March 2013 - socentlaw

CROWDIMPACT’S DEFINITION OF SOCIAL ENTERPRISE

As we all continue our analysis and search for a definition of social enterprise that captures the movement’s spirit while also being accurate, I thought that I’d share CrowdImpact’s definition of a “social enterprise business” below (note, this definition only covers for-profit businesses and not non-profits). I like this business definition so much so that I may adopt it for my Social Enterprise & Nonprofit Law Clinic at Georgetown. The definition below (1) acknowledges that a social enterprise is more than it’s choice of legal entity and (2) prioritizes the commitment to make both an internal and external impact.

There is one aspect of this definition that I take issue with, and this is an issue that I have been trying to reconcile whenever I describe social enterprise as well. Most descriptions of social enterprise include a statement like “the primary purpose is not to make money.” I think that people knowledgeable about social enterprise understand this to mean the following: “the primary purpose is not to fatten the pockets of already wealthy owners and investors.” Because for many social enterprises, the purpose precisely is to make money or redistribute wealth – e.g., to make money to reinvest in the social enterprise’s impact efforts, or to facilitate wealth creation opportunities for low-income people or people at the bottom of the pyramid.

With that caveat, here is CrowdImpact’s Definition of a Social Enterprise Business:

A Social Enterprise business has:
1. Internal Impact in the way they treat employees, engage in production, select materials, and other factors.
2. External Impact in what they contribute to the environment, their community, and/or humanity.
3. Legal Accountability in their incorporation documents, mission statements or stated values.

Other things that help you define if your company is a for-profit social enterprise:
• It generates revenue through the sale of products and/or services.
• It applies entrepreneurial approaches to addressing social, environmental and human justice issues.
• Its purpose is beyond making money. It incorporates higher goals for the improvement of the environment, humanity and/or community.

ABA MEETING WITH TWO SOCIAL ENTERPRISE PANELS│ 4/5-6/13 │ WASHINGTON, D.C.

There will be two panels on social enterprise law at the upcoming ABA Business Law Section Spring Meeting in Washington, D.C. Details below. Law students can register for this conference for free!

You’ve Been Asked To Set Up A Social Entrepreneurship Organization – A How To Primer

Social Entrepreneurship options include LLCs, parallel nonprofit/business entities, LC3s, benefit corporations and social impact bonds. A
distinguished panel will discuss those options and the governance issues these choices present. Where are other jurisdictions are heading?
We’ll end by discussing how to promote public buy-in of the public benefit these organizations promote.

Program Chair and Moderator:
David Tang, Attorney, Gowling Lafleur Henderson, Toronto, Ontario, Canada

Speakers:
William H. Clark, Jr., Partner, Drinker Biddle & Reath LLP, Philadelphia, PA
Bart Houlahan, Co-Founder, B LAB, Berwyn, PA
Robert Keatinge, Of Counsel, Holland & Hart LLP, Denver, CO
Stephen Lloyd, Senior Partner and Head of Department, Bates Wells & Braithwaite, London, United Kingdom
Marcus S. Owens, Member, Caplin & Drysdale, Washington, DC
Allen Sparkman, Attorney, Sparkman & Foote, Houston, TX

Friday, 4/5/13, 10:30 AM – 12:30 PM Georgetown, Concourse Level, Washington Hotel

Governance of Nonprofit Organizations Joint Meeting

Speaker:  Alicia Plerhoples, Associate Professor of Law and Director of the Social Enterprise & Nonprofit Law Clinic, Georgetown University Law
Center, Washington, DC. Professor Plerhoples will speak on “Representing Social Enterprise, Facilitating Mission-Driven Corporate Governance.”

Saturday, 4/6/13, 3:30 PM – 4:30 PM Columbia 2, Terrace Level, Washington Hilton

DELAWARE PUBLIC BENEFIT CORPORATION LEGISLATION

Thanks to Professor Brian Quinn (Boston College Law School) for sending the link to Richards, Layton & Finger’s (“RLF”) alert about public benefit corporation legislation in Delaware

The relevant portions of the RLF alert, about the proposed amendments to the Delaware General Corporation Law, are pasted below.  

Public Benefit Corporations

In a development that may be of significant interest to social entrepreneurs, the proposed legislation would add a new subchapter XV to the DGCL (Sections 361 through 368) to enable Delaware corporations to be incorporated as or, subject to certain restrictions, to become, “public benefit corporations.” Such corporations would remain subject to all other applicable provisions of the DGCL, except as modified or supplanted by the new subchapter.

In general, under the proposed legislation, a public benefit corporation would be a corporation managed in a manner that balances the stockholders’ pecuniary interests, the interests of those materially affected by the corporation’s conduct, and one or more public benefits identified in its certificate of incorporation. To this last point, each public benefit corporation would be required, in its certificate of incorporation, to identify itself as a public benefit corporation and to state the public benefits it intends to promote. The proposed legislation generally defines “public benefits” as positive effects (or minimization of negative effects) on persons, entities, communities or interests, including those of an artistic, charitable, cultural, economic, educational, literary, medical, religious, scientific or technological nature.

