Legal Structures for Social Entrepreneurs

By Amanda Lewan on September 19th, 2014 / Comments

Do well by doing good. That’s a motto many entrepreneurs have probably heard before. Our favorite is that all companies have a social impact.

Today the trend is to build a business model around that impact to help better tell a story and sell a product. It’s brilliant at times and can be very successful (like Tom’s Shoes or locally Chalkfly).

Businesses have several options for the formation of their business entity. Local startup lawyer Tifani Sadek of Sadek Law shares with us the options you need to know about. A business today can choose from the newly formed L3C option, non-profit formations, and more tradditional LLC formations.

Sadek recommends asking yourself the following question when considering a legal entity for a more socially minded business: How do you want to make money? This is the number one question to ask as you begin to form your business.

“Everyone wants to do good, but you need to think about what you’re business looks like,” said Sadek. “You need to think about how your company will survive.”

If you want to make money through grants than a traditional non-profit or hybrid L3C option may work for you, but you need to think about long term investments. Investment can be received through venture capital, grants, and other forms, but a company must really compete and show the social impact to survive off of grant money alone.

Laws have changed recently, too. The new L3C options allows you to be a low profit limited liability company that can receive grant money, but without the tax write off perks of a non-profit status. Changes in recent non-profit laws have made receiving a non-profit status easier to attain, Sadek says.

“Some of the setup you can do for yourself. You don’t always need to hire an attorney or a specialist,” said Sadek. “You used to for a 5o1c3. Now this new law makes it significantly easier. You can do it yourself and have to an attorney look at it.”

Check Out the Upcoming Workshop 

More and more entrepreneurs are focusing on a social mission in addition to (or sometimes even ahead of) making a profit. Business laws are being rewritten to reflect that and today, a social entrepreneur has several entities to choose from as their legal vehicle to doing good. This seminar will go over those options, including low profit limited liability companies (L3Cs), benefit corporations, non-profit corporations, and for-profit corporations with B-Corp status, as well as other issues that apply to social entrepreneurs, including tax considerations and the new and improved application for 501(c)(3) status.

About the Author

Amanda Lewan

Amanda Lewan

Editor @michipreneur. Co-founder Bamboo Detroit. Follow me @Amanda_Jenn. I love telling the story of entrepreneurs and innovators.