OK. You just wrote up the first draft of your social venture. Wonderful. However, then you might pose a question to yourself: “Wait. What business status is the best for my venture....?” Yes, the basic Business Model Canvas does not have a section that articulates business status, and this is quite frustrating for me because revenue streams involve business status. If you have the same question or feel the same way, here is a piece of information for you.
For an entrepreneur who starts a new business to solve social problems, establishing a non-profit is straightforward as well as traditional, and I heard some of our classmates actually referred to non-profit. However, if you hope to generate profits AND use the business as a force for good and higher purpose of solving society's most challenging problems, there is another business model for you: benefit corporation.
Benefit corporation is a legally admitted for-profit business model, and Maryland became the first state that passed the benefit corporation legislation in April, 2010. The business structure of benefit corporation is similar to that of traditional C-corporation, but benefit corporations are required to have higher purpose other than maximizing shareholders' profit, such as society’s well-being. You can choose to incorporate as a benefit corporation in District of Columbia and any of 30 states where legislation have passed (currently, eight states are working on it).
Benefit corporation status provides multiple benefits. First of all, although a for-profit entity’s ultimate goal is basically to generate profits, the management of a benefit corporation does not have to be driven only by short-term profits. The management can factor in long-term values such as challenging global warming, and they are legally shielded from certain shareholder litigation. As taking into account of corporate social responsibility (CSR), a corporation's initiatives to assess and take responsibility for the company's effects on environmental and social well-being, has become the norm for for-profit entities, having benefit corporation status helps a company to establish a good reputation that the company deeply cares not only profits but also societal good. Such a reputation is helpful for a company’s branding and to attract prospective employees and loyal customers who hold the same value as the company’s. Moreover, because the status legally requires transparency and accountability, benefit corporations are appealing to investors.
While benefit corporation is valued as a new business status to increase social well-being, a feature of the status makes it less attractive: no tax incentives. Non-profits receive tax incentives, and that is appealing to an entrepreneur who is starting a new business that has a good and strong social impact. Unfortunately, because benefit corporation is still in its infancy, there is not much benefit for benefit corporation. A benefit corporation is imposed taxes as much as a c-corporation is. This drives an entrepreneur who cares social goods to choose non-profit. This is what you need to take into consideration.
As a social entrepreneur, which business model do you choose? Non-profit or for-profit? C-corporation or benefit corporation?
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