PROFIT + PURPOSE - Structuring Social Enterprise for Impact

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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

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PROFIT + PURPOSE - Structuring Social Enterprise for Impact

  1. 1. Profit + Purpose structuring social enterprise for impact
  2. 2. @socentlaw#socent
  3. 3. historical context
  4. 4. maximize shareholder value duty to make the most $ for shareholders Business judgement rule Hostile takeovers constituency statutes @socentlaw
  5. 5. corporation
  6. 6. formation FILE ARTICLES OF INCORPORATION FORM BOARD OF DIRECTORS DRAFT BYLAWS HOLD ORGANIZATIONAL MEETING ISSUE STOCK @socentlaw
  7. 7. management MANAGED BY DIRECTORS OFFICERS RUN DAY TO DAY OPERATIONS REGULAR FILINGS REQUIRED @socentlaw
  8. 8. taxation SUBJECT TO CORPORATE TAX ON NET INCOME IF SHAREHOLDERS RECEIVE DIVIDENDS, THAT IS SUBJECT TO PERSONAL INCOME TAX @socentlaw
  9. 9. Google
  10. 10. B corp certification
  11. 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. 12. formation 80/200 on B labs assessment include key language in organizing documents @socentlaw
  13. 13. management PERIODIC ASSESSMENT MUST PUBLISH RESULTS OF ASSESSMENT @socentlaw
  14. 14. taxation DEPENDING ON FORM 1ST TAX BREAKS IN THE CITY OF PHILADELPHIA @socentlaw
  15. 15. capital depends on legal structure @socentlaw
  16. 16. Method
  17. 17. benefit corporation
  18. 18. a new class of corporation mandate to operate for public benefit increase in transparency / accountability @socentlaw
  19. 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. 20. third party standard DEVELOPED BY A PARTY NOT RELATED TO THE ENTITY IT’S MEASURING TRANSPARENT IN ITS METHODOLOGY @socentlaw
  21. 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. 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. 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. 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. 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. 26. capital EQUITY DEBT PRI @socentlaw
  27. 27. greyston bakery
  28. 28. flexible purpose corporation
  29. 29. a new class of corporation allows corporation to pursue a special purpose protects directors from shareholder suit @socentlaw
  30. 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. 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. 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. 33. capital EQUITY DEBT PRI @socentlaw
  34. 34. LLC
  35. 35. formation FILE ARTICLES OF ORGANIZATION WITH THE STATE NEGOTIATE AND EXECUTE OPERATING AGREEMENT @socentlaw
  36. 36. management MOST FLEXIBLE LEAST AMOUNT OF FILINGS MEMBERS CAN OPERATE DAY TO DAY OR DELEGATE THAT TO MANAGERS @socentlaw
  37. 37. taxation MOST LLC’S CHOOSE PASS THROUGH TAXATION TREATMENT @socentlaw
  38. 38. capital EQUITY DEBT PRI @socentlaw
  39. 39. Runa
  40. 40. L3C
  41. 41. a new class of LLC Elevates charitable purpose over profit allows a mix of philanthropic and private capital @socentlaw
  42. 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. 43. formation FILE ARTICLES OF ORGANIZATION WITH THE STATE INCLUDE CHARITABLE PURPOSE IN ORGANIZING DOCS NEGOTIATE AND EXECUTE OPERATING AGREEMENT @socentlaw
  44. 44. management MOST FLEXIBLE LEAST AMOUNT OF FILINGS MEMBERS CAN OPERATE DAY TO DAY OR DELEGATE THAT TO MANAGERS @socentlaw
  45. 45. taxation MOST L3C’S CHOOSE PASS THROUGH TAXATION TREATMENT NO TAX EXEMPT STATUS @socentlaw
  46. 46. capital DESIGNED SPECIFICALLY TO RECEIVE PRI EQUITY DEBT @socentlaw
  47. 47. moo milk
  48. 48. nonprofit
  49. 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. 50. management MANAGED BY DIRECTORS MUST STAY WITHIN STATED CHARITABLE PURPOSE OR RISK LOSING TAX EXEMPT STATUS @socentlaw
  51. 51. taxation EXEMPT FROM FEDERAL INCOME TAX LIABLE FOR TAX ON UBIT DONATIONS ARE TAX DEDUCTIBLE @socentlaw
  52. 52. capital INDIVIDUAL DONORS GRANTS PRI DEBT NO EQUITY @socentlaw
  53. 53. krochet kids
  54. 54. join the conversation socentlaw.com kyle@westawaylaw.com @socentlaw @kylewestaway
  55. 55. Profit + Purpose structuring social enterprise for impact

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