Mind the Gap: Using the History and Theory of Profit and Nonprofit Corporations to Remedy the Problems of Social Enterprise in Low-Profit Limited Liability Companies — A Theory and Practice Approach

Abstract

This Article is about social enterprise. It lays out what it is, its theoretical foundation, two major problems facing it, and recommendations for how to resolve those problems. The story and the diagnosis rely on history and extrapolation. It provides an introduction to the theory of the limited-liability form, the shape of its obligations, and how those obligations respond to progress and profit. Specifically, this Article argues that low-profit limited liability companies can be sustainable forms, if they import certain procedural and organizational lessons from profit and charitable corporations. These include broad fiduciary duties, accounting separation, disclosure to the states attorney general, derivative lawsuit procedures, and appropriate dissolution provisions.That progress and profit can and do helix together is a thread that runs throughout the Article. One major division separates Parts I and II from Part III, though. Parts I and II discuss and rebut two major criticisms of L3C’s. As such, they are broadly historical, while Part III is a practical application of those experiences to running and counseling a social enterprise. These broad visions may be read separately, but are better understood when digested together. As always, the theoretical informs the pragmatic and the pragmatic reforms the theoretical. Like the topic itself, this Article on social entrepreneurship weds two potentially conflicting frameworks into a meaningful whole.