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Top Legal Questions Social Entrepreneurs Should Be Asking

At Echoing Green, we often emphasize the importance and necessity of a strong, supportive ecosystem. This can vary from organization to organization; for us, our ecosystem includes our community of social entrepreneurs, peers and partners, and donors and supporters. An important subset of supporters includes our trusted expert advisory groups, who consult with Fellows on everything from emotional well-being to working through organizational structure. Our Legal Advisory Group (LAG) is a pro bono advisory committee that provides our Fellows with critical, timely legal advice as they navigate the social entrepreneurship and impact investment fields.

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All of our LAG members are experienced lawyers who are dedicated to enhancing Echoing Green’s ability to provide our Fellow community with quality legal information, resources, and trainings. We asked a long-time member of the LAG, Perry Teicher, impact finance attorney at Orrick, to identify the top three questions social entrepreneurs should be asking themselves to ensure a strong and sustainable foundation for their organization. Here’s what Perry shared:

Do I have the appropriate legal documentation in place?

In the rush of getting new ideas off-the-ground, ensuring quality legal documentation sometimes falls to the wayside. Having appropriate legal structures and agreements in place at the beginning mitigates challenges down the line. These can include:

  • Articles of Incorporation/Formation
  • Bylaws/Limited Liability Company Agreement
  • Founders Agreement
  • Stock Plan
  • Confidential Information Assignment Agreement (dealing with intellectual property, trademarks, patents, etc.)

Proper documentation can set the framework for the organization and its relationships from the beginning. For example, some of these documents will provide the legal framework for entering into contracts with employees and contracting parties, and documents like a founders agreement will help navigate the relationship among the founding team.

Have I solidified my goals before deciding on a nonprofit or for-profit structure?

Part of the consideration regarding structure involves where the organization’s money is expected to come from, both in terms of revenue and fundraising. While the discussion is often split between “venture-backed scale” and “philanthropic concessionary finance,” that’s not the entirety of the picture. Small businesses with sustainable growth can be incredible sources of innovation, impact, and sustainable financial returns. When determining financial goals, social entrepreneurs should keep in mind how this affects their organization structure by considering:

  • If their product or program is well-situated for a philanthropic community
  • If there a market available to purchase their product or program
  • If they see a path to an exit, such as the sale of the company
  • If they anticipate slower, sustainable growth

Distinguishing between these goals will help determine the direction of your organizational structure, such as a nonprofit with tax-exempt status, traditional for-profit corporation, Delaware public benefit corporation, or LLC.

Do I have the right community of partners and funders?

Bringing on compatible, values-aligned partners—internally and funder-wise—can make or break a social enterprise. Partners who are the right fit could include:

  • Those who see the value of social impact, alongside financial growth
  • Those that are open to introducing you to others not just for sales, but for different types of collaboration, brainstorming, product testing, and services

Partners who may be the the wrong fit are often:

  • Those that pressure you without context
  • Those who don’t seek to understand the ‘why’ but push for their perspective before others’ perspectives
  • Those who only attempt to contribute money without broader networks
  • Those who make grand offers but nothing materializes

While many social entrepreneurs are eager to solidify their branding, fundraising, and other strategies, it is imperative to understand and plan for the internal and external legal implications that affect their organizations. Ensuring these legal questions are addressed will be essential in securing a strong organizational infrastructure, anticipating challenges down the road, and getting ahead of obstacles before they formulate.

ACKNOWLEDGEMENTS

Thank you to Perry Teicher, the Legal Advisory Group, and all our partners for sharing advice and supporting hundreds of Fellows through their social entrepreneurship journey.

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