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A guide to organizing social enterprises

Updated: Mar 7

Among environmentalists and within social and political movements more broadly, changemakers generally utilize a time-tested organizational form to direct their activities: nonprofits.

The benefits of this mode of organization are immense; they don’t have to pay income taxes, and in general, it is easier to elicit donations and build trust among stakeholders under the 501(c)(3) designation. Additionally, nonprofits are often more able to apply for a plethora of grants and similar funding programs.

Despite these positive qualities, the nonprofit model has some drawbacks that can make them difficult to support certain activities.

Because of legal restrictions, it can be difficult for nonprofits to offer certain sets of services, particularly if they are revenue-generating. It also locks out different forms of capital and investments, which can be more suitable for for-profit businesses.

However, such investments may sully an organization's mission by building in the expectation of profit generation. This is a major issue for those who want to ensure their organization remains mission-focused.

An illustration of these conundrums is the Savanna Institute, a sustainable agriculture nonprofit in the Midwest that focuses on promoting agroforestry in the region.

While the institute focuses on research and educational activities, they eventually found that a major barrier in the region is a lack of infrastructure and technical support for farmers.

In light of this finding, they spun off a for-profit company called Canopy Farm Management to fill this gap by launching a nursery and providing consulting services.

The nonprofit structure was most suitable for one set of activities, but the for-profit model was optimal for another set of activities. Sometimes for-profit organizations are what’s best suited to fulfill certain roles in driving social and environmental change.

This conundrum comes down to how to engage in social entrepreneurship. Definitions can be hard to find, but based on the interviews conducted by Dr. Sayem Houssain, there are four key elements:

  • Social mission over financial mission

  • Innovative solutions to social problems

  • Self-sustaining business models

  • Measurable impacts

These elements can be suited for nonprofit or for-profit models. Choosing one over the other can be difficult. Luckily, there are some options available for the social entrepreneur who can’t find a suitable solution outside of the Nonprofit, LLC, or Corporation options.

Public Benefit Corporations, sometimes called Social Benefit Corporations, are a form of corporation that explicitly puts the benefit of the public above the need to be profitable, as opposed to traditional corporations, which have a legal obligation to maximize profit.

Available in a number of states, this type of organization can operate in much the same way as a traditional company but is legally bound to pursue its defined social goals above any profit-making goals.

Public Benefit Corporations can raise funding from investors and access more forms of credit to help build out operations, but the legal structure can help prevent the company from losing sight of its core missions. Information on how to register as a PBC or SBC can be found through the state government agencies that register corporations.

One company that follows this model is Kinosol, which creates low-cost solar dehydrators for people in developing countries to reduce food waste and improve livelihoods and food security.

Manufacturing and selling a product would be difficult under a nonprofit designation, and under the special benefit corporation registration, they can effectively deliver their technology in a socially conscious manner.

Unfortunately, the Public Benefit Corporation structure is not available in many jurisdictions within the United States or elsewhere.

Fortunately, there is an alternative available in the form of the B-Corporation Certification.

This is a third-party certification where an organization wishes to be bound under an obligation to the public.

To be granted this certification, enterprises must show high social and environmental performance, make a legal commitment to all stakeholders they impact, and provide performance and financial information to the B-Corp Certification and to the public.

Upon achievement of these criteria, organizations are legally allowed to use the B-Corp logo in their branding, similar to a certified organic label. This is another tool social entrepreneurs can use to cement their mission into the legal structure of a burgeoning enterprise. To become a certified B-Corp, you can apply through BLabs.

One company that made the switch to becoming a B-Corp was Patagonia, one of the country's most prominent outdoor brands.

In 2012, the company decided to become certified, placing language in their Articles of Incorporation intertwining the well-being of their employees, community, and the environment into all of their activities.

Their focus has been on supply chains, specifically removing virgin petroleum-based fibers (they still utilize such fibers but only if they are recycled from existing products) and improving the agricultural practices used to produce natural fibers to be more regenerative, all within a transparent and accountable environment.

An additional option exists in the humble cooperative. A cooperative functions essentially as a standard business, but instead of being controlled by a few owners or a cadre of shareholders, it is governed by those who either work there or consume their product or service.

By following this model, workers can influence the organization's mission through a democratic process.

The establishment and governance of cooperatives can be quite diverse, making it a flexible model to allow for community and worker participation. Some jurisdictions have special designations for cooperatives, whereas, in others, you register as a standard LLC or Corporation and attach voting rights to either employment or membership in the cooperative.

Additionally, there is a version in the non-profit sector called a worker self-directed nonprofit, which operates under the same principles in the nonprofit space.

One example of an environmentally focused cooperative is the People Power Solar Cooperative in California, which seeks to establish democratically controlled sources of renewable energy. They construct rooftop solar in an effort to provide an alternative to state utility monopolies. Projects are confirmed with community direction and control, and any profits are given back to members through dividends.

Of course, there are a myriad of other legal and organizational structures that can be utilized to drive forward social entrepreneurship.

These include mutual organizations, trusts, housing associations, and community-supported agriculture. And this doesn’t even get into the various types of informal structures that can exist, such as buying groups, mutual aid circles, and Reko rings.

Social entrepreneurs can use a wide diversity of organizational models to instill mission-based change in their communities and across the globe.

For those interested in pursuing these organizing strategies, the Sustainable Economies Law Center and the New Economy Coalition have some helpful resources for organizing cooperative, community, and socially oriented enterprises.



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