1) How do you make money / what is your business model?
2) What are you / what is your legal structure?
Our business model is constantly evolving, however I can finally announce our legal structure :
a Hybrid Social Venture.
What does this mean?
SoJo (http://theSoJo.net) is being created and delivered jointly by two different entities: SoJo Ventures Inc. and SoJo Education.
In Canada there is no legal structure that recognizes a social enterprise. You are either a for-profit or non-profit. There are advantages and limitations to each legal structure. When it was time to formally incorporate SoJo, open a bank account and have a legal framework to build its product, we deliberated long and hard between a for-profit and non-profit structure.
Decision to go for-profit
A year ago, SoJo Ventures Inc. was incorporated as a for-profit corporation in Canada, assuming that it could develop and deliver SoJo's online learning tool and community of social innovators as a for-profit. Our rationale at the time for pursuing a for-profit legal structure over a non-profit included:
- Set a precedent: We want to be trail blazers by showing our community that it is possible to create a financially sustainable venture that delivers on profit and mission. With the shrinking pool of resources available to non-profits, we want to lead by example in demonstrating that there is another way of satisfying mission, while sustaining your costs.
- Protect the Intellectual Property and technology developed: For-profits have fewer restrictions on how assets get allocated and used.
-Access to research grants and funding available to corporations for developing new technologies and innovations.
-Fewer restrictions on how we can raise capital, spend our resources and conduct business operations.
-Be respected as a legitimate member within the technology community: almost all technologies are developed under for-profits, and we did not want any biases imposed on us by the tech community if we were not a for-profit entity.
Unfortunately over the past few months SoJo experienced significant limitations with the for-profit legal status, where we faced unnecessary obstacles and were forced to turn down some opportunities as a result of formalities. There have been instances where organizations and individuals were excited about SoJo and eager to work with us, however upon learning about our legal status, the conversations quickly changed. Somehow, everyone assumed SoJo was a non-profit, and when told otherwise, people grew suspicious about supposed ulterior motives. I didn't realize that taking the 'high road' and delivering a service which was traditionally delivered by a non-profit, as a for-profit would receive so much backlash. Almost all of the organizations we work with are non-profits, and some did not understand why a for-profit is the one bringing everyone together. Based on my interactions with other individuals in the sector, there still exists a lot of misunderstanding and stigma towards mission-driven for-profit corporations. SoJo's vision is ambitious enough. Does it make sense for us to go up additional uphill battles for reasons of "morals" and "precedents"?
Decision to go non-profit
Every conversation that forced me to question my decision of our legal structure was an additional drop in the bucket. The bucket tipped when a significant partner made it very clear that they could not work with SoJo under its for-profit legal structure, as it is written in their mandate that they cannot support for-profit corporations. This partnership will give us a boost in credibility, build our community, and give us access to several valuable networks. I could not justify letting this partnership go, therefore exactly one year later, I went through the process of incorporating SoJo Education, a non-profit organization.
Why create two legal structures?
Yes, SoJo will be delivered jointly by a for-profit corporation and non-profit. I am very well aware of the redundancy that exists with having to maintain two organizations, two bank accounts and two separate governance structures, however we were really left with no other option. Until Canadian legislation catches up with evolving needs of the Social Enterprise sector, many people such as myself will be forced to be creative in order to deliver value to society today. This is not the perfect solution, however this dual-structure model best meets our needs today.
As far as I'm concerned, the hybrid legal structure will have little effect on SoJo’s end product. Our primary goal is to make SoJo a robust platform that is accessible to as many people as possible -- and we took the entrepreneurial approach of doing what was necessary to achieve this goal. Given that there is no legal recognition in Canada of a social enterprise, we decided to adopt an alternative arrangement: the hybrid social venture. This will allow us to reap the benefits of both legal structures.
The Hybrid dispelled:
"The hybrid uses a series of contracts and agreements to combine one or more independent businesses and nonprofits into a flexible structure that allows them to conduct a wide range of activities and generate synergies that cannot be done with a single legal entity. The guiding principles dictate the relationship between the corporation and nonprofit. The entities that generally make up a hybrid are distinct for legal purposes, and each is responsible for compliance with the laws and regulations that govern it, but when properly structured, the legally distinct entities can behave much like a single entity. The purpose of the contract hybrid is to create an ongoing, symbiotic relationship between a nonprofit and a for-profit to accomplish mission and business objectives on a long-term basis. It allows synergies that simply aren’t possible with the other models, because both the nonprofit and the business are free to pursue their activities in a way that is most likely to be successful within the legal, financial, and regulatory framework that applies to it, without being bogged down in the limitations and regulatory burdens of the other party. Yet they are tied together in a way that allows the whole structure to leverage the strengths of each organization."
Source: Adapted from Allen R. Bromberger's article in the Stanford Social Innovation Revue
How will SoJo's hybrid operate:
Each entity has their own purpose, and collaboratively they will deliver http://theSoJo.net. SoJo Ventures Inc.'s primary responsibility is to develop the technology and backend support needed to power SoJo. SoJo Education's primary responsibility is to make the content freely accessible, and build the community associated with SoJo.
Both entities will be linked by partnership agreements, created in accordance with a series of guidelines and policies, ensuring a legally sound and transparent relationship. You can view the guidelines here.
In addition to the paperwork and administration costs associated with creating two legal entities, I expended an incredible amount of time researching possibilities, talking to experts and deliberating -- this process was incredibly tedious, and was a huge headache. SoJo's legal structure has been over a year-in-the-making. I wanted to wait until our documents were reviewed by lawyers, and that most of our internal controls were in place before publicly announcing our legal structure. SoJo is committed to being transparent with sharing our story, and hopefully this post helps you better understand the thinking that led to this important decision. Please share your thoughts, concerns, and questions. I may not have all the answers, but am open to the dialogue.
5 years ago I wanted to be a lawyer. After all the time spent reading dense legislations, including the Not-for-profit Act and Income Tax Act, researching options, and speaking with legal professionals, I am further reassured that not pursuing a career in Law was the right decision for me. Legal stuff is not written in an accessible format, and is subject to a great deal of interpretation. Further validated by this journey over the last year, SoJo is committed to publishing content on all of these topics in a friendlier way. Please be patient, as it will take time to gather this content, however rest assured that it is coming.
Social enterprise in Canada : Structural options
A New Type of Hybrid – Social Entrepreneurship + Business Equity via Stanford Social Innovation Revue