Social Enterprise: Empowering Mission-Driven Entrepreneurs

Social Enterprise: Empowering Mission-Driven Entrepreneurs

by Marc J. Lane

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Product Details

ISBN-13: 9781614382003
Publisher: American Bar Association
Publication date: 07/25/2014
Sold by: Barnes & Noble
Format: NOOK Book
Pages: 244
File size: 1 MB

About the Author

Marc J. Lane is a nationally recognized business and tax attorney, a Master Registered Financial Planner, a Registered Financial Counselor and a Certified Investment Specialist. He is the author of 34 books on corporate organization, management, taxation, investment, personal finance, and social enterprise. Twice a recipient of the Illinois State Bar Association's Lincoln Award, Mr. Lane teaches law at Northwestern University School of Law and has taught business in the MBA program at the University of Illinois. Marc is the pioneer behind the Advocacy Investing® approach to mission-related investing (www.AdvocacyInvesting.com). A Director of Social Enterprise Alliance (SEA), the national association of enterprising nonprofits and social-purpose businesses, he spearheaded the launch of its Chicago chapter, which he serves as President and a Director. He also chairs SEA's affiliate, The Center for Social Enterprise Accreditation.

Marc is also the force behind Illinois' Low-profit Limited Liability Company (L3C) legislation, and has been instrumental in promoting L3C legislation in other states. His law firm is helping launch as many as 50 L3Cs around the country and, in separate transactions, is working with about 20 foundations that are interested in making program-related-investments in L3Cs.

He has consistently earned an "AV" rating in the Martindale-Hubbell Legal Directory, the highest ranking awarded. Martindale-Hubbell, which also includes him in its Bar Registry of Preeminent Attorneys, rates Mr. Lane's legal ability as "very high" and reports that he "embraces faithful adherence to ethical standards, progressive reliability and diligence." In addition, he has been selected by his peers as a "Leading Illinois Attorney" and an "Illinois Super Lawyer" over five times, including in 2011.

Table of Contents

Preface: A Word to My Colleagues xiii

Chapter 1 Empowering the Social Sector 1

What Is a Social Enterprise? 3

Competing Definitions 4

Defining through Organizational Structure 6

The "Social Good" Trap 6

Our Definition for the Purposes of This Book 7

The Origins of Social Enterprise 7

The Nonprofit, Tax-Exempt Sector 7

The For-Profit Sector 8

Recent Trends in Social Enterprise: New Legal/Forms and Concerns 9

New Legal Structures for Social Enterprises 11

The Emergence of Venture Philanthropy and New Funding Sources 13

Overview of the Book 15

Chapter 2 Vetting the Social Enterprise Business Model 15

Chapter 3 Zeroing In on the Right Business Form 15

Chapter 4 Governing the Nonprofit Social Enterprise 15

Chapter 5 Governing the For-Profit Social Enterprise 16

Chapter 6 Multi-Organizational Structures 16

Chapter 7 Funding 16

Chapter 8 Securing Certification 17

Chapter 9 To What End?: Measuring the Impact of the Social Enterprise 17

Chapter 2 Vetting the Social Enterprise's Business Model 19

Finding the Right Cause and Determining the Desired Social Impact 21

Assessing the Opportunities and Risks Involved 21

Forecasting the Potential Social Impact 23

Selecting the Business Form: 24

Available Funding and Allocation of Resources 24

Entity Choice and Available Income Streams 24

Entity Choice and Resource Conservation 26

Saving Resources through the Use of Volunteers 27

Sustainable Demand for Mission-Driven Products 29

Chapter 3 Zeroing In on the Right Business Form 31

Hybrid Organizations 31

L3Cs (Low-Profit Limited Liability Companies) 32

Benefit Corporations 43

Flexible Purpose Corporations 49

Michigan Public and Triple Benefit Corporations 52

Minnesota Community Enhancement Corporations 52

Cooperatives (Co-ops) 53

Producer Cooperatives 55

Consumer Cooperatives 57

Multistakeholder Cooperatives 57

Cooperatives-Formation Issues 58

Cooperatives-Federal Taxation Aspects 59

Cooperatives?Governance 60

Chapter 4 Governing the Nonprofit, Tax-Exempt Social Enterprise 65

Advantages to Tax-Exempt Status 65

Nonprofit, Tax-Exempt Corporations 66

Ownership and Management 67

Tax-Exempt Status 67

Fiduciary Duties Owed in Nonprofit, Tax-Exempt Corporation Settings 67

Sample Conflict of Interest Policy 79

Unincorporated Nonprofit Associations 83

Background 84

Model Acts 84

Tax-Exempt Status 86

Duties of Members and Managers 87

Distributions and the Threat of Private Inurement for Tax-Exempt Social Enterprises 88

