The Social Enterprise: A New Form of the Business Enterprise?

• In Event: Social Enterprise Policy and Law

Abstract

Social enterprise has gained considerable attention in a limited number of jurisdictions. Numerous European nations have adapted their long tradition of cooperative production to social enterprise with new social cooperative forms. In the United States, hybrid social enterprise forms including Delaware’s public benefit corporation and the private B Corp certification offered by the nonprofit B Lab have become prominent challenges to a long tradition of shareholder capitalism. In the United Kingdom, Community Interest Companies even benefitted from public subsidies in the form of tax preferences. This article looks beyond these well-known examples to find that—to paraphrase Shakespeare—there are more forms of business enterprise than are dreamt of in our theory of the firm. Jurisdictions ranging from Belgium and the United Arab Emirates to Peru and Taiwan are developing their own legal approaches to identify, incentivize, and regulate social enterprise.

Developed as part of a project sponsored by the International Academy of Comparative Law, the authors synthesize data developed by a team of academics and practitioners located in or with deep expertise regarding over two dozen jurisdictions on six continents. Serving as special rapporteurs, each responded to the authors' detailed questionnaire inquiring into the relevant jurisdiction's legal treatment of entities using business methods to achieve social good. Together with additional special reports addressing issues that span jurisdictions, this rich data set chronicled a remarkable assortment of legal innovation surrounding social enterprise globally. This article draws out key similarities, differences, and insights and provides illustrative examples.

The article begins by identifying the key role of political, cultural and legal baselines in determining the space for and legal treatment of social enterprises. For example, jurisdictions take dichotomous views of the role distribution constraints should play in social enterprise. Some embrace these constraints as critical; others reject them as anathema. These opposing legal baselines impact whether jurisdictions will perceive a need for specialized social enterprise legal forms or certifications.

The article then compares the many specialized forms and certifications that have been developed to identify firms around the world as social enterprises. Legal forms are offered exclusively by governments and relevant to a single jurisdiction, while certifications may or may not be public or jurisdiction specific. This comparison yields useful guidance to policymakers keen to continue evolving specialized social enterprise forms and certifications across jurisdictions.

Finally, the article explores how legal forms and certifications are being used to incentivize social enterprise and highlights early experiments with specialized regulation. This review points toward a possible link between the assurances of trustworthiness provided by distribution constraints and regulatory oversight and access to public subsidies or privileges. Legal forms and certifications that impose dividend caps, reinvestment mandates, or asset locks on social enterprise are frequently accompanied by tax relief, procurement privileges, or other governmental benefits. Without these protections in place, public incentives for social enterprise are largely absent.

References

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BCE Inc v. 1976 Debentureholders [2008] SCC 69, [2008] 3 SCR 560 (BCE)

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Canada Business Corporations Act (CBCA), RSC 1985, c. C-44, s. 122

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Del. Gen. Corp. L. §§361-365

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Sistema B, https://www.sistemab.org/en/welcome/

Social Enterprise Mark CIC, Eligibility Criteria, https://www.socialenterprisemark.org.uk/wp-content/uploads/2021/04/SEM-Qualification-criteria-Apr-21.pdf

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UK Companies (Audit, Investigations and Community Enterprise) Act, § 35(1) (2004)

Authors

• Dana Dana Brakman Reiser Reiser, Brooklyn Law School

• Steven Dean, Boston University School of Law