What Are For-Benefit Organizations?
For-benefits are a rapidly growing class of organization that are giving rise to a new, fourth sector of the economy. Like nonprofits and governmental agencies, for-benefits pursue a wide range of social and environmental objectives as their primary purpose. Like for-profits, for-benefits primarily earn their revenues by selling a broad range of products and services that improve quality of life for consumers, create jobs, and contribute to the economy.
Said differently, the presence of two defining characteristics distinguish for-benefits from other organizational models: a primary commitment to social purpose, together with a predominantly earned-income business model. In addition to these, most for-benefits also have one or more secondary characteristics.
DEFINING
CHARACTERISTICS
SOCIAL PURPOSE.
A commitment to mission is embedded in the organization's DNA. Fiduciary duty is tied to mission.
EARNED INCOME.
Sales of goods and services generate most of the income.
SECONDARY CHARACTERISTICS
INCLUSIVE OWNERSHIP.
Ownership rights are allocated among stakeholders in accordance with their contributions.
STAKEHOLDER GOVERNANCE.
Decision rights regarding information and control are distributed among stakeholder constituencies.
FAIR COMPENSATION.
Employees and other stakeholders are compensated in proportion to their contributions.
REASONABLE RETURNS.
Limitations on investment returns protect the organization’s ability to achieve its mission.
SOCIAL AND ENVIRONMENTAL RESPONSIBILITY.
Social and environmental performance is constantly improved throughout the stakeholder network.
TRANSPARENCY.
Social, environmental, and financial performance and impact are fully and accurately assessed and reported.
PROTECTED ASSETS.
Social-purpose assets are preserved upon dissolution, conversion, or ownership transfer.
For-benefits are all around us, but difficult to see until you know how to look for them. Unlike traditional for-profits and nonprofits, which are legally distinct and recognized entities, for-benefits lack formal recognition and common definition because the sector has been emerging in a highly distributed and fragmented way all around the world. This has led to varied and often confusing nomenclature and definitions, which obscures the magnitude and breadth of for-benefit activity. For-benefits are referred to by many different names, such as public benefit corporations, social enterprises, community interest companies, social businesses, hybrid organizations, benefit corporations, cooperatives, and sustainable enterprises, to name a few.
Formalization in the Law
For-benefits represent a new paradigm in organizational theory and design. At all levels, they link two concepts which are held as a false dichotomy in other models: private interest and public benefit. For-benefits reject this dichotomy by aligning private interest and public benefit. They seek to maximize benefit to all stakeholders, and because of their architecture, they can embody some of the best attributes of other organizational forms. They strive to be transparent, accountable, effective, efficient, democratic, inclusive, open, and cooperative.
For the for-benefit organization to move from an emergent model to a widespread economic and cultural reality, recognition in the law is a fundamental requirement. Most countries’ legal and economic systems allow either for-profit or nonprofit activity, but constrain the blending of the two. New laws and regulations are needed in tax, securities, corporate forms, consumer protection, charitable giving and solicitation, trade, intellectual property, and other areas at federal, state, and local levels to recognize and enable for-benefit organizations.
Several countries have adopted new corporate forms and other legal and regulatory reforms in recent years to recognize for-benefits, but these are still quite nascent and only serve the needs of a very narrow range of for-benefit organizations. For most part, for-benefits are not recognized as a legally distinct class of entities. Thus, when for-benefit-minded entrepreneurs set out to create a new entity to realize their goals, they are typically forced to choose a for-profit or nonprofit path, or resort to creating a complicated hybrid structure if they can find (and afford) the right legal advice. This often leads to them having to sacrifice their visions and accept burdensome trade-offs.
This challenge is beginning to be addressed as for-benefit enterprises become better understood. As their potential for driving economic, social, and environmental progress is seen, the fourth sector will become more formalized and distinguished in law, complementing existing sectors while enabling for-benefits to drive sustainability and equity alongside profit.
