Theory: What are the unique HR and operational considerations that social entrepreneurs need to incorporate in their social enterprise? Practice: What strategies and techniques can social entrepreneurs apply to effectively execute the operational and HR aspects of their social venture? http://www.socialentrepreneurship.ca/indev308

1. INDEV 308: Introduction to Social
Entrepreneurship
Class 6: Operational, HR and Legal
Considerations
Monday, June 13, 2011
Instructors:
Norm Tasevski (norm@socialentrepreneurship.ca)
Karim Harji (karim@socialentrepreneurship.ca)
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Agenda
• Greyston Bakery
• HR Considerations
• Operational Considerations
• Legal Considerations
• Guest Speaker – Mary McGrath (Small Change
Fund)
• What did we learn?
• Next Week
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4. HR Considerations…
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Where does HR Fit?
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A Caveat…
Think of your HR from the perspective of “running a
business”, not “running a charity”
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A Second Caveat…
Your HR Strategy must align with your business model
and align with organizational values
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8. What if you were a…
Product-based, for-profit Social Business…!
“Purpose-built”, non-profit Social Enterprise…!
“Fee-for-service” Social Business…!
“Virtual” Platform…!
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What If you were a….
Product-based social business!
• Types of Employees?
• Volunteers?
• HR/volunteer
management?
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What If you were a….
Purpose-built social enterprise?!
• Types of Employees?
• Volunteers?
• HR/volunteer
management?
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What If you were a….
Fee-for-service Social Business? !
• Types of Employees?
• Volunteers?
• HR/volunteer
management?
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What If you were a….
Virtual platform? !
• Types of Employees?
• Volunteers?
• HR/volunteer
management?
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Other HR Considerations…
• Who/what do you need?
• How do you find the right people?
• How do you define what they do?
• How (and from where) do you pay them?
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Exercise:
What HR Strategy makes sense for…!
Your venture???!
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Balancing Financial and Social
Tensions
• “Social cost”
• Business acumen
• Two missions – may lead to confusion/conflict
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Summary: Key Questions
• Who will manage the business?
• How do you plan to staff the venture?
• Will staff require special training or accreditation?
• Will the non-profit’s clients be hired? If so, are there any special
accommodations that will require additional staff or other resources?
• Will staff work on contract, for honoraria, or on a permanent basis?
• Do you have a person with business experience and/or training on
staff and how will that person be utilized?
• Does the staffing plan match your operational needs and revenue
growth projections?
• How will the staffing needs change as the enterprise grows?
• Are any of the positions transitional by design? If so, how will the high
turnover rates be accounted for in the enterprise?
• How easy will it be to attract qualified staff with anticipated working
conditions and salaries?
• What is the organizational chart? What is the accountability of each
staff member?
Source: http://www.enterprisingnonprofits.ca/sites/www.enterprisingnonprofits.ca/files/uploads/SEGUIDE_Web_Chapter_Five.pdf 17

18. Operational Considerations…
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How do you…
Operationalize your Value Proposition?!
Your venture???!
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How do you…
Operationalize your “Customer” function?!
Your venture???!
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How do you…
Operationalize your Channels?!
Your venture???!
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How do you…
Operationalize your “Relationships” function?!
Your venture???!
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How do you…
Operationalize your Key Resources?!
Your venture???!
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How do you…
Operationalize your Key Activities?!
Your venture???!
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How do you…
Operationalize your Partner Development?!
Your venture???!
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Summary: Key Questions
• How will you operationalize each segment of the
business model?
• How will you ensure that you adequately
understand and capture your considerations and
assumptions?
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Some Resources: MaRS workbooks
1. Building an A-Team
• What values do you seek in new hires?
• As the company grows, what new hires will you need and when?
• What skills do successful employees at your company require?
• What qualities do your employees need to make them excellent?
• How should you screen and interview to find the best candidates?
• How do you make an official offer of employment?
2. Compensation
• What forms of compensation are most effective for a start-up?
• How do I structure my employee stock option plan?
• What benefits am I legally required to provide and how much will they cost?
• How do I build a realistic and comprehensive HR budget?
3. HR at Work
• How do I effectively bring new people on board?
• How do I establish and conduct performance reviews?
• What are the essential HR policies and procedures I need to have in place?
• How do I create an effective employee handbook?
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28. Legal Forms Applicable to Social
Enterprise…
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A Caveat…
There is no defined (national or provincial) legal form
for social enterprise in Canada
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A Second Caveat…
Form follows function
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31. For-Profit Non-Profit
Corporation! Corporation!
Partnership! Charity!
Sole Co-Operative
Proprietorship! Corporation!
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For-Profit Corporation!
• Incorporated under the Business Corporations Act (Ontario) (the “OBCA”)
or the Canada Business Corporations Act (federal) (the “CBCA”)!
• With share capital!
• Most flex in terms • Pay corporate tax!
of profit-making • Cannot access grants!
activities!
• Cultural/
• Can access all
forms of investment psychological barriers
(debt, equity, etc)! with operating a “for-
• Provides clarity of profit social
purpose (i.e. the business”!
financial bottom
line)!
