L3C or B Corporation

Which Legal Structure Best Promotes the Growth of Social Enterprise?

The three traditional sectors of society, government, business and nonprofit, are being challenged by a new mode: social enterprise. This burgeoning fourth sector of society requires its own infrastructure, including distinctive legal models to support its primary objective to combine market and mission. Legal experts and social entrepreneurs have proposed two new legal structures for social enterprise, L3Cs and B Corporations.

This paper examines which of these legal entities is best able to maintain an appropriate amount of liquidity, based on the approximate liquidity target model and the organizational slack theory, through access to capital markets. Using the iron triangle theory, this paper then shows how obtaining an appropriate amount of liquidity is necessary for a social enterprise to grow to scale and on the basis of this analysis recommends which legal structure best promotes the growth of social enterprise.

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