Legal considerations—For-profit Social Enterprises (including B Corporations)
You have an idea for a business activity that will generate a blend of social and/or environmental benefits and revenues for your organization. You are ready to launch a social venture.
Under current legislation in Ontario, there is no legal structure that combines some of the benefits of both the for-profit and not-for-profit worlds.
Your organization must carefully consider the current legal environment and existing legal structures and requirements associated with for-profit, not-for-profit, registered charities and co-operative corporations before you set up your organization in Canada.
Setting up a for-profit social enterprise
If you’re considering setting up a for-profit social venture, you likely expect that your organization will have a broad range of profit-making activities that will generate levels of profit similar to traditional businesses or slightly less, due to your social or environmental commitments.
If this is not the case, then you may wish to consider an alternate form of organization.
For-Profit Corporations
- Incorporated under the Business Corporations Act (Ontario) (the “OBCA”) or the Canada Business Corporations Act (federal) (the “CBCA”), with share capital
Pros
A for-profit structure will give you the most flexibility in terms of the profit-making business activities your venture can undertake. It will enable you to attract traditional investment and debt financing to scale business activities, and will make it possible to distribute any required profits to investors and lenders in exchange for the risk they are taking.
Cons
Your organization will not be able to rely on tax-deductible donations as a source of funding and may be restricted from receiving certain forms of government funding. Your founders and board of directors may also have concerns about how to protect your social mission in a legal structure that is very flexible and can be changed by current or future shareholders. There is however an emerging solution for this issue in Ontario: the B Corporation.
B Corporations
B (“beneficial”) Corporations are not a new legal form of business enterprise, but rather a certification for which any business entity may apply. It was created by B Lab, a U.S. not-for-profit organization, to enable corporations to define themselves to consumers and investors as socially and environmentally responsible business entities. Canadian corporations may also apply for certification.
In March 2009, MaRS client Better the World Inc. was named Canada’s first B Corporations. Better the World is a for-profit online company that raises funds for charity partners by delivering cause marketing campaigns to targeted consumers. According to MaRS’ Centre for Impact Investing, since Better the World 104 more Canadian businesses in seven provinces and one territory have been certified.
As of April 2014, there are 990 B Corporations worldwide in 32 countries and 60 industries, using their businesses as drivers to help resolve global social and environmental issues.
As envisioned by B Lab, B Corporations seek to:
- Meet transparent and comprehensive standards of social and environmental performance;
- Legally expand their corporate responsibilities to include consideration of stakeholder interests; and
- Amplify the voice of sustainable business and for-profit social enterprise through the power of the unifying B Corporation brand.
Want to learn more about how to become a B Corporation?
Your organization and board will need to seek independent legal advice on the process required for your organization to legally expand its corporate responsibilities, and how to handle any additional risk to the corporation and directors that may arise from doing so.
Directors may find that they face a tension between the desire to consider additional stakeholder interests beyond traditional shareholders as per B Corporation requirements and their legal duty to act honestly and in good faith with a view to the best interests of a “corporation” under both the Canada Business Corporations Act (the “CBCA”) and Business Corporations Act(Ontario) (the “OBCA”).
The MaRS white paper entitled “How legislative innovations may improve access to capital for Ontario’s social entrepreneurs” provides additional discussion on the matter.
To make your certification official and benefit from the branding and marketing of your organization as a B Corporation, you must sign a B Corporation term sheet and pay annual licensing fees to B Lab.
Interested in learning more about social innovation and social entrepreneurship? Visit the SiG Knowledge Hub.
References
Bridge, R. & Corriveau, S. (2009) Legislative Innovations and Social Enterprise: Structural Lessons for Canada. BC Centre for Social Enterprise. Retrieved November 10, 2009, from www.centreforsocialenterprise.com/f/Legislative_Innovations_and_Social_Enterprise_Structural_Lessons_for_Canada_Feb_2009.pdf
MaRS Discovery District. Legislative Innovations. [white paper]
B Corporation. (n.d.) Retrieved August 17, 2009 from www.bcorporation.net