Welcome to week four of this course. What we've asked you to do in last week's optional case assignment, was to think through the organizational forms of the company Bybi. Now, the question of which organizational form to select for your social enterprise is very important. It will actually define what you can do with your social enterprise and what you cannot do. Now, what we're going to do today is: apart from discussing the Bybi case, we will have two guest speakers here again. Who will talk about developments in other countries when it comes to what specific organizational forms for social enterprises. We are again going to meet Professor Jeffrey Robinson from Rutgers University in New York, who will talk about something called a benefit corporation. The organizational form of benefit corporation was specifically developed by certain states in the US for social enterprises. And we will also meet Helen Haugh from Cambridge University, who will talk about the community interest companies, CIC, in the UK. Both organizational forms have been specifically developed for social enterprises, and if you're not in those countries, you might want to look at your own country's legislation. Because many countries these days have actually started to develop organizational forms specifically for social enterprises. However, even if you do not have these forms, you can think through what other alternatives are out there. We will finish this week by looking into the role of social impact investors. Now, once you start to pull together your business plan, you can start to think about, where will you get the capital, the startup capital which you will need to launch your social enterprise. Encouragingly, we have an increasing number of so-called impact investors out there who are there to specifically invest into social enterprises like yours. So that is where we will finish our week. And with that, let's have a look at the question of organizational form and see what our students are saying about that. >> So we have our business plan, we have our investors, but what kind of organizational form are we going to choose? >> On the one hand, we could go with a private organization, because we wouldn't really have to consult with anybody except, perhaps, our investors. We would have a lot of freedom over the direction, we could potentially expand really rapidly. But there's also a lot of responsibility to that, I think, in terms of broader ethics of operating a business. >> Exactly, what kind of legitimacy do we have as a private organization to- >> Yeah. >> deliver this kind of service? >> So maybe another option would be to be a charity. >> Well, yes, we could have tax exemptions, well, depending on which place we choose to launch our business we could have tax exemptions, subsidies from the public surface, so could be a way. But on the other hand we'll be really dependable on this kind of financing. >> Yeah, there are a lot of restrictions surrounding how we could operate this business. >> Yeah, I feel like on the one hand, if we go for private, then we'll be under the market constraints, and we might not be able to give our services to people who really need it because it will not be profitable. >> Or at least not profitable enough. >> Not profitable enough for our investors depending on what type of investors they are. And on the other hand, if we go for charity, then we're completely dependent on public money. And if they stop the money, what would we do? How are we going to sustain the business? Isn't there something between? >> We could do something like a cooperative. >> What is a cooperative exactly? >> It's when there are multiple entities working together to form a business with shared ownership and shared responsibility in order to produce a product or service. But it not only dilutes the decision making, it also dilutes the responsibility. On the other hand, there has to be agreement among the parties in order to get anything done. It creates more of a feeling of a community, I would say. >> Community building, yeah. >> So we have to discuss everything together. >> So you have the control of what is actually happening with the business. You can actually vote for your decisions. On the other hand, it can make the decision-making process really complex if there's 100 persons owning the business, and we all have to vote on the decisions. Well, then maybe we should consider at least with our, if this is going to be an organizational form that we go forward with, limiting the size of the cooperative. >> Of the cooperative, yeah. >> Otherwise, it could get too complicated. And we should also be thinking very carefully about who we work with. So we make sure we have solid business relationships with them. >> What about hybrid organizations? >> Tell me about those. >> What about if we decided to have both a public component, to have both. Yeah, there's a great initiative here in Copenhagen that allows members of the cooperative in exchange of working couple of hours a week in a store to have their bag of veggies and fruits for a really moderate amount. And it's really good because it really engages people directly to contribute to the business. But then you have a very large number of members, and all those members have to take the decisions together, and they do these decisions by consensus. So the kind of governance systems that you choose will affect a lot, the future of your business. >> On the other hand, it sounds like a huge benefit to be touching so many lives and to have people feel quite attached, not only to this cooperative but also to where they're getting their food from. And engaging them in the labor process as well. >> Yeah, exactly. We talked in previous sessions of ownership of the project, and cooperative is really a way of engaging people in making the communities just better, so, we could do a cooperative. >> Sounds like it has some risks, >> [LAUGH] >> But we should try it out. >> When we started the organization, I was advised to start with two separate organizational forms: a, association that would do the more voluntary community activities. And a kind of shareholders' business with limited responsibility that would do the more, the honey production elements. That was a big mistake because I ended up with double the administrative burden trying to keep two companies going, and that wasn't actually necessary at all. So after a couple of years, I dropped the shareholders' side of it, and concentrated just on the association. And it turned out that actually the association could do all the things that we needed to do. Lots of the concerns that I had about partners being interested in the legal form turned out not to be relevant. They just want to get going as well. The only thing they want to know is some kind of transparency. And that we could offer them with the association. So the association is a members' organization. We have about 250 members. They're mostly ordinary people who pay a bit of money each year. They show up, some of them, to our annual meeting where we explain what we've been doing. They say yes to the board that would like to be part of it. And their responsibility more or less stops there, and the board are then responsible for the daily running of the organization. And that is a model that is effective, does what we want. It gives us access to the resources that we need. And something that, I'm sure we'll probably have to change it at some point, but until now, it's fine. I think there's a lot of really good ideas around more participatory