This document summarizes a class on operational, HR, and legal considerations for social entrepreneurship. The class covered topics like different types of social business models and their HR strategies, operationalizing various aspects of a business model, key HR questions to consider, and different legal forms for social enterprises. Legal forms discussed included for-profit corporations, non-profits, sole proprietorships, partnerships, cooperatives, and innovations like Community Interest Companies, L3Cs, and B Corporations. The document emphasizes aligning operations and HR with the business model and social mission.

1. ENTR 4800: Introduction to Social
Entrepreneurship
Class 6: Operational, HR and Legal
Considerations
Monday, October 24, 2011
Instructors:
Norm Tasevski (norm@socialentrepreneurship.ca)
Assaf Weisz (assaf@socialentrepreneurship.ca)
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2. © Norm Tasevski & Karim Harji

3. © Norm Tasevski & Karim Harji
Agenda
• Greyston Bakery
• HR Considerations
• Operational Considerations
• Legal Considerations
• What did we learn?
• Next Week
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4. HR Considerations…
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5. © Norm Tasevski & Karim Harji
Where does HR Fit?
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6. © Norm Tasevski & Karim Harji
A Caveat…
Think of your HR from the perspective of “running a
business”, not “running a charity”
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A Second Caveat…
Your HR Strategy must align with your business model
and align with organizational values
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8. What if you were a…
Product-based Social Business…
Tethered Social Enterprise…
Employment-Based Social Business…
Accessibility-Based Platform…
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9. 1. Product-Based
© Norm Tasevski & Karim Harji
A business/business model that provides
products or services with social benefit.

10. 2. Employment-Based
© Norm Tasevski & Karim Harji
A business that hires marginalized people
in good employment opportunities.

11. 3. Tethered
© Norm Tasevski & Karim Harji
An enterprise started by a charity or non-profit that
generates revenue for the organization.

12. 4. Accessibility-Based
© Norm Tasevski & Karim Harji
A business that maintains a purposely low profit margin
to make their products accessible.

13. © Norm Tasevski & Karim Harji
Other HR Considerations…
• Who/what do you need?
• How do you find the right people?
• How do you define what they do?
• How (and from where) do you pay them?
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Exercise:
What HR Strategy makes sense for…
Your venture???
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Balancing Financial and Social
Tensions
• “Social cost”
• Business acumen
• Two missions – may lead to confusion/conflict
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Summary: Key Questions
• Who will manage the business?
• How do you plan to staff the venture?
• Will staff require special training or accreditation?
• Will the non-profit’s clients be hired? If so, are there any special
accommodations that will require additional staff or other resources?
• Will staff work on contract, for honoraria, or on a permanent basis?
• Do you have a person with business experience and/or training on
staff and how will that person be utilized?
• Does the staffing plan match your operational needs and revenue
growth projections?
• How will the staffing needs change as the enterprise grows?
• Are any of the positions transitional by design? If so, how will the high
turnover rates be accounted for in the enterprise?
• How easy will it be to attract qualified staff with anticipated working
conditions and salaries?
• What is the organizational chart? What is the accountability of each
staff member?
Source: http://www.enterprisingnonprofits.ca/sites/www.enterprisingnonprofits.ca/files/uploads/SEGUIDE_Web_Chapter_Five.pdf 17

