- Highlights is the monthly newsletter of the npEnterprise Forum, the online community with a combined circulation of more than 10,000 social enterprise managers, funders, and supporters, and the official listserv partner of Social Enterprise Alliance. This edition highlights a recent discussion about whether (and how) a nonprofit can acquire a for-profit company.
THE GREAT SOCIAL ENTERPRISE CENSUS
Unlike the E.U. and U.K., where governments understand the size and scope of social enterprise activity and make the case for widespread support, the U.S. has little to no data on social enterprises and their activities.
With your help the Great Social Enterprise Census seeks to address this lack of data and clarify the size, structure, and geographic diversity of the social enterprise sector in the U.S. We ask that you and others you know take 60 seconds to participate in the Census.
Here's the link: http://socialenterprisecensus.org
SOCIAL IMPACT APP IS FEELING LONELY!
The Social Impact app has 50something "likes" on its Facebook page. That's great, but it really needs more friends -- at least 100 "likes" to feel, well, *really* liked.
So if you agree with its goal to increase sales at social-change businesses by making it easier for people to shop and eat at them, please visit and "like" SI's Facebook page (just two clicks away). And if you have a minute or two, be sure to add a comment about a social enterprise where you have or would like to purchase something.
Incidentally, we expect to release a web version (beta) of the app next week, so you can access it on your computer, even if you don't have an iPhone. Another thing we're working on is expanding the database, which we expect to grow 500% in 2013. And we're in the process of creating an Android version as well. Lots to do!
But we need your "likes" to keep moving forward with this!
Here's our Facebook URL: http://on.fb.me/RhlBBW You can also "follow" us on Twitter at http://bit.ly/VaDjK2 or @SocImpactApp Thanks!
PS: The Social Impact App is being developed in partnership with Red Room Software, Social Enterprise Alliance (US) and ClearlySo (UK).
SPECIAL EVENT IN ANNAPOLIS: REPORT ON MARYLAND BENEFIT COMPANIES
Join socially-responsible business owners and social entrepreneurs in Annapolis on the morning of Jan. 24 to discuss findings from the first survey and report on Benefit Corporation and LLC activity in Maryland since new laws went into effect. The release of findings will be followed by a working session of entrepreneurs, advisors, and impact investors to explore next steps for promoting and scaling “common good enterprise” activity in the region. This will be the first study of the first Benefit Corporations and Benefit LLCs in the country in the first state to pass the laws, and will be released by the first Benefit LLC, ChangeMatters.
WHEN/WHERE: Thursday morning, Jan. 24, 2013 9am – 11:30am (EST), at the Maryland State House, President's Conference Center West 1 & 2, Miller Senate Building, 100 State Circle, Annapolis, MD 21402.
PS: they're planning to highlight the Social Impact app to help people find (and buy things from) Maryland-based Benefit Corporations, Benefit LLCs and B-corps. A special pre-beta web version of the app will be released that day containing all those organizations. One more reason to "like" the Social Impact App! http://on.fb.me/RhlBBW
CAN A NONPROFIT BUY A FOR-PROFIT COMPANY?
(1) From Allen Bromberger, Esq.
You can do this. If you use the nonprofit's money to buy the store, the nonprofit should own it. If you use personal money to buy the store, you can own it, but the legal and financial arrangements become tricky. That will be especially true if you have investors. You will also need to consider the potential application of UBIT, and watch put for conflicts of interest and private benefit issues. The right structure will allow you to avoid any problems, but they could also hamper your ability to be successful. Be sure to get advice from someone who knows what they are doing.
(2) From Paul Hudson
There are two ways that the purchase can be accomplished.
1. Purchase store as a wholly owned subsidiary of the nonprofit. Store would be run as a separate for profit entity. Such entities are called social enterprises and are run as for profits. After expenses and taxes, net profits from the store can be upstreamed to the nonprofit.
2. Create a nonprofit holding company with two subsidiaries, one nonprofit and one for profit.
A few issues to consider:
How to account for transactions between the two entities.
Joint services such as accounting, marketing and human resources that can be
consolidated to reduce operating expense.
Tracking social impact.
(3) From Jim McClurg
The same question confronted my own organization about 20 years ago when presented with the opportunity to buy a private, for-profit document security business - an enterprise well suited to the developmentally disabled adults we served.
We had previously incorporated a for-profit subsidiary as a placeholder just for such an opportunity, but ultimately concluded that there were no compelling benefits to maintaining the business' for-profit status (other than exercising the privilege of paying corporate income tax ;) ). We purchased all assets, including corporate identity, customer lists, etc., and operated the business as a division of our non-profit.
The standard issues associated with operating any commercial venture remained, e.g. UBIT, but neither the corporate status of the enterprise nor how to channel profits to our nonprofit were among them.
(4) From Michael Wyland
Short answer: yes, but….
The “but” is making sure you have *qualified* business *and* nonprofit legal/tax counsel involved in the process. BTW, I’d advise the store’s seller to do the same, as how the transaction is handled will have tax consequences for her. A quick test for qualified nonprofit counsel: see if they can explain “intermediate sanctions” and “private inurement” to you in a way that relates to your proposed sale. If they hesitate, or tell you the issues don’t apply, keep looking for counsel.
(5) From Pablo Alfredo Gimenez
You may want to have a look at Social Firms Australia website as they have some expertise in converting private business into social enterprises they call social firms that employ people with disabilities.
NOW IT'S YOUR TURN!
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- Rolfe Larson, owner/editor, npEnterprise Forum