Social entrepreneurship is on the rise making a social enterprise a popular entity choice for cause-conscious businesses that want to harmonize what has been historically perceived as competing objectives: maximizing profit and effecting philanthropic or social impact.

Social enterprises are business ventures that intentionally advance a societal benefit. In response to social entrepreneurs finding that a traditional corporate form limited their corporation’s ability to achieve a philanthropic mission, a “hybrid” entity structure emerged in many jurisdictions.

In a social enterprise model, a social entrepreneur can retain equity in their business, while also placing an equal emphasis on a dedicated charitable or social cause. Varying by name depending upon the specific incorporating jurisdiction, there are various types of social enterprise entity structures, with the most common being:

  1. Benefit Corporations
  2. Public Benefit Corporations
  3. Social Purpose Corporations
  4. Limited Low-Profit Liability Companies (L3C)

Tovella Dowling assists social entrepreneurs in the incorporation process for social enterprises to ensure solid governance and procedural infrastructure is in place to achieve our client’s social causes and philanthropic endeavors are accomplished.

Beyond preparation and filing of the necessary paperwork to establish the entity, our attorneys bring value to our clients by educating them along the way to solidify an understanding of leading trends in social entrepreneurship, tandem affiliate models involving nonprofit Tax exempt organizations, corporate governance, regulatory compliance, corporate taxation, program-related investing, legalities of employee engagement and other relevant topics unique to social entrepreneurs.

Drafting of Governing Documents for Social Enterprises

The governing documents of a social enterprise entity are comprised of the Articles of Incorporation and the Corporate Bylaws or Operating Agreement, depending upon the specific entity structure chosen.

The Articles of Incorporation is the corporate charter that is lodged with the Secretary of State in the incorporating jurisdiction.

The filing of the Articles of Incorporation serves to create a legally distinct entity, sole and separate from its founders. To qualify as a social enterprise, the Articles of Incorporation must contain specific language which is imposed under applicable state law setting forth a specific social impact statement.

Our attorneys are well-versed with the federal, state, and local requirements necessitating the appropriate provisions to be included in the Article of Incorporation based upon the desired entity structure and social enterprise model.

The Bylaws or Operating Agreement of the social enterprise serve as the procedural rule book, which should be referenced frequently by the Board of Directors to ensure compliance with all procedural requirements imposed under state law.

Our attorneys draft custom bylaws to suit the specific needs of our clients and address considerations such as the creation of an optimal governance structure, adherence to applicable authorities, avoidance of unnecessary administrative burdens, and consideration of mechanisms that lend to maximum flexibility for future growth.

Following incorporation, corporate formalities must be followed to protect corporate assets. One aspect of adherence to corporate formalities includes keeping consistent corporate records, such as resolutions and minutes of the Board of Directors, Committees, and Shareholders.

Although the law generally does not require a particular format for such records, minutes and resolutions should be drafted with sufficient detail to set forth the basis for corporate action and summarize the deliberative process in the proper discharge of imposed fiduciary duties, while also avoiding detailed disclosures of sensitive information such as trade secrets, human resource information, and other confidential matters, which if produced to a third party, could be detrimental to the business.

Additionally, our attorneys work with the firm’s social enterprise clients to evaluate ancillary agreements and policies such are Shareholder Agreements, Equity Awards, Profit-Sharing Plans, Buy-Sell Agreements, and other succession planning documents to equip its clients with the resources and tools necessary to mitigate risk and carry out industry best practices.