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oriented approach. The double bottom-line reduces
the charity’s dependence on philanthropic support
for funding while remaining true to its charitable
purpose. If a charity contravenes the Canada Revenue
Agency’s (CRA) policies, even inadvertently, it risks
deregistration and the loss of 100% of its assets.
Unfortunately, an overly-complicated and costly
corporate structure is required to comply with an
unclear definition of “linkage” in order for the charity
to maintain its status with the CRA.
Of course, any business may donate a portion,
or all, of its profits to philanthropic causes. So,
why the fuss about social enterprise when the
ends can be achieved by various existing means?
Purists claim that the social venture requires a new
legal approach – one that purports to address a
new social frontier. It avoids complicated legal
constructs and streamlines the organization to
allow it to do directly what it can otherwise only
do indirectly under the current regime in Canada.
In effect, the social enterprise wants to enjoy the
benefits from both the business and non-profit
worlds in one legal entity. As it stands, any such
innovative philanthropic project might want to
steer clear of the regulatory restrictions of charities
and operate as (i) a for-profit corporation with a
social purpose or (ii) a co-operative in order to
retain flexibility.
From a governance point of view,
operating a business for a social purpose
raises some interesting questions about
the fiduciary duties of the directors of
such a corporation.
The Supreme Court of Canada, in the Peoples and
BCE cases, made it clear that directors must consider
all stakeholders when making decisions in order to
satisfy their fiduciary duties to the corporation. This is
in contrast to the Revlon rule in the U.S. that puts the
shareholders’ interest to maximize financial returns
as paramount to any other stakeholder in the same
circumstances. Canadian jurisprudence makes it easier
for entrepreneurs considering the use of for-profit
corporations to achieve social goals.
At the Symposium, the Canadian legal framework
for social enterprise and social impact investing were
described in detail by Zachary Euler, Technical Policy
Advisor at the CRA’s Charities Directorate, Terrance
Carter, Partner, Carter’s Professional Law Corporation,
and Jan Lederman. Reforms in both the U.K. and the
U.S. have attempted to consider the emergence of the
social enterprise and accept it as a stand-alone entity.
A new form of entity might be able to marry its
mixed-motive of profit and socially-beneficial
activities in order to attract external investment
from socially responsible (sometimes self-described
as “ethical”) investment (SRI) funds targeting
blended-value returns. In addition to SRIs, programrelated
investments are another way to get new
initiatives funded and off the ground (i.e. in certain
circumstances, U.S. federal law allows grant-making
foundations to make debt or equity investments in
socially-beneficial activities).
At the Symposium, Thomas Kelley III, Associate
Professor at the University of North Carolina (Chapel
Hill) School of Law, introduced us to the social
entrepreneurship trend in the United States and to
how those projects have been executed. The Lowprofit
Limited Liability Company (L3C) is one new
legal form of social enterprise that has emerged in
some U.S. jurisdictions. Other states have attempted,
and failed, to create the Socially Responsible Business
Corporation (i.e. Minnesota and Hawaii). However,
a handful of states have either adopted or drafted
Benefit Corporation legislation that gives for-profit
corporations the ability to pursue a social mission
while freeing directors to make decisions that are not
solely profit-maximizing. More information about the
Benefit Corporation, including model legislation, can
be found online here: www.benefitcorp.net.
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