Central to the proposed new subchapter’s operation is the statutory mandate that would be imposed on directors. The new subchapter would provide that directors, in managing the business and affairs of the public benefit corporation, shall balance the pecuniary interests of the stockholders, the interests of those materially affected by the corporation’s conduct, and the identified public benefits. The new subchapter also would provide that directors shall not have any duty to any person solely on account of any interest in the public benefit and would provide that, where directors perform the balancing of interests described above, they will be deemed to have satisfied their fiduciary duties to stockholders and the corporation if their decision is both informed and disinterested and not such that no person of ordinary, sound judgment would approve.

The new subchapter would impose special notice requirements on public benefit corporations, mandating periodic statements to stockholders regarding the corporation’s promotion and attainment of its public benefits. The new subchapter also would provide a means of enforcing the promotion of the public benefits. By statute, stockholders holding at least 2% of the corporation’s outstanding shares (or, in the case of listed companies, the lesser 2% of the outstanding shares or shares having at least $2 million in market value) would be able to maintain a derivative lawsuit to enforce specified requirements in the subchapter.

The new subchapter would contain limitations on the power of public benefit corporations to adopt amendments to their certificates of incorporation or effect mergers or consolidations if the effect would be to abandon their public benefit purpose. These limitations would be imposed through a 66 2/3% vote of each class of the public benefit corporation’s outstanding stock.

The new subchapter would also contain limitations on the power of corporations that are not public benefit corporations to amend their certificates of incorporation to become public benefit corporations or to effect mergers or consolidations that would result in their stockholders receiving shares in a public benefit corporation. These actions would require a 90% vote of each class of the corporation’s outstanding stock. New subchapter XV would also provide appraisal rights to any stockholder of a corporation that is not a public benefit corporation that, by virtue of an amendment to the corporation’s certificate of incorporation or any merger or consolidation, receives equity interests in a public benefit corporation. Corresponding changes to Section 262 of the DGCL, the appraisal section, would also be made.

 

LAW & SOCIETY │ 5/31/13 │ BOSTON, MA

A few days ago, Kyle Westaway asked: When will law schools start taking [social enterprise] seriously?

Well, on Friday May 31, 2013 at the Boston Sheraton Hotel (Room 05) from 4:30 p.m. until 6:15 p.m. the Law and Society Association will host a roundtable discussion at its annual meeting on corporate and tax law issues in the social enterprise space.

The participants in the Law & Society roundtable include the following law professors:

Alicia Plerhoples (Georgetown) (Chair), Dana Brakman Reiser (Brooklyn), Haskell Murray (Regent), and Marcia Narine (currently UMKC, but moving to St. Thomas (FL) in the fall).

The abstract from our proposal reads:

We propose a roundtable discussion session that will focus on corporate and tax law’s expansion to accommodate for-profit businesses’ pursuit of the social good. This session ties to the conference’s theme of investigating the economic downturn’s effect on law and society by exploring the ways in which the downturn has promoted a rapid acceleration of the social enterprise movement and an increased commitment to corporate sustainability methods. Sustainability is a complex goal that requires a multidisciplinary approach that necessarily involves economic actors—businesses. Social entrepreneurs as well as corporate leaders are considering some of the most pressing economic issues of our time related to sustainability. How will businesses operate given the increased global demand for natural resources, gross economic disparity and inequality, and climate change of the twenty-first century?

Our panel will discuss the ways in which corporate and tax law are being reconceived to address social and environmental problems. We will discuss the proliferation of so-called social enterprise legislation (i.e., the benefit corporation, L3C, flexible purpose corporation, etc.) that has been hailed as an innovative step forward in business, while also criticized as being untested, unnecessary, and even irresponsible. In addition to introducing the audience to the new social enterprise legislation, the panelists will debate the various criticisms of social enterprise generally, and the legislation specifically, and discuss social enterprise in the larger context of the social and environmental pressures on the global economy. We will also offer our thoughts on the future of the social enterprise movement.

This is the only one of many panels, symposia, and conferences over the past few years that has had focused on social enterprise law.  That said, I agree with Kyle that law schools are still lagging behind business schools in the social enterprise space.  As I mentioned in the comments to his post, some of this lag is due to the fact that the U.S. social enterprise statutes are only 5 or fewer years old and, to my knowledge, there has not been any litigation involving these new forms.   This semester, I am teaching a social enterprise law course at Regent University School of Law, and it has been a wonderful class to teach.  I know a number of my co-bloggers have also taught social enterprise law classes, including Cass Brewer (Georgia State), Alicia Plerhoples (Georgetown), Deborah Burand (Michigan), and even Kyle Westaway – who asked the opening question – has co-taught a short course in social enterprise law at Harvard Law School.  I am sure there are additional social enterprise law courses being offered, and I do think law schools will start taking social enterprise more seriously as the space evolves.

 

THE RISE OF SOCIAL ENTREPRENEURSHIP IN B-SCHOOLS

Katie Smith Milway and Christine Driscoll Goulay wrote a great post in Harvard Business Review about the explosion of social entrepreneurship in the last decade. Check out the post here.

I’m ecstatic to see that the next generation of business leaders are taking social enterprise seriously. With the exception of a few schools, the legal academy is not even aware of the social enterprise movement. The legal academy is about 20 years behind the curve on this. Why does this divide across the quad exist? When will the legal academy start taking this sector seriously?