Hi Kerri,nnI’ve been waiting and hoping for something like this! I’m a brand new startup attorney and passionately want to develop myself as a social entrepreneur lawyer, so every resource helps and this one more than most.nnThanks for sharing your hard work.n

Hi Kerri,I've been waiting and hoping for something like this! I'm a brand new startup attorney and passionately want to develop myself as a social entrepreneur lawyer, so every resource helps and this one more than most.Thanks for sharing your hard work.

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This is one of the better policy-relevant bits of research work I’ve seen in a while — balanced and thorough throughout — though that’s perhaps not a surprise given that it was sponsored by the Ontario government. I don’t know if anyone is actively monitoring this blog, but I thought I should register a few comments and questions about issues raised in the paper.rnrnFirst, it’s by no means obvious to me that there’s an actual need for a distinct new corporate form. In particular, many (if not most) of the special features the authors are looking for in a hybrid model can already be created under standard incorporation procedures (under the federal CBCA or, presumably, the OBCA) using combinations of instruments of incorporation, by-laws and multiple classes of shares with different voting rights and rights of participation in distribution of surplus and of net assets upon liquidation. That said, there is something to the argument that what’s needed here is a “branding” instrument — particularly one that could make it easier for foundations, say, to make program-related investments by creating a clear presumption that such investments would pass muster with the tax man (a point the paper does make).rnrnMoreover, for the most part, those features of the new corporate form that aren’t tied to modes of incorporation or governance do indeed relate to tax treatment and this is — as usual — where the rubber hits the road. I’m more inclined than most to view the conceptual challenges facing the tax man with some sympathy — a slight variant on the Rolling Stones’ “Sympathy for the Devil”, perhaps — but it’s by no means obvious what would warrant preferential tax treatment for such alternative corporate forms relative to, say, that of co-ops or even plain-vanilla business corporations that, to a greater or lesser extent, are heavily committed to activities inspired by corporate social responsibility. Indeed, reasonably comparable horizontal treatment of similar activities undertaken through different corporate vehicles strikes me as being absolutely essential if new corporate forms are to be defensible, since it is presumably the socially beneficial actions which should attract preferential tax treatment, not the vehicle used to take them.rnrnIndeed, if there’s any area where I’m not sure the paper makes a thorough enough analysis, it’s when it argues that, “on the con side”, UK- or US-style hybrid incorporated entities have limited tax benefits. But the paper then immediately goes on to note that at least the US version of the model does permit the use of charitable donations (i.e. by the hybrid entity) to offset 100% of taxable profits. In short, it’s no big deal if it would formally be taxable if it could, in effect, avoid taxation through a combination of socially motivated expenses (e.g. on salaries or training for staff drawn from socially excluded elements of the community) and of charitable donations, both in a given tax year and over time. With regard to the latter, I don’t know what the score is in the US (or in Canada, for that matter) on carry-forward and carry-back provisions affecting the income of social or community enterprises for tax purposes, but it seems to me that a fairly generous treatment — conceivably one somewhat more generous than for plain-vanilla business corporations — on the carry-forward or carry-back front would be the most effective way of ensuring that such enterprises could in particular finance investments through retained surpluses without suffering any tax consequences (at least ex post).rnrnAs part of our research stream on the role of the community sector in the social management of various kinds of risk, we here at the PRI are still working toward some research work that might add some value to what’s being done out there on alternative corporate forms and the related areas of social finance. I certainly see this paper as a really solid contribution — and as a solid base to build on.

This is one of the better policy-relevant bits of research work I've seen in a while — balanced and thorough throughout — though that's perhaps not a surprise given that it was sponsored by the Ontario government. I don't know if anyone is actively monitoring this blog, but I thought I should register a few comments and questions about issues raised in the paper.First, it's by no means obvious to me that there's an actual need for a distinct new corporate form. In particular, many (if not most) of the special features the authors are looking for in a hybrid model can already be created under standard incorporation procedures (under the federal CBCA or, presumably, the OBCA) using combinations of instruments of incorporation, by-laws and multiple classes of shares with different voting rights and rights of participation in distribution of surplus and of net assets upon liquidation. That said, there is something to the argument that what's needed here is a “branding” instrument — particularly one that could make it easier for foundations, say, to make program-related investments by creating a clear presumption that such investments would pass muster with the tax man (a point the paper does make).Moreover, for the most part, those features of the new corporate form that aren't tied to modes of incorporation or governance do indeed relate to tax treatment and this is — as usual — where the rubber hits the road. I'm more inclined than most to view the conceptual challenges facing the tax man with some sympathy — a slight variant on the Rolling Stones' “Sympathy for the Devil”, perhaps — but it's by no means obvious what would warrant preferential tax treatment for such alternative corporate forms relative to, say, that of co-ops or even plain-vanilla business corporations that, to a greater or lesser extent, are heavily committed to activities inspired by corporate social responsibility. Indeed, reasonably comparable horizontal treatment of similar activities undertaken through different corporate vehicles strikes me as being absolutely essential if new corporate forms are to be defensible, since it is presumably the socially beneficial actions which should attract preferential tax treatment, not the vehicle used to take them.Indeed, if there's any area where I'm not sure the paper makes a thorough enough analysis, it's when it argues that, “on the con side”, UK- or US-style hybrid incorporated entities have limited tax benefits. But the paper then immediately goes on to note that at least the US version of the model does permit the use of charitable donations (i.e. by the hybrid entity) to offset 100% of taxable profits. In short, it's no big deal if it would formally be taxable if it could, in effect, avoid taxation through a combination of socially motivated expenses (e.g. on salaries or training for staff drawn from socially excluded elements of the community) and of charitable donations, both in a given tax year and over time. With regard to the latter, I don't know what the score is in the US (or in Canada, for that matter) on carry-forward and carry-back provisions affecting the income of social or community enterprises for tax purposes, but it seems to me that a fairly generous treatment — conceivably one somewhat more generous than for plain-vanilla business corporations — on the carry-forward or carry-back front would be the most effective way of ensuring that such enterprises could in particular finance investments through retained surpluses without suffering any tax consequences (at least ex post).As part of our research stream on the role of the community sector in the social management of various kinds of risk, we here at the PRI are still working toward some research work that might add some value to what's being done out there on alternative corporate forms and the related areas of social finance. I certainly see this paper as a really solid contribution — and as a solid base to build on.

Great article. Thanks for sharingn

Great article. Thanks for sharing