overview

In this video, legal expert R. Todd Johnson introduces the key factors that are important to consider before choosing the legal structure that can best serve your goals for your social enterprise. Todd also explains how the information in this module is organized and how to navigate the content.


Seven Factors That Inform your Legal Structure

Your goals and priorities will determine the legal form that is right for your enterprise, and it’s important that you don’t prematurely lock yourself into a legal structure that will create unanticipated constraints as your venture grows.

Each of the seven factors explained below, and the inter-dependencies between them, will be important to keep in mind as you consider legal structure and design options. 

Take notes in the Clarify Your Objectives worksheet to record your initial responses to the provided prompts. The worksheet includes self-assessment guidance to develop a legal structure hypothesis, which you can continue to change and refine as you learn more.

Click on the links below to learn more about each of the seven factors.

Mission What is the nature of your mission and what is your commitment to protecting it?

Earned Revenue What is your ability to generate earned revenue through fees collected for products or services, and can it produce income?

External Funding What type of external funding will you need to develop your venture?

Incentives How will you align incentives to motivate people to engage in your venture?

Scaling Impact How might your design choices affect your strategy for scaling impact and serving as many people as possible?

Governance Will your design facilitate board governance focused on maximizing impact?

Costs How might your approach result in increased or lower costs, both financial and in terms of time and other costs.

What if I have general questions about incorporation?

As you consider these seven factors and your options for the legal structure and design of your social enterprise, you may have more general questions about incorporation. Incorporation FAQs provides answers to questions regarding why, how, and when to incorporate, addresses the option of fiscal sponsorship, and briefly discusses the complexity of changing legal structures at a later date.


Additional Reading:

Seasoned social entrepreneurs, funders, and their legal counsels share insights about the field of social enterprise:

For Love or Lucre  

Veteran social entrepreneur Jim Fruchterman provides a guide to those who are thinking through the thorny question of whether to create a nonprofit, a for-profit, or something in between.

Premature Incorporation: Don’t let it happen to you

The Mulago Foundation’s pithy article recommends accessing philanthropic capital for early stage R&D when social entrepreneurs aim to operate in places where markets don’t work well.

5 Bad Reasons to Start a For-Profit 

Former VP of Fellowship Programs at Echoing Green, Rich Leimsider, highlights key arguments against as well as in favor of structuring a social enterprise as a for-profit.

Which Legal Structure is Right for My Social Enterprise? A guide to Establishing a Social Enterprise in the U.S.

Provides a thorough examination by TrustLaw of legal options for social entrepreneurs.

Beyond Taxation: A Guide to Social Enterprise Vehicles

A six-page overview of legal structuring options for social enterprises by Rosemary Fei, a principal with Adler & Colvin law firm.

Effective Social Enterprise — A Menu of Legal Structures

Alder & Colvin’s Robert A. Wexler provides this detailed menu of legal structures.

Social Enterprise: A Legal Context

Alder & Colvin’s Robert A. Wexler provides historical context, a thorough overview, and examples detailing the legal context for social enterprise.

The Fourth Sector

A website about the emergence of a new “fourth” sector that supports both financial and social objectives.

LawForChange

A probono matching service to connect social entrepreneurs with legal counsel and resources. Provides updates on emerging legal structures for social enterprises, legal templates and formation documents organized by state.

Mofo ScaleUp

MoFo ScaleUp is a website for startup entrepreneurs by The Emerging Companies + Venture Capital team at Morrison & Foerster. It features startup trends, upcoming events, guidance on pertinent legal issues for emerging companies, and model legal documents.