Abridged excerpt from book “51 Questions on Social Entrepreneurship“.
Special Legal Structures for Social Enterprise
Companies based in the U.S. can choose between new legal structures or existing legal structures or combinations. They can also rely on established legal principles when deciding on how to move forward with forming their entities.
Off the bat, let’s go through a few terms. A hybrid structure is the term cool kids are using these days to describe these new legal structures that combine elements of for-profit and nonprofit legal structures. An example of this is the benefit corporation—it’s a single structure but formalizes aspects of nonprofit (i.e., commitment to impact) as well for-profit (i.e., generating revenue) organizations. Each of the structures does this a little differently, and in the U.S., each state recognizes its own version of these structures.
The term tandem is a good one to describe the use of multiple legal structures to achieve the intended goals, such as impact and profit. So a social enterprise could be structured as a C corporation and have a non-profit organization associated as well. Think of it like a tandem bicycle: multiple riders (or in our case, legal structures) working together for the same goals.
The term hybrid, is used to describe a single legal structure combining elements of nonprofit and for-profit entities, and tandem to describe the situation when multiple legal structures are used to achieve a social enterprise’s goals. Some of the existing legal structure options for mission-driven companies include cooperatives, limited liability companies (LLCs), C corporations, and nonprofit organizations.
A few of the new legal structures for social enterprise include benefit corporations, social purpose corporations, and low-profit limited liability companies. Each structure, of course, has different advantages and drawbacks.
This is an abridged excerpt from the book, “51 Questions on Social Entrepreneurship” by Neetal Parekh. You can learn more and buy the entire book—which is told as a story of three aspiring social entrepreneurs and which dives into key aspects of social entrepreneurship including defining the space, legal structures, securing funding, and measuring impact at 51questions.com