Legal Structures for Social Entrepreneurs. This presentation addresses: -Corporation -B Corp Certification -Benefit Corporation -Flexible Purpose Corporation -L3C -Nonprofit For each legal structure, this presentation addresses: -formation -management -taxation -capital

1. Profit + Purpose
structuring social enterprise for impact

2. @socentlaw
#socent

3. historical context

4. maximize shareholder value
duty to make the most $ for shareholders
Business judgement rule
Hostile takeovers
constituency statutes
@socentlaw

5. corporation

6. formation
FILE ARTICLES OF INCORPORATION
FORM BOARD OF DIRECTORS
DRAFT BYLAWS
HOLD ORGANIZATIONAL MEETING
ISSUE STOCK
@socentlaw

7. management
MANAGED BY DIRECTORS
OFFICERS RUN DAY TO DAY OPERATIONS
REGULAR FILINGS REQUIRED
@socentlaw

8. taxation
SUBJECT TO CORPORATE TAX ON NET INCOME
IF SHAREHOLDERS RECEIVE DIVIDENDS, THAT IS SUBJECT
TO PERSONAL INCOME TAX
@socentlaw

9. Google

10. B corp certification

11. certification for sustainable business
Voluntary certification Not legal structure
can be applied to any legal structure
differentiates good companies from companies with
good marketing
@socentlaw

12. formation
80/200 on B labs assessment
include key language in organizing documents
@socentlaw

13. management
PERIODIC ASSESSMENT
MUST PUBLISH RESULTS OF ASSESSMENT
@socentlaw

14. taxation
DEPENDING ON FORM
1ST TAX BREAKS IN THE CITY OF PHILADELPHIA
@socentlaw

15. capital
depends on legal structure
@socentlaw

16. Method

17. benefit corporation

18. a new class of corporation
mandate to operate for public benefit
increase in transparency / accountability
@socentlaw

19. general public benefit
A MATERIAL POSITIVE IMPACT ON SOCIETY AND THE
ENVIRONMENT, TAKEN AS A WHOLE, ASSESSED AGAINST A
3RD PARTY STANDARD, FROM THE BUSINESS AND
OPERATIONS OF A BENEFIT CORPORATION.
@socentlaw

20. third party standard
DEVELOPED BY A PARTY NOT RELATED TO THE ENTITY IT’S
MEASURING
TRANSPARENT IN ITS METHODOLOGY
@socentlaw

21. specific public benefit
PROVIDING INDIVIDUALS / COMMUNITIES WITH BENEFICIAL
PRODUCTS OR SERVICES
PROMOTING ECONOMIC OPPORTUNITIES FOR INDIVIDUALS
OR COMMUNITIES BEYOND JOB CREATION
Promoting health / Environmental preservation
Promoting Arts / sciences
@socentlaw

22. transparency
ISSUE ANNUAL REPORT INCLUDING RECORD OF SUCCESSES
AND FAILURES for general and specific public benefit
120 DAYS AFTER THE CLOSE OF THE FISCAL YEAR
PUBLICLY AVAILABLE
@socentlaw

23. formation
FILE ARTICLES OF INCORPORATION STATing benefit
corporation STATUS and specific public benefit
IF EXISTING CORP, MUST HAVE 2/3 VOTE
DRAFT BYLAWS
HOLD ORGANIZATIONAL MEETING
ISSUE STOCK including specific language @socentlaw

24. management
MANAGED BY DIRECTORS
OFFICERS RUN DAY TO DAY OPERATIONS
DIRECTORS MUST TAKE BENEFIT INTO ACCOUNT ON ALL
DECISION MAKING
ANNUAL ASSESSMENT BY 3RD PARTY
Most states require a “benefit director” @socentlaw

25. taxation
SUBJECT TO CORPORATE TAX ON NET INCOME
IF SHAREHOLDERS RECEIVE DIVIDENDS, THAT IS SUBJECT
TO PERSONAL INCOME TAX
no tax favored status.... yet.
@socentlaw

