Three Legislative Paths to Social Enterprise: L3Cs, Benefit Corporations, and Second Generation Cooperatives

Abstract

This essay analyzes the development of three new legal forms developed to respond to the needs of emerging social enterprises: low-profit limited liability companies (L3Cs), benefit corporations, and new or second generation cooperatives. For each form, it considers what perceived deficiencies in older forms the new form is designed to address, how the form goes about addressing that deficiency, and its success to date in terms of adoption by state legislatures and individual enterprises. The essay draws a few lessons from these developments, and considers whether other new forms may better address the challenges that social enterprises face. A central conclusion is most legal developments to date, including the L3C and benefit corporation, do too little to help social enterprises credibly commit to pursuing a dual mission of profit and social purpose. The second generation cooperatives suggest that greater focus on voting and representation of stakeholder constituencies may present a better way forward.

Keywords: L3C, benefit corporation, cooperative, social enterprise

JEL Classification: D21, G30, K22, L21