Law and Choice of Entity on the Social Enterprise Frontier
47 Pages Posted: 3 Apr 2009
Date Written: April 2, 2009
Social entrepreneurs are people who envision widespread, systematic social change and who attack society's ills at the roots employing the spirit and the tools of entrepreneurship. They reject the traditional boundaries between the nonprofit and for-profit sectors and carry out their plans through so-called hybrid social enterprises, which combine the soul of nonprofit organizations with the discipline and business savvy of for-profits. Although social entrepreneurs generally are driven by a desire to do good, they view themselves as business people who are trying to achieve double bottom-line (financial and social) or triple bottom-line (financial, social and environmental) results.
Why should the emergence of these new hybrid social enterprises be of concern to lawyers? Because their creators claim that they inhabit a social frontier, which they sometimes refer to as the "emerging fourth sector," where outmoded laws and inappropriate, old-style legal entities hamstring their socially transformative plans. With increasing vehemence, they are demanding new laws, particularly new types of hybrid business entities, to give legal structure to the emerging fourth sector.
This paper describes the social enterprise frontier, paying particular attention to a recent trend whereby social entrepreneurs form their ventures as for-profit companies even though their ambitions are largely charitable. The paper then critically examines various proposals for creating new types of hybrid for-profit/nonprofit entities to provide a legal structure for fourth sector social enterprises. The paper concludes that a very recent legal innovation, the Low Profit Limited Liability Company ("L3C"), holds particular promise for meeting the needs of social entrepreneurs and the emerging fourth sector.
Keywords: nonprofit organization, hybrid organization, social enterprise, social entrepreneurship, fourth sector
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