One of the most intimidating things about being an entrepreneur or founder of an organization can be the first steps of incorporating and legally structuring things.
The good thing to note is that if you make a mistake at the beginning, its almost always addressable down the road (but it can require a lot of time or significant cost).
What's the best legal structure for your social enterprise? Why do these different models exist?
3. GROUND RULES
1. An excuse from doing is not an excuse
from knowing.
!
2. If you don’t want to learn, find a job.
!
3. It’s only on intimidating until you take the
time to research.
4. THE LAY OF THE LAND*
1. For-Profit
2. Non-Profit
3. Not-For-Profit
4. Social Enterprise
5. Hybrid
6. Partnership
* Focuses on legal entities recognized in the United Sates
8. B Corp
L3C
Growth & !
Profits
LLC
Public Benefit!
&!
Charity
Service &!
Support
501(c)
9. FOR-PROFIT
You want institutional investors.
Eventually you want to sell or go public.
Equity pool for employees.
Preferred options for critical staff.
You are seeking profits and/or growth.
EXAMPLES:
11. FOR-PROFIT
If you’re a start-up seeking venture capital, you’ll almost certainly need to
convert to a C Corp but it’s not necessary to transition prior to receiving
funding. The conversion costs are usually covered by the investor
(deducted from the amount invested).
!
Many Startup Accelerators and Angel investors are experienced at
helping startups become ‘investible’.
12. NON-PROFIT
You have an important cause, but no [important] money.
You like a lot of paper work.
!
You are seeking grant, foundation, or donor support.
!
Being a non-profit does not mean instant poverty.
EXAMPLES:
13. NOT-FOR-PROFIT
The IRS explains that ‘not-for-profit’ refers to organizations supporting
activities, for example, hobbies (like fishing or comic collecting).
!
In contrast, "nonprofit" refers to an organization established for purposes
other than profit-making. Non-profit and not-for-profit do not necessarily
mean "charitable."
14. SOCIAL ENTERPRISE
You want it all!
!
You want to do good & make money.
You want to become an expert at creative accounting!
!
Legal framework and related policies are rapidly evolving.
EXAMPLES:
15. SOCIAL ENTERPRISE
LLC (choice of taxation model)
L3C (can accept Investor or Foundation funding, charitable first, taxed like LLC)
B-Corp (taxed like an S or C Corp with public responsibility)
Hybrid model
Partnership
16. SOCIAL ENTERPRISE
From the point of view of IRS, the benefit corporation and L3C are no
different from traditional for-profit entities.