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Hype and Hostility for Hybrid Companies: A Fourth Sector Case Study | Author: Ryan J. Gaffney

Hype and Hostility for Hybrid Companies: A Fourth Sector Case Study | Author: Ryan J. Gaffney

The traditional three-sector ownership model of society grows outmoded. The prevalence of quasi-governmental agencies, public-private partnerships, and government bailouts blurs the line between the public and private sectors. Of concern to this article, however, is the blurring between the private and nonprofit sectors. The cross-pollination is so widespread that a call stands to amend the existing model with an “emerging fourth sector.”

The social entrepreneurs attempting to bridge the gap between sectors face limitations from the outset of their venture; legislators did not design traditional legal entities for a “double bottom line” that includes social impact as well as profit. Because the demand exists, and because a lethargic legislative response will not hinder the entrepreneurial spirit, these pioneers have attempted to form hybrids under existing legal frameworks. Complexity and cost, however, significantly deter this avenue of social enterprise. Consequently, state legislatures have begun to address the need for legitimate hybrid alternatives.

The two business forms attracting the most legal, legislative, and media attention are the Low-profit Limited Liability Company (L3C) and the Benefit Corporation (B Corporation). The L3C, a Limited Liability Company (LLC) hybrid, exploits the LLC’s organizational flexibility, while attracting capital for the actual enterprise through Program Related Investments. The B Corporation is a corporation hybrid that permits a company’s board and management to contract around the rule of profit-maximization. While both frameworks have merit, they are at once competing for the same share of public-consciousness and legislative attention. For that reason, I will be contrasting the two against the backdrop of the WorldOne case.

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