26. capital
EQUITY
DEBT
PRI
@socentlaw

27. greyston bakery

28. flexible purpose corporation

29. a new class of corporation
allows corporation to pursue a special purpose
protects directors from shareholder suit
@socentlaw

30. formation
FILE ARTICLES OF INCORPORATION STATing FPC STATUS
and special purpose
IF EXISTING CORP, MUST HAVE 2/3 VOTE
DRAFT BYLAWS
HOLD ORGANIZATIONAL MEETING
ISSUE STOCK @socentlaw

31. management
MANAGED BY DIRECTORS
OFFICERS RUN DAY TO DAY OPERATIONS
DIRECTORS MAY CHOOSE TO INCLUDE BENEFIT IN DECISION
MAKING
NO 3RD PARTY VERIFICATION
ANNUAL BENEFIT REPORT @socentlaw

32. taxation
SUBJECT TO CORPORATE TAX ON NET INCOME
IF SHAREHOLDERS RECEIVE DIVIDENDS, THAT IS SUBJECT
TO PERSONAL INCOME TAX
NO TAX FAVORED STATUS… YET.
@socentlaw

33. capital
EQUITY
DEBT
PRI
@socentlaw

34. LLC

35. formation
FILE ARTICLES OF ORGANIZATION WITH THE STATE
NEGOTIATE AND EXECUTE OPERATING AGREEMENT
@socentlaw

36. management
MOST FLEXIBLE
LEAST AMOUNT OF FILINGS
MEMBERS CAN OPERATE DAY TO DAY OR DELEGATE THAT
TO MANAGERS
@socentlaw

37. taxation
MOST LLC’S CHOOSE PASS THROUGH TAXATION TREATMENT
@socentlaw

38. capital
EQUITY
DEBT
PRI
@socentlaw

39. Runa

40. L3C

41. a new class of LLC
Elevates charitable purpose over profit
allows a mix of philanthropic and private capital
@socentlaw

42. program related investment
TAX REFORM ACT OF 1969 REQUIRED STRICT
CONSERVATIVE RULES ON FOUNDATION INVESTMENT
PRI IS AN EXCEPTION FOR ORGANIZATIONS THAT HAVE A
CHARITABLE PURPOSE
USED INFREQUENTLY
@socentlaw

43. formation
FILE ARTICLES OF ORGANIZATION WITH THE STATE
INCLUDE CHARITABLE PURPOSE IN ORGANIZING DOCS
NEGOTIATE AND EXECUTE OPERATING AGREEMENT
@socentlaw

44. management
MOST FLEXIBLE
LEAST AMOUNT OF FILINGS
MEMBERS CAN OPERATE DAY TO DAY OR DELEGATE THAT
TO MANAGERS
@socentlaw

45. taxation
MOST L3C’S CHOOSE PASS THROUGH TAXATION
TREATMENT
NO TAX EXEMPT STATUS
@socentlaw

46. capital
DESIGNED SPECIFICALLY TO RECEIVE PRI
EQUITY
DEBT
@socentlaw

47. moo milk

48. nonprofit

49. formation
FILE ARTICLES OF ORGANIZATION WITH THE STATE
INCLUDING SUGGESTED IRS LANGUAGE
FILE 1023 APPLICATION WITH IRS
DRAFT BYLAWS
HOLD ORGANIZATIONAL MEETING
@socentlaw

50. management
MANAGED BY DIRECTORS
MUST STAY WITHIN STATED CHARITABLE PURPOSE OR RISK
LOSING TAX EXEMPT STATUS
@socentlaw

51. taxation
EXEMPT FROM FEDERAL INCOME TAX
LIABLE FOR TAX ON UBIT
DONATIONS ARE TAX DEDUCTIBLE
@socentlaw

52. capital
INDIVIDUAL DONORS
GRANTS
PRI
DEBT
NO EQUITY
@socentlaw

53. krochet kids

54. join the conversation
socentlaw.com
kyle@westawaylaw.com
@socentlaw
@kylewestaway

55. Profit + Purpose
structuring social enterprise for impact