Do you know that a Social Enterprise is a legal structure different from a non-profit?

It’s also different from for-profit LLCs or corporations. In this Two-minute Tip we learn “What is a Social Enterprise?” and why a Social Enterprise is better than a non-profit.

A social enterprise is a hybrid between a for profit company and a non profit. By way of background, when you normally set up a LLC or corporation that’s for profit, that means your company has a legal duty to maximize profit. On the other hand, a nonprofit corporation generally requires three people, and they serve on the board of directors to serve a greater good, benefiting society or the environment.

So that’s where the social enterprise comes in. And what a lot of people don’t realize is, here in Texas, we actually have two laws that deal with social enterprises. We have the Texas social purpose corporation, and now we have the public benefit corporation. Both laws allow entrepreneurs to create social enterprises which are for profit companies, so you don’t have all the regulations and tax reporting requirements of a nonprofit, but you’re still legally mandated to serve a greater good.

Now, why is this legal structure so important? There are a lot of different reasons, but I’ll tell you the top two reasons why:

The first reason is the social enterprise has more opportunities for funding. There are certain funding options that are only available for for-profits, and certain funding opportunities that have been only available to nonprofits. Depending upon how you set up your company, your social enterprise could have funding opportunities that are available in the for-profit world and the nonprofit world.

The second reason why a social enterprise structure is so important is it actually reduces the liability of the owners to shareholders and investors.