Private Inurement 88

Private Inurement-Multi-Organizational Structures 89

Commercial Reasonableness 90

Compensation Considerations 90

Excess Benefit Transactions 92

Exempt Organization Checklist 95

Political and Legislative Activities 95

Political Activities 95

Lobbying Activities 98

Volunteer Labor?Unrelated Business Income Exception 101

State Laws Dealing with Charitable Organizations 101

Illinois' Approach 102

Maryland's Approach 106

New York's Approach 107

The Unified Registration Statement (URS) 109

State-Specific Registration Requirements 109

Chapter 5 Governing the For-Profit Social Enterprise 117

The Business Corporation 119

Ownership and Management 120

Tax Status 120

Fiduciary Duties Owed in Traditional For-Profit Corporate Settings 120

The Benefit Corporation 127

Ownership and Management 128

Tax Status 128

Fiduciary Duties Owed in Benefit Corporate Settings 128

The Limited Liability Company 129

Ownership and Management 130

Tax Status 130

Fiduciary Duties Owed by Managers and Members 131

"L3C": The Low-Profit Limited Liability Company 134

Ownership and Management 135

Tax Status 135

Fiduciary Duties of Loyalty and Care Owed in the L3C Setting 135

Constituency Statutes 137

Compensation and Benefits in the For-Profit Social Enterprise 141

Business Judgment Protection 141

Federal Law and Executive Compensation 143

Chapter 6 Multi-Organizational Structures 145

Unrelated Business Taxable Income (UBTI) Considerations 146

Corporation or Flow-Through Entity? 147

Corporate Considerations 148

Flow-Through Considerations 152

Sharing Personnel 155

Employee Benefit Plan Considerations 160

Sharing of Office Space/Furniture/Equipment 160

Chapter 7 Capitalizing the Social Enterprise 157

Access to Capital 163

Grants and Contributions 164

Attracting Private Foundation Investments 166

Program-Related Investments 166

Mission-Related Investments 171

Socially Responsible Investments 173

Cause-Related Marketing 173

Sponsorships 175

Endorsements 177

Fiscal Sponsorship 178

Governmental Assistance 180

Community Development Financing Fund 180

United Farm Credit System 181

Economic Development Companies 182

Community Advantage 183

Startup America 184

Catalog of Federal Domestic Assistance 184

Issuance of Securities 185

Federal Securities Law Compliance 185

State Securities Law Compliance and Preemption by Federal Securities Laws 187

Funding Networks: Social Enterprises Helping Each Other 188

Venture Philanthropy 188

Pay-for-Success/Social Impact Bonds 193

Additional Funding Sources 197

Chapter 8 Securing Certification 203

Social Enterprise Accreditation 203

Fair Trade Movement Certifications 206

"Green" Companies 208

Certified Economic Development Companies 212

Certification Requirements under the Small Business Investment Act 212

Certification Requirements under SBA Rules and Guide lines 213

B Corporation Certification 217

B Lab Certification Process 218

Chapter 9 To What End? Measuring the Impact of the Social Enterprise 223

Revisiting the Social Impact Theory: Knowing Where You Are Going 224

Performance Measurement 225

Creating a Universal Method of Measuring Social Impact and Ultimate Value 227

The Iris Model 227

Center for What Works Model 233

The Gates Foundation and Actionable Measurement 237

Supply and Demand Model: Looking to Value without Direct Reference to Social Impact 239

The Importance of Measuring Social Impact 241

Bibliography 243

Primary Sources 243

Table of Cases 243

Administrative and Legislative Materials 245

Secondary Sources 246

Social Enterprises and Related Organizations 249

Glossary 255

Index 263

About the Author 283

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