18. Operational Considerations…
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DAY 1
What do you do first?
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DAY 180
What does your average week look like?
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How do you…
Operationalize your Value Proposition?
Your venture???
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How do you…
Operationalize your “Customer” function?
Your venture???
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How do you…
Operationalize your Channels?
Your venture???
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How do you…
Operationalize your “Relationships” function?
Your venture???
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How do you…
Operationalize your Key Resources?
Your venture???
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How do you…
Operationalize your Key Activities?
Your venture???
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How do you…
Operationalize your Partner Development?
Your venture???
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Summary: Key Questions
• How will you operationalize each segment of the
business model?
• How will you ensure that you adequately
understand and capture your considerations and
assumptions?
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Some Resources: MaRS workbooks
1. Building an A-Team
• What values do you seek in new hires?
• As the company grows, what new hires will you need and when?
• What skills do successful employees at your company require?
• What qualities do your employees need to make them excellent?
• How should you screen and interview to find the best candidates?
• How do you make an official offer of employment?
2. Compensation
• What forms of compensation are most effective for a start-up?
• How do I structure my employee stock option plan?
• What benefits am I legally required to provide and how much will they cost?
• How do I build a realistic and comprehensive HR budget?
3. HR at Work
• How do I effectively bring new people on board?
• How do I establish and conduct performance reviews?
• What are the essential HR policies and procedures I need to have in place?
• How do I create an effective employee handbook?
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30. Break
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31. Legal Forms Applicable to Social
Enterprise…
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A Caveat…
There is no defined (national or provincial) legal form
for social enterprise in Canada
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A Second Caveat…
Form follows function
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34. For-Profit Non-Profit
Corporation Corporation
Partnership Charity
Sole Co-Operative
Proprietorship Corporation
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For-Profit Corporation
• Incorporated under the Business Corporations Act (Ontario) (the “OBCA”) or the
Canada Business Corporations Act (federal) (the “CBCA”)
• With share capital
• Most flex in terms of • Pay corporate tax
profit-making activities • Cannot access grants
• Can access all forms • Cultural/psychological
of investment (debt, barriers with operating a
equity, etc) “for-profit social
• Provides clarity of business”
purpose (i.e. the
financial bottom line)
• Limited personal
liability
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Charity
• Incorporated via Letters Patent under the Corporations Act (Ontario) or Canada
Corporations Act (federal)
• Without share capital
• Don’t pay corporate • Least flex in terms of
tax on earnings profit-making activities
• Can issue tax receipts • Limited in the types of
investments you can
• Can access many
access (e.g. equity)
government/foundatio
n/corporate grants • Time-consuming!
• Psychological barriers with
operating a “social
business”
• An aversion to “risk taking”
• Can lose status if “too
successful”
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37. © Norm Tasevski & Karim Harji
Sole Proprietorship
• Registered via Business Names Act (Ontario) or Canada Corporations Act (federal)
• Without share capital
• The simplest (and • Unlimited liability!!
quickest) legal form • The business is the
• You have full control of entrepreneur
business decisions • Hard to find investors
• Flexibility to make • Limited creative input
business decisions (i.e. you’re the only one
quickly with ideas!)
• No separate filing for • Less “professional” than
income tax other forms
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38. © Norm Tasevski & Karim Harji
Non-Profit Corporation
• Incorporated via Letters Patent under Corporations Act (Ontario) or Canada
Corporations Act (Federal)
• Generally without share capital
• Can access grants • Can’t issue tax receipts
• Can access debt • Limited in the types of
financing investments you can
• Tax exempt as long as access (e.g. equity)
organized and • Psychological barriers
operated for defined with operating a “social
social/community business”
benefit
• Can lose status if “too
• Some NPs are more
successful”
open to (limited) risk-
taking
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39. © Norm Tasevski & Karim Harji
Partnership
• Registered under the Partnerships Act (Ontario)
• With or without share capital
• Usually organized using a Partnership Agreement
• Similar benefits to sole • For most partnerships,
proprietorship unlimited liability! (at
• Combines least in Canada…)
skills/competencies of • Acrimony between
two people partners is common
• Can sign contracts • Difficult to find investors
and borrow money in
its own right
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40. © Norm Tasevski & Karim Harji
Co-Operative Corporation
• Incorporated under the Co-Operative Corporations Act (Ontario) or Canada
Cooperatives Act (Federal)
• Wither with or without share capital
• Well-established • Cannot issue tax receipts
structures • Generally not exempt
• Integrates the concept from paying tax
of “community benefit” • Psychological barriers
already with operating a “social
business”
• Difficulty making
decisions (too many
people at the table)
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41. © Norm Tasevski & Karim Harji
Exercise:
Which legal form makes sense for…
Your venture???
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CRA Guidelines
• Direction (law, regulations, guidelines, precedents)
around social enterprise are not completely clear
• Community economic development (CED)-specific
exemptions:
– Relief of unemployment: training business.
– Relief of poverty through operating stores: business that
provides low-cost necessities.
– Relief of people with disabilities: “social business.”
– Relieving suffering in economically challenged
communities
• Federal view of the business activity may differ from
any provincial position
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An Evolving Conversation…
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Hybrid Structures
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Talk to a Lawyer!
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47. Legal Innovations…
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Legal Innovation: CIC (UK)
• Established to trade (goods or services) for the
community good
• Requires “community interest statement” application to
the CIC Regulator. Publically-available annual reports
required to confirm (adherence to) community interest
requirement
• May issue shares in order to raise capital
• Cap on returns (dividends paid) set by the Regulator
• Subject to an “asset lock”
– Assets and profits must be permanently retained by the CICs
for community benefit, or transferred to another CIC subject
to an asset lock, or to a charity
• Taxed in the same manner as other businesses
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49. © Norm Tasevski & Karim Harji
Legal Innovation: L3C (US)
• Variation on American Limited Liability Companies (LLCs)
• LLC investors are members rather than shareholders
• Terms of the operating agreement guarantee the public
benefit nature of the entity’s work
• Like LLCs, L3Cs are not subject to federal income tax
themselves, but the income they pay to members is
taxable according to the rates applicable to each
member
• Able to attract private capital through the sale of shares
and other securities, various forms of loans, or other
commercial financial arrangements.
• Ability to receive Program Related Investments from
foundations
• No asset lock and no dividend cap
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50. © Norm Tasevski & Karim Harji
Legal Innovation: B Corp (US)
• To be certified as a B
corporation under the B Lab
system, the corporation
must:
– Achieve a minimum score of
80 (out of 200) on the B
Ratings System, a tool to
assess a company's social
and environmental
performance.
– Agree to make legal
changes to its articles of
incorporation to expand the
responsibilities of the
company to include
consideration of stakeholder
interests.
– Pay B Lab an annual
licensing fee.
– Recertification is required
every two years.
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Summary: Key Questions
• Is the venture’s primary mission mostly social or profit?
• What are the founders’ views, skills, motives, and
intentions? How closely held is the organization?
• What is the market for the primary activities
(goods/services)?
• How much money is needed and where will you get it?
• What level of risk and liability is your organization willing
to take?
• What will be the relationship between the enterprise and
the parent organization? Will the enterprise be a
separate entity? What is the governance structure of the
enterprise (separately and in relation to the parent
organization)?
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What did we learn?
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