Many other legal business forms in the US can develop social enterprise arms. For example, sole proprietorships, partnerships and limited liability companies can establish social efforts on the side. There are also hybrid legal forms such as the low-profit limited liability company (L3C).
The L3C has been specifically designed to combine the nature of a social enterprise with the legal structure of a traditional LLC. It’s a fairly new business structure and currently only recognized in certain states including Illinois, Michigan, North Dakota, Kansas, Louisiana, Maine, Rhode Island, Utah, Vermont, and Wyoming.
Administration and filing for L3Cs are relatively straightforward. Owners and members are also protected from personal liability. But if you’re looking to form a L3C, you must meet the same requirements as program-related investments.
An alternative legal form is the Benefit corporation (or B corp). It is not technically a hybrid, because B corps are for-profit businesses. These corporations serve a greater public good, but are not exempt from income tax. In order to qualify as a B corp, companies must fill out an Impact Assessment.
But if B corps aren’t exempt from taxes, why would anyone choose this legal form? Many start-ups and entrepreneurs care about a social or environmental mission. The traditional corporation structure, however, requires directors to maximize profits in order to satisfy shareholders. This can be restrictive for company founders who are socially conscious. The B corp requires boards and directors to consider social and environmental factors alongside financial gain.
Whether the L3C or a B corp is the right business structure for you, depends on the purpose of your company and your preference of organizational structure.