The legal structure of a business has big impacts on decisions

Illustration by Kathleen White

Illustration by Kathleen White

What's in a name?

When it comes to businesses that want to do good, common misconceptions abound: that nonprofits are not businesses, that cooperative businesses are not run for profit, and that all businesses must maximize profit above all else. 

Any company, theoretically, can do good. The reverse is also true—not all nonprofits are able to achieve their mission. Whatever the case, how a person or a group of stakeholders elect to incorporate will in part dictate how they are legally obligated to run their business. Each has pros and cons, and entrepreneurs should think hard about the problem they want to solve as well as which kind of incorporation will best serve their needs. 

A social entrepreneur is an individual or group of individuals who start a business with the goal of solving a societal or environmental problem. Below are choices for how to incorporate.

Private Corporation

A privately owned company is not legally bound to ensure the greatest amount of profit, but the owner or owners may choose to; they could also forgo profit for social or environmental concerns.  In a cases where there are multiple owners, the majority owner calls the shots. Owners may also choose to offer stock ownership to employees at their discretion. Most businesses in America are private companies. (LLC, C-corp, S-corp.) 
examples: Wawa, Di Bruno Bros.

Public Corporation

A publicly owned company is legally bound to its owners, typically shareholders who have bought stock in the company, to ensure the greatest amount of profit. (LLC, C-corp, S-corp.) examples: Comcast, Rite Aid

Cooperative Business

Owned by its members, a cooperative businessaims to make a profit, but is more likely to consider community and environmental impacts. Decisions are made democratically on a “one member, one vote” basis. Profits are returned to member-owners, or invested back into the business. 
examples: Mariposa, SB1 Credit Union

Benefit Corporation

A privately or publicly owned company that voluntarily meets standards of transparency, accountability and performance, and , according to benefitcorp.net, has “a corporate purpose to create a material positive impact on society and the environment.” Benefit corps can legally sacrifice shareholder profit to benefit—or avoid harm to—their employees, society or the environment, and, except in the state of Delaware, must yearly and publicly post a benefit assessment of their “overall social and environmental performance against a third party standard.” (L3C, C type, S type. Can also apply for B Lab’s B-Corp certification.)   
examples: YIKES, Inc., Re:Vision Architecture

Nonprofit Corporation

Strictly speaking, no one “owns” a nonprofit, and it is run by stakeholders (not shareholders) who make decisions as a means toward achieving a stated mission; that mission may be driven by any number of social concerns. Profits are invested back into programming. Can file for 501(c)(3) tax exemption.  
examples: Sustainable Business Network, PennFuture