Social Enterprise Law2017-10-20T13:48:42-06:00

Social Enterprise Law & Social Entrepreneurship

“Social entrepreneurs are not content to just give a fish or teach how to fish. They will not rest until they have revolutionized the fishing industry.” – Bill Drayton

What is a Social Enterprise?

I define a social enterprise as a business or nonprofit organization whose primary purpose is doing good and improving society — and whose principle means to accomplish this goal is generating revenue/sales. A social entrepreneur is a person running a social enterprise.

On the nonprofit side, my definition of social enterprise includes 501(c)(3) and other nonprofit organizations (charitable or otherwise) whose revenue is primarily earned through the sale of products or services, rather than through soliciting donations and obtaining grants.

In the for-profit world, I consider double and triple bottom line companies to be social enterprises, as well as public benefit corporations (not to be confused with B-Corps – for a quick explanation of the difference between benefit corporations and B-Corps read Corporate Law Gets Progressive – All About B-Corporations   and other unique, hybrid-type entities.

Double bottom line companies believe they have an obligation to support social causes that is at least as important as their need to generate profit. These companies believe that being a good corporate citizen is good for business. One example of a double bottom line company is TOMS shoes, which pioneered the “one and one” business model where they give away a pair of shoes every time they sell a pair of shoes. Warby Parker is another example of a “one and one” company – social entrepreneurship making a huge difference and making serious profits while doing so!

Triple bottom line companies follow a three-part framework, focusing on their social, environmental and financial impact – people, planet and profits. Seventh Generation and Patagonia are examples of triple bottom line companies. For more on why double and triple bottom line companies are the business models of the future, read The Business Model of the Future: What’s next for Do Good + Do Well companies?.

Recognizing that many companies’ missions are not wholly compatible with the traditional tenet of U.S. corporate law — namely, that increasing “shareholder value” exists as the primary if not sole objective of boards of directors and executives — many states have passed legislation allowing for the creation of so-called “hybrid” entities. These entities strike a balance between the traditional aims of for-profit businesses and nonprofit organizations. Examples include public benefit corporations, low-profit liability companies and social purpose corporations.

In the case of benefit corporations (called public benefit corporations in some states), this new type of for-profit entity was created to address the fact that traditional corporate governance (the rules that guide corporate boards of directors and officers of corporations) is focused entirely on acting in the best interests of the corporation, which is often translated as maximizing profit to shareholders. With a benefit corporation, the officers and directors must consider the needs of a public constituency – a group of people or a cause – and the officers and directors are empowered to make decisions that favor that “public benefit,” even if it comes at the cost of not maximizing value to shareholders. In fact, their decisions need to account for this public benefit and in most states public benefit corporations must file an annual or bi-annual report that explains what they have done to advance their public benefit.

As with any definition, it’s helpful to acknowledge what social enterprise and social entrepreneurship are not. They are not, according to my definition, traditional for-profit businesses selling things to indigent people. When General Electric sells items to people in rural Bangladesh, no matter what their corporate marketing department wants us to believe, that’s not social entrepreneurship. That’s doing the same thing they have always done, just selling to a different market. On its face, there is nothing wrong with that. If done properly, selling things to people in developing countries isn’t per se exploitative. Everyone needs to buy things. But, let’s not pretend GE (I’m not ragging on GE, BTW – just using them as an example) is suddenly a corporate do-gooder because of entering a new, previously underserved market.

In the end, social enterprise is not defined primarily by the type of entity a social entrepreneur incorporates to operate their social venture. And, it isn’t about giving some things away or using the right words. Social entrepreneurship is about leading with the heart and elevating mission above money. Money is not the goal, it’s a tool and a by-product of doing great things. Social entrepreneurs know this and give money its rightful seat at the table, just not at the head of the table. Once you recognize how important and powerful a movement social enterprise is and why leading with the heart is key, it becomes easier to spot who is part of the movement and who is using social entrepreneurship as a trendy tool or soundbite for garnering some press.

