Consider establishing a Limited Liability Company (LLC) or a S Corporation

Limited Liability Companies have the following advantages:

  • Separate legal entity providing for limited liability of members for the debts of the company;
  • Significant management, governance, distribution and ownership flexibility;
  • Ability to include social mission in governing documents;
  • Flexibility to adjust or eliminate traditional fiduciary duties to allow for increased focus on social and environmental goals;
  • Ability to structure distribution waterfalls to account for differing goals among investors;
  • Fewer formalities in formation and management than a corporation

BUT:

  • Some formation and management formalities are required;
  • It is more difficult to access outside capital as compared to a corporation (generally limited to fewer investors);
  • Pass-through taxation can be problematic for certain investors;
  • There might be management, governance and ownership complexity;
  • There might be limitations on equity compensation of employees.

Download guidance about setting up a Limited Liability Company

OR

S Corporation 

Case Study: Common Sense Growth, LLC

All pictures are Reuters pictures unless otherwise stated.

Common Sense Growth, LLC is a Delaware Limited Liability Company and for-profit subsidiary of Common
Sense, the nation’s leading independent non-profit organization devoted helping kids and families thrive in a
world of media and technology. Common Sense Growth builds and invests in mission-aligned products and
services and executes licensing deals that support the broad mission of Common Sense.

For more information, please visit http://www.commonsense.org.

Next steps

Now that you have an overview of what structures may be most suitable for your social venture, you should seek legal advice to ensure the structure meets all your organization’s needs.

TrustLaw, the Thomson Reuters Foundation global pro bono legal program, connects social enterprises with leading law firms to provide free legal assistance on issues such as a structuring. In the US alone, TrustLaw supports over 175 social enterprises with free legal assistance.

Apply to join TrustLaw to request free legal advice for your social venture.