The Role of Social Enterprise

A social enterprise operates a business in a manner intended to increase social welfare more than conventional businesses in the same sector. This notion of “social enterprise” was pioneered by nonprofit organizations seeking to advance their charitable missions through revenue-generating commercial activity, instead of relying on charitable donations. With increasing frequency the term is applied to for-profit business ventures whose founders seek to both address social problems while also generating acceptable returns for owner-investors. The article examines the notion of for-profit social enterprise, and explains how such entities may better achieve social goals than nonprofits engaged in revenue-generating commercial activity, most notably by expanding a business’s access to capital and talent. The article also addresses what some have described as the “legacy problem” – the concern that for-profit social enterprises will not sustain their social missions after the founding social entrepreneur’s exit or loss of enthusiasm. Such concerns, the authors argue, reflect a “nonprofit lite” perspective, which sees the main challenge of social enterprise law as increasing the resources available to what are essentially nonprofit organizations, i.e., entities that are explicitly committed to generating social value in perpetuity. The authors favor an approach that is grounded in the broader ambitions of social entrepreneurship, which is to increase social welfare by transforming markets and preferences in a way that goes well beyond a particular enterprise’s activities. The for-profit social enterprise itself may be transitional and need not survive in order to achieve large-scale social change.