LAW AND SOCIAL ENTREPRENEURSHIP

Kauffman Foundation Announces Renovated and Expanded EshipLaw Website

Long a supporter of entrepreneurship, the Ewing Marion Kauffman Foundation has announced the renovation and expansion of its Entrepreneurship Law (“EshipLaw”) website. The improved website “includes a collection of resources on intersections of law with entrepreneurship and entrepreneurship education that can be relevant in several settings, whether you are an entrepreneurship educator, a student, an inventor, a business owner, or a lawyer or other advisor to entrepreneurs.”

The renovated and expanded EshipLaw website also hosts a brand new section focused solely on social enterprise law. This new section contains unique information and materials that law professors and other educators will find useful in connection with teaching social enterprise law in their classrooms and clinics. Check out the new social enterprise section of the EshipLaw website here.

Thanks to the Ewing Marion Kauffman Foundation for providing this terrific resource.

PS: Please forgive the shameless self-promotion, but yours truly is one of the new editors of the EshipLaw website. Suggestions for improvements to the website as well as contributions of new materials are welcome. Furthermore, in connection with the renovation and expansion, EshipLaw has published my essay entitled, “Gift Horses, Choosy Beggars, and Other Reflections on the Role and Utility of Social Enterprise Law.” I hope that you will find my essay an informative and entertaining read.

HYBRID BUSINESS ENTITIES IN 2014

Happy New Year from SocEntLaw! And, for my fellow academics, welcome back to school!

As we begin 2014, I decided to post on the current state of the law concerning hybrid business entities: benefit corporations, flexible purpose corporations, social purpose corporations, benefit LLCs, and low-profit limited liability companies (“L3Cs”). For more detailed information on these new entities (including citations to the relevant statutes), see my updated social enterprise entity comparison chart posted on SSRN here.

L3Cs: First, with respect to L3Cs, North Carolina conspicuously repealed its L3C statute effective January 1, 2014. Therefore, only eight states now authorize L3Cs: Illinois, Louisiana, Maine, Michigan, Rhode Island, Utah, Vermont, and Wyoming.

Benefit LLCs: The number of benefit LLC states remains at two. Only Maryland and Oregon authorize benefit LLCs.

Flexible/Social Purpose Corporations: Only one state, California, authorizes flexible purpose corporations, while only two states, Texas and Washington, authorize social purpose corporations.

Benefit Corporations: The current number of benefit corporation states is trickier to determine. Altogether, nineteen states and the District of Columbia have enacted some form of benefit corporation legislation; however, a couple of those states have delayed the effective date for their benefit corporation statutes. Jurisdictions with currently effective benefit corporation legislation include the District of Columbia and seventeen states: Arkansas, California, Delaware, Hawaii, Illinois, Louisiana, Maryland, Massachusetts, Nevada, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, South Carolina, Vermont, and Virginia. Two states have passed benefit corporation statutes that (absent further action) will become effective at a future date. Specifically, Colorado’s benefit corporation statute becomes effective April 1, 2014—Really? April Fools’ Day?—while Arizona’s benefit corporation statute becomes effective January 1, 2015.

Predictions: What will 2014 bring with respect to hybrid business entity statutes? Only time will tell, but I’m willing to make a few reckless predictions. I believe that the count of states with benefit corporation legislation roughly will double in 2014. Therefore, I predict that by January 1, 2015, thirty-five or more states will authorize benefit corporations. I predict that the number of states authorizing flexible purpose and social purpose corporations will increase slightly in 2014, but I would be surprised if more than five or six states have flexible purpose or social purpose corporation statutes by January 1, 2015. Finally, I predict that no additional states will enact either L3C legislation or benefit LLC legislation in 2014. In fact, I would not be surprised if more states follow North Carolina in 2014 and repeal their L3C statutes.

Regardless of my predictions, there is one thing we absolutely can count on in 2014 with respect to hybrid business entities: CHANGE!

J. GREG DEES, SOCENT LEADER DIES AT 63

J. Greg Dees has passed away. Dees was a leader in social entrepreneurship and responsible for making social entrepreneurship an academic field. His important work will be remembered and continued. Social Enterprise Alliance has a touching tribute here.

HHS MANDATE AND SOCIAL ENTERPRISE LEGAL FORMS

Here, Professor Bainbridge kindly asks for my thoughts on Keith Paul Bishop’s article Would Hobby Lobby Stores, Inc. Have A Stronger Case As A Flexible Purpose Corporation?

I agree with Bishop’s conclusion that the question is still open.  Both the Flexible Purpose Corporation (“FPC“) and the Benefit Corporation version of social enterprise legal forms are quite new and each became available in California as of January 1, 2012.  The FPC is only available in California (though Washington state’s social purpose corporation is similar in many respects) and the Benefit Corporation legislation has passed in 20 U.S. jurisdictions (19 states and Washington D.C.), starting with Maryland in 2010.  As the name suggests, the FPC allows managers more flexibility in choosing their particular corporate purpose(s), whereas most of the Benefit Corporation statutes require a “general public benefit purpose” to benefit “society and the environment” when “taken as a whole” but also allow additional “specific public benefit purpose(s).”  Delaware’s version of the benefit corporation law (called a “public benefit  corporation”) requires the choosing of one or more specific public benefit purposes.

Converting to an FPC or a Benefit Corporation, without more, likely would not be much help to companies fighting the HHS mandate.  The statutes are simply too broad, and I think courts would want more evidence regarding the corporation’s stance on the issue.  Obviously, people would disagree on whether a “socially focused”  corporation would oppose certain types of contraceptives.  And it seems that the majority (though certainly not all) of those in the social enterprise area lean left of the political center. But, if an FPC or Benefit Corporation made its particular social/religious purpose(s) clear in its articles of incorporation, including enough information to determine a stance against certain types of contraceptives, I think the entity’s argument could be strengthened.

In some states, like Oregon and Texas, relatively recent amendments to their state corporation statutes make clear that a social purpose can be included in the articles of incorporation of a traditional corporation.  In other states, whether such a social purpose would be acceptable in a traditional corporation is a debatable question, and thus social enterprise legal forms would clear the way toward including a social/religious purpose that would suggest (or clearly state) opposition to the mandate.

In short, the social enterprise forms, without customization, are likely insufficient, but use of a social enterprise form, with language in the articles of incorporation that suggest that the corporation would be opposed to the mandate, could strengthen the argument of those fighting the HHS mandate.  In some states, as mentioned above, a social enterprise form would likely be unnecessary, and a traditional corporation with customized language could be used.

I think the question posed by Keith Paul Bishop and Professor Bainbridge is an interesting one and would love to hear additional thoughts from others, especially any Constitutional Law scholars.

Cross-posted at Business Law Prof Blog.