Social Entrepreneurship Is on the Rise

One of the exciting things for me to watch is the increasingly blurred lines between for-profit business and nonprofit organizations. While those with a heart for nonprofit organizations may be concerned that nonprofits are selling out by seeking earned revenue, I think it’s awesome that people with heart who want to do good in the world are finding ways to apply the power of capitalism to marshal more resources. After all, resources, especially money, are critical to having an impact in our world. For better or worse, money makes our current world function.

I am a business lawyer in Texas with offices in Austin and Houston. Every day I hear or read about new social entrepreneurs near me doing amazing things to improve our world. Our collective consciousness is evolving. Many of us are tired of seeing all the negative things done in the name of capitalism, for the pure pursuit of profit without concern for the fallout. Capitalism is a powerful tool – no question, but left unchecked and applied without heart or love, it can be devastating. Social entrepreneurs are increasingly empowered to do something about this disconnect.

The continued evolution of our capital markets is helping advance social entrepreneurship. Whereas 10+ years ago (I’m writing this in 2017) there was very little capital available to nonprofits or other ventures that were not clearly and solely for-profit businesses, angel investors and even some venture capitalists are beginning to seek their own double bottom line. This type of mission-driven investing goes by various names — social impact investing, socially responsible investing and ethical investing. Socially conscious investing is a trend, although I do not think it’s a fad. It’s here to stay.

My Legal Services for Social Entrepreneurs

For years, I made money the end goal. I let it become THE most important thing, the point of my being in business. That never felt true to who I was, and I was a little lost. Part of that was my effort to validate myself in the world – to have the world think I was something, as though the car I drove or watch I wore was all I had to offer the world. When money is the primary goal, decision making can get warped quickly.

Money no longer has that hold over me. I recognize the value of it as an important resource to accomplish more in the world, although that is all it is – a resource. It is a by-product of doing great work, not the end goal. Because of my shift in focus (or, more accurately, my return to knowing what is right and true for Brett), I have a renewed heart for ventures that seek to accomplish more in the world than just making money. Social entrepreneurship, whether in the form of a nonprofit organization (501(c)(3) or otherwise), benefit corporation, B-Corp, or double or triple bottom line company, excites me. I love working with and helping social entrepreneurs.

As a business lawyer, I help social entrepreneurs launch ventures, including forming nonprofits, benefit corporations and other social enterprises. I spend a lot of time helping cofounders document their deal by drafting and negotiating buy-sell (push-pull) provisions, equity vesting, dispute resolution clauses and more. I help social enterprises raise capital, buy and sell other social enterprises (mergers and acquisitions), and negotiate contracts (service agreements, non-disclosure agreements, commercial leases, employment agreements, licensing agreements, etc.). I also help nonprofits navigate the complex of nonprofit governance – avoiding unrelated business income tax when generating revenue, managing and operating boards of directors and things of a similar nature.

My background in business and law, including time I spent in the c-suite in corporate America (including in the oil and gas industry, which is not always recognized as a socially conscious industry!!), gave me contacts, tools, resources and best practices to apply to my legal practice and to help social entrepreneurs accomplish great things. As I mentioned earlier, the merging of the for-profit mindset and the nonprofit heart are a powerful combination – money & mission or profits & purposes – whatever the term you choose, it’s a powerful merger of two different mindsets. It excites me and I have a lot to contribute.

If you are thinking about becoming a social entrepreneur or if you already have a growing social enterprise and need some legal assistance or business advice, give me a call at 512.888.9860. I’d love to talk to you more about what you are doing and I how I might be a part of that.

 

Mr. Cenkus has been a fantastic lawyer. He’s very responsive and well informerd in what he practices. Not only is he very professional he is also laid back so it’s almost like working with a friend. He has great pricing and won’t micro charge you for every little thing like many other lawyers will. I am definitely a happy client!

Arturo, Austin, TX

Arturo, Austin, TX, Your Content Goes Here