• Limited personal
liability!
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Charity!
• Incorporated via Letters Patent under the Corporations Act (Ontario) or
Canada Corporations Act (federal)!
• Without share capital!
• Don’t pay corporate • Least flex in terms of
tax on earnings! profit-making activities!
• Limited in the types of
• Can issue tax investments you can
receipts! access (e.g. equity)!
• Can access many • Time-consuming!!
government/ • Psychological barriers
foundation/ with operating a “social
corporate grants! business”!
• An aversion to “risk
taking”!
• Can lose status if “too
successful”!
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Sole Proprietorship!
• Registered via Business Names Act (Ontario) or Canada Corporations Act
(federal)!
• Without share capital!
• The simplest (and • Unlimited liability!!!
quickest) legal form! • The business is the
• You have full entrepreneur!
control of business • Hard to find investors!
decisions! • Limited creative input
• Flexibility to make (i.e. you’re the only
business decisions one with ideas!)!
quickly! • Less “professional”
• No separate filing than other forms!
for income tax!
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Non-Profit Corporation!
• Incorporated via Letters Patent under Corporations Act (Ontario) or Canada
Corporations Act (Federal)!
• Generally without share capital!
• Can access grants! • Can’t issue tax
• Can access debt receipts!
financing! • Limited in the types of
• Tax exempt as long investments you can
as organized and access (e.g. equity)!
operated for defined • Psychological barriers
social/community with operating a
benefit! “social business” !
• Some NPs are more
• Can lose status if
open to (limited)
“too successful”!
risk-taking!
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Partnership!
• Registered under the Partnerships Act (Ontario)!
• With or without share capital!
• Usually organized using a Partnership Agreement!
• Similar benefits to • For most
sole proprietorship! partnerships, unlimited
• Combines skills/ liability! (at least in
competencies of Canada…)!
two people! • Acrimony between
• Can sign contracts partners is common!
and borrow money in • Difficult to find
its own right! investors!
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Co-Operative Corporation!
• Incorporated under the Co-Operative Corporations Act (Ontario) or Canada
Cooperatives Act (Federal)!
• Wither with or without share capital!
• Well-established • Cannot issue tax
structures! receipts!
• Integrates the • Generally not exempt
concept of from paying tax!
“community benefit” • Psychological barriers
already! with operating a
“social business”!
• Difficulty making
decisions (too many
people at the table)!
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Exercise:
Which legal form makes sense for…!
Your venture???!
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CRA Guidelines
• Direction (law, regulations, guidelines, precedents)
around social enterprise are not completely clear
• Community economic development (CED)-specific
exemptions:
– Relief of unemployment: training business.
– Relief of poverty through operating stores: business that
provides low-cost necessities.
– Relief of people with disabilities: “social business.”
– Relieving suffering in economically challenged
communities
• Federal view of the business activity may differ from
any provincial position
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An Evolving Conversation…
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Hybrid Structures
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Talk to a Lawyer!
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44. Legal Innovations…
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Legal Innovation: CIC (UK)
• Established to trade (goods or services) for the
community good
• Requires “community interest statement” application to
the CIC Regulator. Publically-available annual reports
required to confirm (adherence to) community interest
requirement
• May issue shares in order to raise capital
• Cap on returns (dividends paid) set by the Regulator
• Subject to an “asset lock”
– Assets and profits must be permanently retained by the CICs
for community benefit, or transferred to another CIC subject
to an asset lock, or to a charity
• Taxed in the same manner as other businesses
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Legal Innovation: L3C (US)
• Variation on American Limited Liability Companies (LLCs)
• LLC investors are members rather than shareholders
• Terms of the operating agreement guarantee the public
benefit nature of the entity’s work
• Like LLCs, L3Cs are not subject to federal income tax
themselves, but the income they pay to members is
taxable according to the rates applicable to each
member
• Able to attract private capital through the sale of shares
and other securities, various forms of loans, or other
commercial financial arrangements.
• Ability to receive Program Related Investments from
foundations
• No asset lock and no dividend cap
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Legal Innovation: B Corp (US)
• To be certified as a B
corporation under the B Lab
system, the corporation
must:
– Achieve a minimum score of
80 (out of 200) on the B
Ratings System, a tool to
assess a company's social
and environmental
performance.
– Agree to make legal
changes to its articles of
incorporation to expand the
responsibilities of the
company to include
consideration of stakeholder
interests.
– Pay B Lab an annual
licensing fee.
– Recertification is required
every two years.
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Summary: Key Questions
• Is the venture’s primary mission mostly social or profit?
• What are the founders’ views, skills, motives, and
intentions? How closely held is the organization?
• What is the market for the primary activities (goods/
services)?
• How much money is needed and where will you get it?
• What level of risk and liability is your organization willing
to take?
• What will be the relationship between the enterprise and
the parent organization? Will the enterprise be a
separate entity? What is the governance structure of the
enterprise (separately and in relation to the parent
organization)?
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50. Break
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Guest Speaker - Mary McGrath
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What did we learn?
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