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Achieving Social Impact: Profit with Purpose
Eric Davis
Managing Partner
Elliott & Davis, PC
www.elliott-davis.com
Anne Marie Toccket
Principal
Procopio Fundraising
annemarie@procopiofundraising.com
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Agenda
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Definition of terms

Examples of social enterprises
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Benefits and Risks for nonprofits and entrepreneurs
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Legal considerations and types of entities
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Break
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Demystifying B Corporations and B Corp Certified businesses
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Case study
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Discussion and Questions
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Working Definitions
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Social Enterprise* – a venture undertaken by an NPO or social
business that uses market-based approaches to achieve a
dimension of its mission
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Social Entrepreneurship – a venture undertaken by an individual
that creates a replicable, scalable market-based solution to an
intractable social problem
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B Corporation – an emerging legal form of entity available to
incorporate social enterprises, often confused with B Corp
Certification. Available in 28 states, including PA and DE.
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B Corp Certification- a third-party recognition of the social
practices, norms and values of a for-profit company – NOT a legal
entity

Social Impact – the desired result of social enterprises, social
entrepreneurs, B Corporations, some private enterprises, NPOs,
and other non- and for-profit ventures
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Impact Investing: the injection of capital into a social enterprise
or other venture, intended to catalyze increased social impact
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Examples
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Social Enterprises:
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Social Entrepreneurs and Their Ventures:
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Equal Exchange
Waldorf Schools
Ted Talks (owned by nonprofit)
EECM Workforce, Inc.
Awamaki
Grameen Bank (Muhammad Yunus)
Manchester Bidwell Corporation (Bill Strickland)
Tom’s Shoes (Blake Mycoskie)
Seventh Generation (Jeffrey Hollender)
B Corp Certified Companies:
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Patagonia
Ben & Jerry's
Thread International
Big Idea Bookstore
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 Financial
Sustainability/Generate
Revenue
Why Should a
Nonprofit Form
a For Profit Social
Enterprise?
 Limit
Unrelated Business
Income
 Separate
 Position
Risk/Liability
of Organization
in Community
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Why Should an
Entrepreneur
Consider
Forming a Social
Enterprise?
 Marketing
Differentiation
 Attract
mission-driven
team members
 Ability
to formalize
values and social impact
metrics
 Opportunity
to scale
 Opportunity
to take idea
to attract
new types of investors
and capital
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New York Times case study
Part 1
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Rapidly scaling nonprofit social enterprise quandary: How to
generate more revenue with the fewest restrictions, allowing
team to focus on achieving mission?
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Remain a nonprofit
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Abandon nonprofit; form a for-profit
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Consider a hybrid model
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Following slides illustrate deeper inquiry into possibilities,
risks and benefits of all three approaches
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Choice revealed later in this session
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 Nonprofit
What Form of
Corporate Entity is
Best For Your Social
Enterprise?
 LLC
(organized under B
Corp principles)
 Benefit
Corporation
 Corporations, Limited
Partnerships, etc.
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Social Enterprises vs.
Nonprofits & For Profits
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NonProfit Versus For-Profit.
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Benefit Corporations, LLCs, Flexible Purpose Corporations and
LC3s, are a blend of the two.
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Twenty-eight states, including Delaware, have benefit
corporation statutes.
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B Corporations became a form of entity in PA in 2012 and in
Delaware in 2014.
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Social Enterprises have been organized as nonprofits, LLCs
and Corporations for years. -Long before the advent of Benefit
Corporations.
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Financial Sustainability/Revenue
Generation for Nonprofits
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Reduces Reliance on Foundation Support and Charitable
Giving
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Introduces or increases Financial Sustainability to the
Organization
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Nonprofit Should Earmark Funds Derived From Social
Enterprise for Particular Programs if Seeking Foundation or
Major Donor Support to Start Social Enterprise
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Note that many for-profit businesses fail and this is a risk for
any social enterprise.
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Unrelated Business Income
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Generally speaking, nonprofits must pay tax on income
generated that is not directly related to charitable purposes.
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Business activity might distract organization from true reason
for existence and requires resource allocation that might
reduce resources for nonprofit
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Business activity may skew financials of nonprofit
organization and it is good to keep it off its books.
Examples…
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Unrelated Business Income draws attention/ire of IRS and
local taxing authorities
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Separate Risk/Liability
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Legal Rule of Thumb is that, if the Character and Nature of
Risk is Different, then a Separate Corporate Entity should be
Considered.
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Many Nonprofits have valuable facilities, endowments and
other assets that need to be protected.
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Business activities may give rise to new types of Employment
related liabilities.
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Organization in Community
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Competing Against Local Businesses
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Property Taxes
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Unfair Trade Practices (Using donated equipment, volunteers,
etc. to compete)
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Local businesses and their employees could be your donors,
volunteers, people you serve
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Best way to avoid inadvertently hurting existing businesses in
the community is to engage in activities that those businesses
aren’t interested in. For example, hiring those hardest to train,
using space that would be unused, selling products or services
in great need, but that are no profitable to sell, etc.
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Why Choose a Benefit Corporation as a
Form of Entity?
A New Class of Corporate Entity to Increase Transparency
and Accountability.
