Socialenterpriseblog.com

The most influential business model of 21^st century seems to be social entrepreneurship. It is an exciting method with which the ambitious and passionate people create or change a business to offer inventive solutions to social problems like malnutrition, poverty, fresh air and water, illiteracy and health care. Due to these social problems, it has been found that the people borrow money from the different sources and fall into serious debt burden. In this situation, they may choose debt relief programs to get rid of their debt problems. The world seems to be infected by more problems than it was in the past. Several challenges have been faced and the “to do” list is vast. Social entrepreneurship is a new happening that runs in areas where government?based support and traditional non-profit structures have been unsuccessful.

Social Entrepreneur and Social Entrepreneurship are somewhat new terms and their examples are found through history. They were there in the past and were called humanitarians, visionaries, reformers, missionaries, philanthropist, saints or simply great leaders. Proper attention has to be paid for their compassion and bravery. The children studied that Florence Nightingale cared for the injured soldiers but she has not made the first professional school for the nurses and has revolutionized the hospital system.

Just like the entrepreneurs change the business, social entrepreneurs play the role of changing agents for the society, grabbing the chances that others have missed out, discovering the new approaches, manipulating the systems, and creating suitable solutions to change the society for betterment. A business entrepreneur may make completely new industries where as a social entrepreneur brings new solutions to social problems and then put them into practice. This new initiative has the leading policy makers of the world in reality forecasting that it will not only be the most decisive and beneficial platform of the time but also bring about a revolutionary change in planning and thinking for sustainable global development.

Although they may go through from a different bottom line, the business and social entrepreneurs have many things in common amongst themselves. Both of them are ambitious to achieve their ultimate goals and are creative in their works. However, they are afraid if they make any mistake.

In fact, this new initiative has the world’s leading policy makers predicting that it will not only become the most purposeful, profitable platform of our time, but also a revolutionary change in thinking and planning for sustainable global improvement.

The Corporation for National Community Service is seeking feedback on a draft Notice of Funding Availability for the Social Innovation Fund.

The Social Innovation Fund, a new public-private collaboration created by the 2009 Edward M. Kennedy Serve America Act, is designed to create new knowledge about how to solve social challenges in the areas of economic opportunity, youth development and school support, and healthy futures, and to improve our nation’s problem-solving infrastructure in low-income communities. In Fiscal Year 2010, the Corporation will award up to $50 million in Federal funding to an estimated five to seven intermediary organizations.Annual awards, which will extend for five years, are expected to be in the range of $5 to $10 million and must be matched 1:1 in cash.Community organizations will receive financial support from intermediaries on the order of no less than $100,000 per year for three to five years, as well as strategic support in areas such as management, and evaluation.Community organizations must also provide a 1:1 cash match for the total amount—Federal and private dollars—they receive from the intermediaries.

The Corporation for National Community Service has released a Draft Notice of Funds Available (NOFA), and is soliciting public input through January 15, 2010. The final NOFA is expected to be released in February of 2010.

http://www.nationalservice.gov/about/serveamerica/innovation.asp

Give your feedback today!

There has been a lot of inquires on our blog about L3Cs, so we have decided to provide a more complete description (from Wikipedia) to clear up any possible misconceptions of the L3C. This is of course under the understanding that we are not engaged in giving any professional, legal, accounting, or investing advice. If professional advice is needed, please seek out the proper professional.

A low-profit limited liability company (L3C) is a legal form of business entity in the United States that was created to bridge the gap between non-profit and for-profit investing by providing a structure that facilitates investments in socially beneficial, for-profit ventures while simplifying compliance with Internal Revenue Service rules for “Program Related Investments”.
 

Background

The L3C is a low-profit limited liability company (LLC), that functions via a business modality that is a hybrid legal structure combining the financial advantages of the limited liability company, an LLC, with the social advantages of a non-profit entity. An L3C runs like a regular business and is profitable. However, unlike a for-profit business, the primary focus of the L3C is not to make money, but to achieve socially beneficial aims, with profit making as a secondary goal. The L3C thus occupies a niche between the for-profit and charitable sectors.

