Choosing the Right Social Enterprise Legal Structure
A social enterprise is an organization that applies commercial strategies to maximize the triple-bottom line — this may include maximizing social and environmental impacts alongside profits for external shareholders.
Many clients come to us with a business idea or a blossoming enterprise, coupled with a desire to do good – not just good business, but a desire to create or promote a positive social impact. These clients often start by asking how to structure the business entity.
It is only by knowing the destination one can decide on the best path. As such, the founder’s vision for the enterprise and his or her personal aspirations will shape the strategy for the business, which will identify the capital, talent and other resources needed to get there. In turn, understanding the key values, purposes, and business strategy will provide the best guidance for choosing the correct legal structure.
Determining the right legal structure for the social enterprise from the beginning is important. A company’s legal structure determines how it raises capital, pays taxes, grows and expands, and rewards its employees and owners. Choice of entity sets the rules for control and management and governs the activities in which an enterprise may or may not engage. The company’s legal structure could also positively or negatively influence the public image of the enterprise and its bottom line.
In order to make the right choice, however, we encourage clients to consider key questions, including:
- What is the purpose of your enterprise, and its goals?
- How much capital, time and effort are the founders willing to invest and what do they desire to receive in return?
- What is the business plan for achieving the short term and long terms goals of the enterprise?
- What type of capital, talent, and other resources are needed to achieve such milestones?
- How will such resources be obtained?
The purpose of this six-part series is to discuss how to use the foregoing questions as a guide to determining the appropriate legal entity for each unique venture.