Social entrepreneurship is a typical 21st century phenomenon. Essential and spot on, that is. Red hot: the time is now. Social responsibility, participation, sustainability and quality of the environment are all key words. Stakeholders want their companies to get involved, and companies want recognition for their social entrepreneurship. But what part could our corporate law play in this? Could we have a social entrepreneurial limited liability company?
The primary goal of social entrepreneurial companies is to meet high standards of social and environmental performance, sustainability, accountability and transparency. They take social and environmental issues into consideration when conducting their activities. Note though, that this is not the same as ‘non-for-profit’. The social entrepreneurial company is definitely for the purpose of profit, but not just for that; it conducts its activities also from a social and environmental point of view, stating that such standards are more important than maximizing profits.
In the Netherlands, several private organisations deal with certificates granted to companies which are more involved with social and environmental issues. Such a certificate can be obtained if the company meets certain social conditions. It usually expires after one year, which encourages companies to maintain their social entrepreneurship status. Most certifications include an annual audit, as is the case for example with the Keurmerk Sociale Onderneming. This particular certificate might be considered a Dutch version of the (global) private certification issued by a global non-profit organisation called ’B-Lab’ from Pennsylvania, USA.
Companies that have been granted a ‘B-Lab certificate’ are called ‘Certified Benefit Corporations’ or ‘B-Corps’. B-Corps should meet rigorous standards of social and environmental performance. Depending on the State, it is possible to actually incorporate a B-Corp in the US. This is a new legal form. B-Corp legislation is state law, yet effective in over half the country. The B-Corp meets the need of an enterprise to really demonstrate itself as a social enterprise.
Recently, the Dutch Social and Economic Council (SER) issued advice on the development of social entrepreneurship. It encouraged the Dutch government to take measures. These included investing in impact analyses, increasing knowledge, researching the possibility for labelling social companies and improving the finance climate.
Now let us take this one step further: why shouldn’t labelling social companies not include the formation of an actual social company. Innovative corporate law. The existing legal forms of entities under Dutch law are a ‘closed shop’. The social company should thus be incorporated within the existing legal entities, for instance within the private limited liability company (‘B.V.’). SER acknowledges the importance of labelling social companies, however it does not immediately opt for social companies to be a distinct class of companies, unlike the B-Corp. But why not?
A practical solution might be to create a social BV company. Recognizable and therefore inspiring to others. The Dutch legislature could arrange for ‘an earmark clause’ within the Dutch Civil Code. This clause could provide for additional wording which could be added to the statutory goal of the BV, in order for it to qualify as a social company. At the same time this could be combined with additional (annual) audit or reporting requirements, for accountability purposes. This would ensure that a company maintains its high social and environmental standards in practice. The arrangement would be non-compulsory and incorporators, or shareholders and officers, may choose whether or not to insert it such a clause in their by-laws and comply with it.
Which leaves the main question: which abbreviation to use with “B.V.” to indicate that we are dealing with a social enterprise? Perhaps ‘B.V.S.’? Or B-B.V.? Food for thought. Nonetheless, it would provide for concrete recognition of social entrepreneurship, and at the same time inspire other entrepreneurs. Now that is certainly worth a try.”
Maarten P.P. van Buuren,
Lecturer business law Leiden University and business law attorney with WLP Law, Amsterdam