On December 3, 2009, the Philadelphia City Council voted unanimously to pass a bill that creates a new sustainable business tax credit of US$4,000 for B Corporations—certified socially responsible companies (1). The decision could be a sign of what’s to come: new legislation that provides incentives for businesses to operate in a socially beneficial manner. However, most other countries are still far from creating any such legislation. As a result, entrepreneurs around the world are innovating—creating combinations of non-profits and for-profits to suit their needs. Editor Lindsay Clinton writes about the choices an entrepreneur can make when structuring a social enterprise, and poses tough questions about the impetus for creating dual structures, and the role of subsidies in encouraging social business.
The desire to combine values with business has led to creative ways to structure social ventures. In the last several years, we’ve seen more and more entrepreneurs tinkering with business models—loosening, and tightening commercial and social lug nuts—to find the right combination to fit the bill. In the nomenclature created by Pamela Hartigan and John Elkington in their book, The Power of Unreasonable People, there are three categories of social enterprise: leveraged nonprofits, hybrid nonprofits, and social business ventures. As these categories indicate, when there is no single legal form that meets the need of an entrepreneur, they create their own: engaging in profit-making activities within a nonprofit, yoking a nonprofit with a for-profit, or creating a profit-making subsidiary within a non-profit. These forms are sometimes called dual or twin structures.
In addition to these categories, there are legally recognized hybrid business forms which some governments have started to create and provide incentives for. In the UK, the “Community Interest Company” (CIC), of which there are more than 3,500 in number, enables a proprietor to run a business for the benefit of the community rather than for the benefit of the owners of the company (2). In the US, the latest innovation is the low-profit, limited liability company or L3C, which is simplifies compliance with IRS rules for “Program Related Investments” (PRIs) (3). The “B Corp” movement is also picking up momentum in the US. Although the certification has no legal ramifications (except in Philadelphia as referenced above), it serves as a “trust mark” and signifies social responsibility to customers (4). » Continue reading “Blended Value: Weaving Profit into Social Mission through Hybrid Models”