New Legal Structures for Social Enterprises: Designed for One Role but Playing Another
58 Pages Posted: 24 Jun 2019
Date Written: June 19, 2019
Ten years ago state legislatures began to recognize that business entities need not focus entirely on profits. The two most prominent of the new entities that have been created, the L3C and the benefit corporation, have spawned approximately 7,000 businesses. That figure is miniscule compared to the thirty million businesses currently operating in the United States. One possible reason that so few businesses have organized as one of these new business forms is that the legislation that created them was not designed to effectively solve the problems they were meant to address.
This Article suggests that the weaknesses in these statutes reflect an astute political compromise. Measures that could help fix the design flaws in these new business forms, and that would encourage quicker adoption of these businesses, would require governmental oversight and at least some governmental expenditure. Such costs are not yet politically acceptable, even to legislatures that would readily encourage businesses to pursue social goals. And so these new business forms have served a different role from the one they were originally designed to hold. Instead of providing new sources of finance and protecting board members from liability, they have played a large part in an important conversation on the role of business in our country — namely, shifting the focus from shareholder maximization toward a more holistic and community-minded view of the role of business in society.
Keywords: social enterprise, benefit corporation, L3C, low profit limited liability company, nonprofit, 501(c)(3), corporation, business, corporate social responsibility
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