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Knowledge Base
Q:
What is social enterprise?
A:

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.

Podcast Listen to advice, tips, and pitfalls to avoid when beginning a nonprofit social enterprise aimed at earned income. Listen now »

While social enterprise may be a newer addition to our vocabulary, it is not a new concept or endeavor. The Social Enterprise Alliance provides more background on the concept of social enterprise.

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. Also, our free class Nonprofit Sustainability: Building Blocks to Organizational Success, walks you through the key points of nonprofit sustainability, helping you improve the way your organization uses resources and strengthen the financial health of your organization.

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.

Video Low-profit Limited Liability Companies: A For-Profit with a Non-profit Soul »

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. To learn more about L3Cs, please see the Americans for Community Development.

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 web site. 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?
- Where can I find information on funding to start a business?

More articles»

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