Knowledge base

What is social enterprise?

Social enterprise, also known as social entrepreneurship, broadly encompasses ventures of nonprofits, civic-minded individuals, and for-profit businesses that can yield both financial and social returns.

One example of social enterprise is an earned income venture. By selling goods or services, a traditional 501(c)(3) nonprofit organization can diversify its funding base while providing positive impact in the community.

Fieldstone Alliance's worksheet can help you assess whether you have the capacity and readiness to launch such a venture.

The concept of social enterprise also applies to for-profit ventures with a strong social bottom line. One emerging type of organization that puts mission first and profits second is the low-profit limited liability company (L3C). As for-profit organizations, L3Cs pay taxes on profits and can't receive traditional grants or tax-deductible charitable contributions, like 501(c)(3) public charities can.

However, private foundations can make program-related investments (PRIs) to L3Cs through an expedited review process by the IRS. Legislation is still pending in many states on this new legal structure, but L3Cs formed in states that have approved it can do business in other states.

Another developing type of organization, a benefit corporation, is a for-profit entity created with the purpose of providing a general public benefit. Benefit corporations are required to submit an annual benefit report outlining the impact of their activities, and, in contrast to traditional corporations, their directors are permitted to place community and environmental considerations above financial gain in their decision making.

The legal structures for benefit corporations have been formalized in Maryland and Vermont, and legislation is pending in several additional states. For more information, see the B Lab website. Benefit corporations should not be confused with "Certified B Corporations," which are recognized independently by B Lab.

Please see our related Knowledge Base articles:

- What is a program-related investment?
- How do I write a business plan for a nonprofit organization?

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