What is a Social Enterprise?

The United States

The Social Enterprise Alliance (SEA) of the United States defines a “social enterprise” as “an organization or venture that advances its primary social or environmental mission using business methods.”^[16]

In the U.S, two distinct characteristics differentiate social enterprises from other types of businesses, nonprofits, and government agencies:

1. Social enterprises directly address social needs through their products and services or through the numbers of disadvantaged people they employ. This distinguishes them from “socially responsible businesses,” which create positive social change indirectly through the practice of corporate social responsibility (e.g., creating and implementing a philanthropic foundation; paying equitable wages to their employees; using environmentally friendly raw materials; providing volunteers to help with community projects).
2. Social enterprises use earned revenue strategies to pursue a double or triple bottom line, either alone (as a social sector business, in either the private or the nonprofit sector) or as a significant part of a nonprofit’s mixed revenue stream that also includes charitable contributions and public sector subsidies. This distinguishes them from traditional nonprofits, which rely primarily on philanthropic and government support.

In the United States, “social enterprise” is also distinct from “social entrepreneurship”, which broadly encompasses such diverse players as B Corp companies, socially responsible investors, “for-benefit” ventures, Fourth Sector organizations, CSR efforts by majorcorporations, “social innovators” and others. All these types of entities grapple with social needs in a variety of ways, but unless they directly address social needs through their products or services or the numbers of disadvantaged people they employ, they do not qualify as social enterprises.

L3C

From Wikipedia, the free encyclopedia

A low-profit limited liability company (L3C) is a legal form of business entity in the United States that was created to bridge the gap between non-profit and for-profit investing by providing a structure that facilitates investments in socially beneficial, for-profit ventures while simplifying compliance with Internal Revenue Service rules for program-related investments, a type of investment that private foundations are allowed to make.^[1][2]

Contents [hide] 1 Concept 2 Legislation 3 See also 4 References 5 External links

[edit]Concept

An L3C is a for-profit, social enterprise venture that has a stated goal of performing a socially beneficial purpose, not maximizing income.^[3][4] It is a hybrid structure that combines the legal and tax flexibility of a traditional LLC, the social benefits of a nonprofit organization, and the branding and market positioning advantages of a social enterprise. ^[5]

The L3C is designed to make it easier for socially oriented businesses to attract investments from foundations and additional money from private investors. ^[6] Unlike the traditional LLC, the L3C’s articles of organization are required by law to mirror the federal tax standards for program-related investing. ^[7] A program-related investment (PRI) is one way in which foundations can satisfy their obligation under the Tax Reform Act of 1969 to distribute at least 5% of their assets every year for charitable purposes.^[5] While foundations usually meet this requirement through grants, investments in L3Cs and charities that qualify as PRIs can also fulfill the requirement while allowing the foundations to receive a return.^[8]

[edit]Legislation

An L3C is established pursuant to the law of the state in which the entity is formed. To authorize the organization of an L3C, legislation must be passed that amends the state’s general limited liability company law. Thus far, legislation has been passed in Illinois, Louisiana, Maine, Michigan, North Carolina, Rhode Island, Utah, Vermont, and Wyoming and the federal jurisdictions of the Crow Indian Nation of Montana and the Oglala Sioux Tribe.^[9] As of January 11, 2013, the Secretaries of State of the nine states and two Indian tribes that authorize them reported that 711 active L3Cs are in operation.^[10] HB 1299 was introduced on January 14, 2013 in North Dakota, which would authorize the organization of L3Cs. Legislation has been written for 26 additional states but has not yet been introduced.^[11]

In May, 2012, the IRS released proposed regulations that broaden the landscape of what constitutes an acceptable PRI by adding nine new examples of investments that would qualify, along with some general principles. Legislation is also pending at federal level that will simplify the process for receiving IRS approval that an investment qualifies as a PRI. ^[12]

[edit]See also

• Community interest company (similar legal structure under United Kingdom law)
• Social entrepreneurship

[edit]References

1. ^ Witkin, Jim (15 January 2009). “The L3C: A More Creative Capitalism”. The Triple Pundit. Retrieved 25 July 2011.
2. ^ Field, Anne (4 May 2012). “IRS Rule Could Help the Fledgling L3C Corporate Form”. Forbes. Retrieved 17 September 2012.
3. ^ Capriccioso, Caryn; Zwetsch, Rick; Shaver, Erin (May 2010) (white paper). Who is the L3C Entrepreneur?. InterSector Partners, L3C.
4. ^ Zouhali-Worrall, Malika (2010-02-09). “For L3C companies, profit isn’t the point”. CNN Money. Retrieved 25 July 2011.
5. ^ ^{a b} Lane, Marc (December 2011). “Social Enterprises: A New Business Form Driving Social Change”. American Bar Association. The Young Lawyer 16 (3). Retrieved September 18, 2012.
6. ^ Williams, Grant (12 November 2009). “Dozens of Companies Are Sprouting With the Same Goal: Doing Good”. Philanthropy Today (The Chronicle of Philanthropy).
7. ^ Stankorb, Sarah (8 March 2012). “Where Did Social Enterprise Come From, Anyway?”. GOOD Worldwide. Retrieved 18 September 2012.
8. ^ Segal, Jeff (12 October 2012). “How Social Entrepreneurship is Changing Chicago (and the World)”. Technori. Retrieved 31 October 2012.
9. ^ “L3C Legislation”. Americans for Community Development. Retrieved 25 July 2011.
10. ^ Lane, Marc; Bodor, Brandon; Agha, Mavara (January, 2013). Preliminary Report (Report). Governor’s Task Force on Social Innovation, Entrepreneurship, and Enterprise.
11. ^ “Considering Legislation in Your State?”. Americans for Community Development. Retrieved 18 September 2012.
12. ^ “Council on Foundations, Americans for Community Development Applaud Reps. Schock and Polis for Introducing Philanthropic Facilitation Act”. Americans for Community Development. 15 November 2011. Retrieved 18 September 2012.

[edit]External links

• Americans for Community Development
• L3C Tally – list updated weekly – who’s organizing L3Cs and where
• Who is the L3C Entrepreneur? The Pioneers of social enterprise’s revolutionary new suffix – Published May 2010
• Who is the L3C Entrepreneur? Come along and experience the next chapter – UPDATE Published Fall 2012
• interSector Partners, L3C Comprehensive L3C Resource List
• Balancing the Mission Checkbook: Where For-Profit and Nonprofit Meet