and environmental capital.
Corporate Social Responsibility (CSR)
Corporate entities, both large and small (LLC, C-Corp, S-Corp etc.) oftentimes commit themselves to operate in a way that provides social and environmental impact. They develop internal policies which demonstrate responsible practices for improving conditions in and around the company. Early CSR efforts focused on philanthropy and charity. The tendency today is to drive toward economic sustainability and prosperity while taking care of their employees and the environment. The business becomes aware of the families of the business, and the surrounding community dynamic and incorporates an action plan into the business model.
Internationally, CSR is a mixed bag with a serious lack of common measures of performance. For some corporations it is simply a “bandwagon” minimalist approach for political reasons. Others are sincerely trying to adopt CSR policies which interface with social responsibility.
These are the basic structures available to the socially conscious business or entrepreneur. Given the large movement taking place, we have no doubt that the future will hold even more clarifications and allowances for businesses who put social good at the top of their goals.
Don’t miss the conclusion to this series answering these questions…
Why is all of this important? Does social entrepreneurship really have benefits? And can it really change the world?
2 John Elkington, “Towards the Sustainable Corporation: Win-Win-Win Business Strategies for Sustainable Development,” California Management Review 36, no. 2 (1994): 90–100.
3 Andrew Savitz, The Triple Bottom Line (San Francisco: Jossey-Bass, 2006).
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