Governance Considerations For Social Enterprises

From a governance perspective, a social enterprise is structured like a for-profit equivalent in that it is owned by shareholders and governed by and through a body of appointed individuals called the Board of Directors.

Good governance is critical to mitigating risk and exposure to liability, as well as, maximizing shareholder profit and advancing the specific philanthropic and social purpose inherent to the business.

Tovella Dowling advises its social enterprise clients on governance matters, including board functions and authorities, fiduciary obligations, corporate governance documents, policies and procedures, legalities associated with shareholder rights, including sale and assignment of shareholder interests, voting rights and privileges, observance of corporate formations, including the legalities involved in noticing and conducting board of director and shareholder meetings and maintenance of corporate records, including minutes and other corporate resolutions, and preparation and conducting of social impact reports.

Fiduciary Duties of Social Enterprises

Although fiduciary obligations are still imposed on officers and directors of a social enterprise, there are slight differences in application inherent to this hybrid model.

A principal rationale for a hybrid social enterprise structure is that the fiduciary duties of traditional for-profit corporations significantly impede a mission-centric business model, forcing fiduciaries to prioritize owner maximization of profits over social good.

To cure the obstacle to mission-driven operations created by fiduciary obligations.

Officers and directors of a social enterprise are held to a different standard than traditional for-profit fiduciaries and will not be held personally liable to the corporation or its shareholders for breach of their fiduciary duties if their decision was motivated by the social purpose objectives of the business.

Most jurisdictions mandate that fiduciaries take into consideration relevant social impacts with equal or more prominence than the maximization of shareholder value.