What’s a Social Enterprise?

Written by Noel French

May 13, 2020

Social enterprise” has a lot of definitions, but most of them describe businesses that have a social and environmental purpose in addition to a general profit motive. In practice, that can mean a lot of different things. Examples include companies that hire hard-to-employ populations and pay them a living wage while teaching them valuable skills, or that dedicate a portion of their profits to environmental charities. Because of the variation, the line between corporate social responsibility and social enterprise can be thin, and there really is not just one qualifying definition. To help solve the lack of definition, several certification programs exist, including Society Profits (full disclosure: Society Profits is an Origami Legal client) and B Corps.

Is there a legal difference between a social enterprise and a regular business?

Generally no. While some certification programs like B Corps require you to make structural changes to your Articles of Incorporation or Articles of Organization, the reality is that social enterprise is as much a state of mind as anything else. Some very complex social enterprise arrangements – like for-profit/non-profit partnership structures – can involve legal structuring, but you usually do not need a lawyer to specifically build social or environmental purposes into your business model. At least, not anymore than you usually do. If you plan to run your business as a social enterprise, that is definitely something you should discuss with your attorney and other business advisors, though, so that they can keep your ambitions in mind when advising you.

Special Entity Types

While I mentioned above that there usually aren’t any legal requirements for operating as a social enterprise, some states have special entity types designed with social enterprises in mind. The most relevant is the benefit corporation, which is a special type of corporation that includes a social or environmental purpose (or both) in addition to its normal corporate purposes. Despite several attempts to pass benefit corporation legislation, Michigan unfortunately does not have a benefit corporation.

Additionally, some states, including Michigan, have L3Cs (low-profit limited liability companies). L3Cs have a complicated history, but the reality is they are not very different from LLCs. If you want more information about L3Cs, a future post will discuss these business entities further.

Keep in mind that even if your state has L3Cs, benefit corporations, or both, you are not required to use one that as your entity type if you want to run a social enterprise. Your social enterprise could just as easily be an LLC or a normal corporation, though there may be some benefits to choosing a benefit corporation where that choice is available. The reason why is a little in the weeds and will be explored in a later post.

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