A social enterprise contributes to a social cause, and it can take different forms. Nonprofits are social enterprises, but for-profit companies can also fall into this category by prioritizing a cause rather than profit maximization. Some ventures even have both for-profit and nonprofit arms. In terms of legal structure, social enterprises have various options.
An example of a social enterprise is The Empowerment Plan. They hire people living in homeless shelters to create a winter coat that doubles as a sleeping bag and over-the-shoulder bag. They distribute these products to the homeless in Detroit for free. This organization combines a socially beneficial mission with manufacturing and provides employment to members of the demographic it serves.
According to the Harvard Business Review, both for-profit and nonprofit companies can generate revenue. After the 2007 recession, U.S. charitable giving fell by only 10 percent, dispelling the myth that a nonprofit can’t make money and that for-profit ventures would miss out on donations. Thus, organizations can choose either structure or form separate entities that serve the same cause in different ways.
InStove is a social enterprise that provides efficient stoves for developing nations where fossil fuels and electricity are scarce. In the United States, it is a nonprofit (501(c)(3)), but it collaborates with local communities to establish stove manufacturing factories in other countries. InStove provides both the technology for efficient stoves and sustainable jobs.
Experts agree that the structure of a social enterprise should serve its mission and ensure sustainability. A social enterprise should prioritize social impact over corporate structures, according to Rich Leimsider, the Vice President of Fellowship Programs at Echoing Green.
There are different structures used for social enterprises.
– Nonprofits have social missions and are not profit-driven. They must meet legal requirements and demonstrate funding transparency. Most nonprofits in the United States utilize the 501(c)(3) structure, which provides tax exemption and requires regular reporting to the IRS.
– L3Cs (Low-Profit Limited Liability Companies) are hybrid organizations that combine aspects of both nonprofit and for-profit companies. L3Cs can accept foundation grants due to their socially beneficial goals. L3Cs are currently only legal in certain U.S. states.
– B Corps are for-profit corporations that undergo a certification process to demonstrate their focus on a social mission. Certification as a B Corp is available globally in 34 countries.
– Benefit Corporations are for-profit entities that prioritize social or environmental goals over maximizing profits for shareholders. They are not required to obtain certification but must make their performance on social missions available to the public. The benefit corporation structure is available in many U.S. states.
Prominent entrepreneurs and impact-focused investors believe that socially-minded businesses are the future. Entrepreneurs like Tim Berry and Blake Mycoskie state that contributing to the world and working on one’s own terms are becoming more important in defining success. This shift in perspective is reflected in the increasing number of social enterprises formed since 2006.
Overall, social enterprises play a vital role in building a better future by combining business and social impact.
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