New Forms of Hybrid Organizations

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Leading thinkers in business, philanthropy and academia are studying the rapid growth of social enterprise which is taking root in the space between the for-profit corporate world, which is constrained by the duty to generate profits for shareholders, and the nonprofit world, which lacks the market efficiencies of commercial enterprise and does not have ready access to invested capital. A major legal question that has emerged from these studies is whether new laws and tax regulations are needed in order to nurture and support the growth of this new generation of “hybrid” organizations.

Starting with a meeting in 2007 titled “Exploring New Legal Forms and Tax Structures for Social Enterprise Organizations,” the Aspen Institute’s Nonprofit Sector and Philanthropy Program has been bringing legal scholars and practitioners together to grapple with this question and related issues. Under the auspices of the Fourth Sector Network, many of the same individuals are also working on this question.

As of this writing, these groups have not achieved a consensus as to whether new or revised organizational and tax laws are needed to encourage and incentivize the growth of social enterprise. Indeed, some participants have suggested that existing legal and tax regimes already allow nonprofit social enterprises to operate broadly at the intersection of philanthropy and business and they express skepticism that any legal reform is needed.  On the other hand, many participants advocate broad change, including revisions in federal tax and state corporate laws to accommodate new forms of social enterprise such as the “Charitable LLC,” “B Corporations” and the “Socially Responsible Corporation.” 

LawForChange will follow these groups and report significant developments as they emerge.

Resources

• Austin, James E., et. al., “Capitalizing on Convergence,” Stanford Social Innovation Review, Winter 2007. http://www.Ssireview.org/images/articles/2007Wl_feature_autstinetal.pdf
• Billiteri, Thomas J., “Mixing Mission and Business: Does Social Enterprise Need a New Legal Approach?” The Aspen Institute, January 2007.  http://www.nonprofitresearch.org/usr_doc/New_Legal_Forms_Report_FINAL.pdf
• Searing, Jane M., “Capital With a Conscience,” Journal of Accountancy Online, July 2008. http://www.aicpa.org/PUBS/jofa/jul2008/capital_conscience.htm
• Wolk, Andrew, “Social Entrepreneurship & Government: A New Breed of Entrepreneurs Developing Solutions to Social Problems,” Root Cause, 2007. http://www.rootcause.org/assets/files/SE_and_Gov_Wolk.pdf
• “Structures at the Seam: The Architecture of Charities’ Commercial Activities,” New York University School of Law and National Center on Philanthropy and the Law, conference materials, October 2008.

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