As of September, 2009, an L3C can only be formed in the states of Michigan ,Vermont, Wyoming, Utah, the Crow Indian Nation and the Oglala Sioux Tribe. On August 4, 2009, Gov. Pat Quinn signed Illinois’ L3C Bill SBO239 and the law will take effect on January 1, 2010.

Robert M. Lang, the creator of the L3C, CEO of The Mary Elizabeth & Gordon B. Mannweiler Foundation Inc. and CEO of L3C Advisors, L3C the nations very first L3C recommends that you visit the web page for Americans for Community Development for frequent developments on the L3C.

Legal Structure

The L3C is a form of limited liability company (LLC) and possesses many characteristics of a typical LLC. Like a traditional LLC, the L3C is a for-profit entity. Like a traditional LLC, the L3C offers a flexible ownership structure, wherein each member’s management responsibility and financial stake may vary according to individual needs. Like a traditional LLC, the L3C’s members enjoy limited liability for the actions and debts of the company. And, like a traditional LLC, the L3C is classified as a “pass-through entity” for federal tax purposes. Read the rest of this entry »

The hot topic in foundation circles today is the L3C, otherwise know as the low profit limited Liability Corporation. Experts tout it as the latest development in social enterprise. Several states are now legalizing L3Cs and the tax and philanthropic benefits that accompany them. You may have read the recent news concerning the Bill and Melinda Gates Foundation and its focus on “creative capitalism.” There has been increased emphasis on social enterprise organizations, and its supporters are currently pitching their use for federal approval.

L3Cs are part of a movement to expand the scope of charity, including foundation grants and individual donations beyond the 501(c) (3) public charity model. L3Cs open up private foundation money to the social enterprise sector; but only a very special kind of pivate foundation money known as PRIs (or Program Related Investments). PRI investments can come to a L3C in the form of a loan or equity an investment.

Now, you might ask; what does the word investment have to do with non-profits organizations like you involved in Social Enterprise? Think of it as high engagement grant making activity. In the same way a venture capital company invests in a for-profit enterprise inorder to generate a return on investment. A foundation looks at its PRI investment money to further the “effectiveness” of its charitable dollars beyond making just an outright grant, which is the traditional means by which that you and I are most familiar with. One of the unique aspects of PRI money is that it comes back to the foundation grows and then is later “reinvested” for other PRI activities. Furthermore, the amount of PRI investment counts toward the manditory 5% that foundations are required to give out in order to maintain its legal status as a private foundation.

Fundamentally, an L3C is a limited liability company (“LLC”), which is a type of for-profit legal entity that has existed throughout the World for over 1,000 years. LLCs are widely accepted and used, and are treated as partnerships for income tax purposes. Since, L3Cs are recognized as partnerships for income tax purposes, they file IRS Form 1065. Read the rest of this entry »

The Chronicle of Philanthropy reported that the White House Web site now lists an Office of Social Innovation (without a formal public annoucnement).  The article quotes several members of Mr. Obama’s transition team (including Echoing Green President Cheryl Dorsey) about the details of this office.  According the article:

A White House office “would leverage the president’s platform to highlight the importance of relying on social entrepreneurs and nonprofits to solve social problems where both the private sector and government have failed,” Ms. Jolin wrote in the journal Stanford Social Innovation Review last spring.

The office, she added, would oversee efforts to direct government money to help nonprofit leaders experiment, expand approaches that work, and help charities collect data and evaluate whether they are making a difference. While President Obama proposed during the campaign the creation of a Social Entrepreneurship Agency in the Corporation for National and Community Service, the federal national-service agency, Ms. Jolin argues that putting an office in the White House “elevates it as a priority.”

I am interested in inquiring how much interest there is in setting up an alternative capital market working group for social enterprise. The purpose of the group would be to assess the over all industry support such an effort. The 2008’ Social Enterprise Alliance (SEA) convention put a lot of interest in creating capital markets for social enterprise but I have been unable to pin down the real point person in charge.

I have a complete proposal as well as a dedicated website with specialized educational content for educating SEA members on these specialized methods of forming capital. Who out there would like to join in on this effort or possibly offer some contacts with an affinity?

