Non-Profit, For-Profit or Hybrid

“In 2012, approximately 10 million people were involved with social enterprises, generating more than $500 billion in revenue.”

This is encouraging news for those of us that are interested in the possibility of starting our own sustainable enterprise that operates off the triple bottom line.  So assuming we have a viable idea — now what?

An article called Take the first Step Toward Launching a Social Venture provide some great insights to get entrepreneurs started.  And part of that process includes choosing a legal structure for your venture. “This is a choice especially difficult for social entrepreneurs — people that want to combine profit and purpose.” says an article on the Triple Pundit that explores the social entrepreneurs dilemma. 

Historically the legal structures most commonly used split endeavor into one of two categories.  They either have a social mission or focus on commercial profits.

Non-profits use revenues to accomplish its goals rather than fill the pockets of owners and investors.  Advantages include being able to receive funds from foundations and donors that want to invest in the non-profits mission.  Tax exemption for revenues received is another benefit that encourages the growth of these organizations. 

For-profits have the main goal of making money — and profits direct financial benefit owners and investors.  Owners and investors also more control in managing the company and making decisions that impact the companies growth and success.

Here is a set of slides that may help you decide which is best for you.

If you find yourself wishing there where more choices available, more and more options are being explored.  Here are some hybrid possibilities:

L3C companies’ primary purpose “is not to earn a profit, but to achieve a socially beneficial objective, with profit a secondary goal.” However they are permitted to make a profit.  Like in an LLC, members enjoy limited liability for the actions and debts of the company while offering a flexible ownership structure.  For more information on how to start an L3C, click here.

B-Corp businesses “create general benefit for society as well as for shareholders. “ They also publically report on their social and environmental performance via third party standards.  To learn more about benefit corporations, and see some examples of ones in action, go here.

For-profit subsidiary of a non-profit is “a nonprofit and a for-profit are linked. In some cases, one is a subsidiary of the other; in others, the two entities are bound by long-term contracts in which one entity fulfills a basic need for the other and vice versa.”  The above linked article also provides pointers on when this model work the best along with advantages and disadvantages. And this article provides ten rules to observe in setting one up.

Non-profit subsidiary of a for-profit is simply the converse relationship of the for-profit subsidiary.

Though traditional business models still work for some, an article in the Stanford Social Innovation Review states: “Today it is clear that the independence of social value and commercial revenue creation is a myth. In reality, the vectors of social value and commercial revenue creation can reinforce and undermine each other.”

The article then begins to unpack the “Hybrid Ideal” — which is considered to be achieved by the creation of an organization where services and products fully support social wellbeing AND commercial revenue. 

For a more exhaustive survey of the above legal structures there is one last article you should check out.

Regardless of the structure you choose, all our efforts are need to bring positive change to our world that faces so many big problems.