decision-making and more democracy that I would like to involve. But we're sitting at the moment where the organization is at this point where it can go two different directions. Maybe we'll end up that at some point we will actually split off one element from the other. But having a more member-driven set of activities, I think, can be really interesting in the future. Especially around the more nature education activities about involving people in producing their own stuff. And it's in the future at the moment and the organization is still growing, at the rates that I can't really see much beyond the next few months. So it's difficult to see exactly how that would work, but I can see that it might become a problem as we get bigger. The reason I didn't choose a for-profit form is that goodwill is always going to be a vital part of this business. There are so many resources that it's necessary to extract from our partners, for example free space on their rooftops, for example, the offices that we're in now. We can get people to do our printing and design work for free. All of those resources, we'd have to pay for if we didn't have a non for- profit profile and the transparency that we need. One of the visions for the project is that we can link and integrate all the different kinds of organizations in the city. Businesses, social projects, municipal organizations, ordinary people, all of them have an interest in producing a greener, richer, more thriving environment. And to get those resources out of these places, it requires goodwill and goodwill requires trust, and it's difficult to trust an organization if you can't see that the money is going to something sensible. Bybi is a Danish project at the moment. We're looking at expanding into other cities. There are beekeeping projects in lots of cities around the world, and it's a model that could work in other places. So if people are interested in honey production and beekeeping, I'd suggest that they get in touch with their local beekeeping associations to find out what's going on locally. There are a huge number of interesting opportunities around small-scale production of honey also in the cities. In just about every city in the world, I should think. >> Now, let's have a look at the assignment from last week, and which organizational form did Oliver Maxwell's city bee project actually choose? As a matter of fact, Bybi has decided for a double structure. It relies both on a not-for-profit association driven democratically by its members, and a cooperative structure. All its profits are reinvested in the social and environmental activities of Bybi. Which organizational form to adopt is a crucial decision that you will have to make about your startup. This will, to a large extent, depend on the country you are based in. Actually, if your team has members from several countries, you may want to shop around to see which location offers the best regulatory setting for what you have in mind. Obviously, we cannot cover all possible legal frameworks. However, let me outline some basic organizational forms that you will probably encounter in most countries. A charitable foundation is a legal category of a nonprofit organization that provides funding for its own charitable purposes. This type of non-profit organization differs from a private foundation, which typically is endowed by an individual or family to support other projects. Charitable foundations can receive their income from donations, but they can also follow earned income strategies, thus making them a viable option for social enterprises. Another typical form of a social enterprise is the cooperative. This is an autonomous association of persons who voluntarily cooperate for their mutual social, economic, and cultural benefit. Cooperatives include non-profit community organizations and businesses that are owned and managed by a number of groups. These could be the people who used the services of the cooperative, we call this a consumer cooperative. Or it could be formed by the people who work there, a worker cooperative. By the people who live there, a housing cooperative, or producers, who provide the input that is sold through the co-op. We would call this a producer cooperative. A voluntary association describes groups of individuals who voluntarily enter into an agreement to accomplish a joint purpose. This could, for example, be an alumni association, a sports association. In the case of social entrepreneurship, we will mainly be looking at associations that act as non-profit organizations. The next organizational form is the company limited by shares. It limits the liability of its members to the amount, if any, of unpaid shares. This type of company is preferred by most for-profit organizations as it's easy to register and the requirements of reporting are less stringent than for public companies. If you have a very large social enterprise, you can consider public limited companies, which are registered on the stock exchange. Whereas public companies may be registered for non-profit purposes, this is not a common occurrence, as the companies are nevertheless obliged to be run as normal for-profit business. They are required to file annual returns, have directors and a company secretary, and are subject to taxes, like any other for-profit company. In a company limited by guarantee, each member does not have to actually pay in capital. However, she or he undertakes to contribute a specific amount towards the essence of the company in the event of the firm going bankrupt. Such companies typically are formed to incorporate professional, trade, or research associations, clubs, or charitable and not-for- profit organizations. A company may be registered as an unlimited liability company, in which case there is no limitation of the members' liability for the debts of the organization. Such companies are not often formed today, since there will be no limitation of liability. Several countries offer the option of forming specific social enterprise forms, for example, community based organizations. These tend to be civic organizations consisting of community groups, operating in fairly limited administrative areas. The majority of such organizations are self-help groups that are involved in commercial or development activities for the benefit of the local community in a specific geographical area. Such organizations operate in a relatively ad-hoc manner, and do not have a constitution or any specific rules that govern them. Independent of the organizational form, you might ask whether your organization is a charity. The question whether an organization is recognized as charitable, making its contributions tax exempt, is independent of the organizational form. The legal definition of charitable organization varies according to countries. Thus, not every foundation will automatically be charitable. On the other hand, several countries have organizational forms for companies limited by shares, which can apply for charitable status. Typically, this would require that the organization can clearly demonstrate its social mission. Moreover, all assets have to be locked. This means that they cannot be paid out to shareholders. You should also note that different types of organizations can own each other. Thus, we might see a charity that owns a company limited by shares. Professor Roger Spear, from the Open University in London, will talk about one specific type of organization called community interest company, CIC, that has been set up specifically for social enterprises.
