By Jon MacKenzie
Tech businesses are not always seeking exclusively to make profits. Some tech entrepreneurs want to change the world. Yesterday we spoke about a few of ways of setting up a business to achieve social objectives. Specifically, we discussed not-for-profit organizations and charities. Today we will discuss co-operatives, “B” corporations, and other “for-profit” organizational structures that social entrepreneurs can use.
A co-operative is essentially a corporation run by its members for their own benefit. Co-operatives are actually relatively popular in Canada – there are almost 1300 co-operatives registered in Ontario. In order to register as a co-op under the Canada Cooperatives Act, a co-op must have open membership, a one-member one-vote system, limited dividends on membership shares, member-provided capital, and use of surplus funds to develop the business. Essentially, a cooperative is a democratic corporation in which the members provide capital to keep the business running. A co-operative does not have a duty to its shareholders to maximize profits and as such, can be used to pursue social objectives.
While the goal of a traditional corporation is to maximize profits for its shareholders, there are ways they can achieve some level of social change and improvement. B Lab, a Pennsylvania-based not-for-profit, has developed a certification for corporations that meet certain social and environmental performance standards, much in the same way that TransFair certifies Fair Trade coffee. B Lab certified companies are called “B Corporations.” The idea behind the process is that achieving this certification will increase your business’ reputation and hence, its profits. In this way, B Lab seeks to make social and environmental goals part of the fiscal bottom line.
If an entrepreneur is creative enough, they may be able to maintain a “social purpose business,” or in other words, a for-profit organization that pursues a social objective while still delivering value to their shareholders. The Grameen Bank is a tremendous example of a social purpose business in that it still generates a profit for its shareholders but its business model is centred on making social change.
Finally, we see social entrepreneurs making a difference within the for-profit corporations they are part of. These people work in large, for-profit organizations, but use their entrepreneurial skill-set to affect change within the organization. These “intrapreneurs” can be tremendously important because they can be agents for change in large corporations who may be contributing to the very social and environmental problems many in society are seeking to remedy.
The concept of the corporation as a profit-maximizing machine is still largely accurate in today’s economy. However, there are some exceptions to the general rule. Not-for-profit and charitable designations provide a legal avenue by which entrepreneurs can avail themselves of the benefits of incorporation while still pursuing a social or environmental goal. Co-operatives blend the advantages of a corporation with the flexibility of a member-run organization to provide a vehicle well-suited towards social change. Today’s entrepreneurs have even found ways of pursuing social or environmental goals using for-profit corporations through creative efforts like the “B Corporation” designation or inter-organizational agitation. Where there is a will, there is a way!
Jonathan MacKenzie is a lawyer specializing in civil litigation and corporate work with a special interest in small business and entrepreneurship.
October is small business month and to celebrate, writers from Aluvion Law will be making daily posts on one of the most common forms of Small Businesses: Corporations! Corporations are particularly popular among the high-tech and IT crowd because of the tax advantages they provide to rapidly growing companies, as well as the assistance they can provide in unlocking capital. The other great benefit recognized by the ‘serial entrepreneurs’ that flock to the IT sector is that they limit the liability of the owners in the event of the business failing.