Yunus says business schools should start turning out social-business MBAs trained in creating social returns: “People say, ‘Don’t be stupid.’ I say there are a lot of stupid people like me. I don’t want to make money. Lots of young people don’t want to make money, just because their mother, their father made so much money. They don’t know what to do with their lives. There are many such kids in the U.S.  They don’t have any challenge left. Give them the challenge: Fix the world. Create a social business enterprise.”

Increased foreign direct investment into developing economies could become a very effective poverty intervention strategy. Microfinance institutions (MFIs) would be the logical place to locate these investments. This is because presently, the resources available from multilateral and private donor agencies will never be sufficient to satisfy the demand for Microfinance capacity development.

Agents of social change and other stakeholders in the field of microfinance have debated for years on how to increase the financial liquidity of MFIs thereby increasing their capacity to lend to the poor. What factors would need to be present in order to facilitate the wholesale buying and selling of microfinance securitized loan portfolios in the world capital markets? What role should a global peer-based professional organization play in bringing about this possibility?

A peer-based professional association could help set new financial statement transparency standards for MFIs by encouraging the use of “cost-accessible” financial reporting for MFI practitioners using XBRL.

This author advocates a peer-based professional organization promoting the development of XBRL taxonomies (eXtensible Business Reporting Language). XBRL is an internet-based financial reporting protocol that could ultimately serve to boost the financial liquidity of MFIs. By boosting the financial transparency of MFIs with XBRL reporting, it would thus would in turn enhance the possibility of a secondary trading market place for MFI securitized loan portfolios.

A secondary market trading market for Microfinance securitized loan portfolios assumes that outside investors are able to easily evaluate the financial strength of MFIs and track their performance through standardized reporting protocols. The development of XBRL taxonomies for Microfinance institutions can play a major role bringing about this possibility. Advances cannot occur without a single unified voice advocating MFI financial transparency.

Wars, natural disasters, and rising energy costs have recently created large federal budget deficits. These deficits have led to reductions in public spending at all levels. The same events have also overwhelmed donors and created donor fatigue. This has led to reductions in private contributions for many causes. These declines in the traditional sources of income for not-for-profit organizations have created a need to develop new sources of income

Mr. Romano will discuss 509(a)(3) Supporting Organizations as defined in the IRS regulations. These are earned income subsidiaries, who generate non-taxable business income on the basis of their purpose to the supporting a non-profit parent, albeit separate mission structurally from the parent nonprofit organization. Often times this requires board member inter-locking between the two organizations

Social entrepreneurs are reformers and revolutionaries, but with a social mission. They make fundamental changes in the way things are done in the social sector. Their visions are bold. They attack the underlying causes of problems, rather than simply treating symptoms. They often reduce needs rather than just meeting them. They seek to create systemic changes and sustainable improvements. Though they may act locally, their actions have the potential to stimulate global improvements in their chosen arenas, whether that is education, health care, economic development, the environment, the arts, or any other social field.

John K. Romano (facilitator)

Is the executive director of the International Open Finance Association Inc. a 501 (C) (3) organization which has been involved in Social Entrepreneurship for over five years. He is also the moderator of the socialenterpriseblog.com His 3 hour workshop gives other nonprofits guidance on how to start a “for profit” business in order to finance “a non-profit” cause. After all, non-profit is really a legal status not a business strategy!

Date: November 8th The number to call is: 712-432-3900; when prompted press conference access code - 3326790 and then hit the “#” sign the call is free to cell phone users, otherwise normal long distance phone charges will apply.

The Stanford Social Review defined Social Entrepreneurship as having the following three components: (1) identifying a stable but inherently unjust equilibrium which causes the exclusion, marginalization, or suffering of a segment of humanity that lacks the financial means or political clout to achieve any transformative benefit on is own. (2) identifying an opportunity in this unjust equilibrium, and developing a social value proposition, plus bringing to bear inspiration, creativity, direct action, courage, and fortitude, thereby challenging the stable hegemony; and (3) forging a new, stable equilibrium that releases trapped potential or alleviates the suffering of the targeted group, and through imitation and creation of a stable ecosystem around the new equilibrium ensuring a better future for the targeted group and even society at large.

I would be very interested in hearing some more thoughts from others on this definition of what Social Entrepreneurship is, and perhaps sharing what they are in particular are doing in the rapidly growing field of Social Entrepreneurship. Please post your thoughts here.