Toward an Improved Legal Form for Social Enterprise

Introduction

Lawyers, policymakers, and social entrepreneurs are engaging in a vigorous debate regarding new legal forms for social enterprise. Some argue that commercial activity in the non-profit sector is not new and does not require a new legal form; others argue that new legal forms, including the Low-profit Limited Liability Company (L3C) and the Benefit Corporation, can meet the needs of social enterprise; and still others argue that new legal forms are needed. This debate has suffered, however, from a fractured understanding of foundational issues related to the meaning of “social enterprise” and the limitations of existing legal forms in facilitating it. This paper seeks to repair our fractured understanding of social enterprise by (1) clarifying what social enterprises are and how they differ from other organizations; (2) revealing what social enterprises require from a corporate form; (3) explaining how existing corporate structures, including the L3C and the Benefit Corporation, fall short in meeting those requirements; and (4) briefly considering the characteristics of a new legal form for social enterprise that will better facilitate the growth and success of these promising organizations.

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