Formation
Needs:
General Public Benefit
“material positive impact on society and the
environment, taken as a whole, assessed
against a third party standard, from the
business and operations of a benefit
corporation”
 Third Party Standard
Developed by a party not related to entity it’s
measuring. Transparent in methodology.
 Special Public Benefit
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Providing individuals/communities with
beneficial products and services.
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Promoting economic opportunities for
individuals or communities beyond job
creation and making money.
Articles of Incorporation
Must state benefit corporation status and
specific public benefit. (Similar to nonprofit)
 Bylaws
Must include public benefit purpose,
management duties and reporting of public
benefit information
 Stock Certificates/Shareholders
Agreements
Should include specific language
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Management
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Promoting health or environmental
preservation
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Promoting arts and sciences.
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Reporting of Public Benefit Information
Issue annual reports including records of
successes and failures for general and
specific public benefit (within 120 days after
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fiscal year + must be publicly available)
Directors must take benefit into account on all
decisions.
Annual assessment by third party
Some states require a benefit director (a good
idea in practice)
Taxes
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Subject to corporate tax on net income
Dividends are subjected to personal income tax
No favored Tax Status (may change some day)
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Why Choose an LLC Form of
Entity?Guidlelines for Looking Ahead to B-Corp Certification
Needs:
General/Special Public Benefit
“material positive impact on society and the
environment, taken as a whole, assessed
against a third party standard, from the
business and operations of a benefit
corporation”
 Third Party Standard
Developed by a party not related to entity it’s
measuring. Transparent in methodology.
 Reporting of Public Benefit Information
Issue annual reports including records of
successes and failures for general and
specific public benefit (within 120 days after
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fiscal year + must be publicly available)
Management
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Manager(s)/Management committee
must take benefit in account on all
decisions
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Annual Assessment by third party
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Certificates of Membership Interests
Should Include Specific Language
Taxes
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No favored tax status.
(May change some day)
Formation
Certificate of Organization
Must state specific public benefit (like nonprofit)
 Operating Agreement
Including public benefit purpose,
management duties and reporting of public
benefit information.
 Certificates of Membership
Should include specific language
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Raising Capital
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No difference. Debt & Equity Financing is
OK
Consider seeking Risk Capital from
groups looking to fund social benefit
aspects
+ What’s the difference between being a Benefit
Corporation and Being B Corp Certified?
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Benefit Corporations and Certified B Corporations are often
confused.
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Certified B Corporation is a certification conferred by the B
Lab. Benefit Corporation is a legal status administered by a
state.
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Benefit Corporations do NOT need to be certified.
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Certified B Corporations are using the third party (B Labs) to
show that they meet a high standard of overall social and
environmental performance. Often seeking marketing
differentiation.
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Social Enterprises in Pennsylvania
Seek B-Corp Certification
(www.bcorporation.net)
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Voluntary Certification, NOT Legal
Structure
Can Be Applied to Any Legal Structure
Differentiates Good Companies from
Companies with Good Marketing/PR
Periodic Assessment/Must Publish
Results
Need to Score Better than 80/200 on
B-Labs Assessment
Require addition of language to
Bylaws/Operating Agreement
No difference in Tax Treatment
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What Are Accounting Issues
Associated with Social Enterprise?
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Regular Corporate Taxes
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Need to Be Concerned with Retained Earnings
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Best Strategy is for Social Enterprise to Pay for Things that
Nonprofit Needs, reducing profits for for-profit
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Consumable Materials
Non-depreciable Assets
Staff
Rental
Only (serious) tax consequences occur if Social Enterprise
becomes Super Successful and generates more money than it
can use to support nonprofit
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Integration Issues Associated With
Separate For-Profit Entity
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Business Mindset is Often Not Aligned with Nonprofit Values
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What happens when Social Enterprise reduces (even
temporarily) resources available to Nonprofit?
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Identity of Nonprofit could become associated with business
activity (Girl Scout Cookies)
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Curious thing to note about example is that Girl Scouts Don’t
Pay Tax on Cookie Sales Because Volunteers Conduct Activity
and it is (somehow) related to charitable purpose.
“Customers” may expect more than people receiving
products/services/help for free. Implications?
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Management of For-Profit Subsidiary
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“Bake In” Ethos of Nonprofit Into Subsidiary’s Organization
Documents. Examples…
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Create Test Derived from Statement of Purpose for Analyzing
Management Decisions. Examples…
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Develop Metrics for Measuring Success and Report Results
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Need for Strong Benefit Manager/Committee
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Mechanisms for Benefit Manager/Committee to Exercise
Power if Benefit is Not Being Adequately Considered
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Transparency and Reporting
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New York Times case study
Part 2
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Saul Garlick’s decision to go for-profit based on:
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Lower energy expended to meet widely variable expectations of
donors
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Ability to spend revenue where most needed, not to meet
overhead percentage conventions
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Had found a model that generates revenue; profit expected in 3
years
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Avoids conflict of interest (Saul as CEO and ED simultaneously)
What do you think? In-class examples.
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Thank You!
Discussion and Questions
Contact Us!
Eric Davis
Anne Marie Toccket
eric@elliottdavis.com
anita@awamaki.org
www.elliott-davis.com
www.pghstartup.c
om
www.awamaki.org
www.procopiofundraising.com