Social entrepreneurship: do we need a new type of legal form?
17 - 06 - 2019 • Sjoerd van der Velden
Social entrepreneurship – the community company
The social or community BV (besloten vennootschap, BV) is a profit-oriented legal form, but one which has a social objective. This type of company would operate on the free market as an ordinary BV (Dutch private limited company) and will be able to pay dividends to its shareholders.
Examples from abroad
There are legal entities abroad that have been developed specifically for social enterprises. For example, the UK has the Community Interest Company (‘CIC’), while the Benefit Corporation was developed in the US.
The company law of various American states stipulates that the interests of the shareholder must prevail (shareholder model). In those instances, the pursuit of a more balanced approach to the interests of various stakeholders (stakeholder model) can be regarded as poor governance. In the case of a Benefit Corporation, a more balanced approach is not only possible but even essential. Although to a lesser extent, there are also similar obligations in the UK with regard to profit maximisation.
In the Netherlands, B Corp certification presently provides a good workable solution
In the Netherlands, we do have the stakeholder model, which is why the introduction of a Benefit Corporation or a community company (besloten vennootschap – maatschappelijk, BVm) has little added value in my opinion. It would be different if tax arrangements were to accompany this new type of legal form which make it more attractive for investors to invest in such companies.
In the Netherlands, B Corp certification presently provides a good workable solution (which is different to the legal form of the Benefit Corporation, although both instances deal with the pursuit of social interests) in line with the specific statutory provisions prescribed. The statutory social objective guides the remit of the management board (as well as that of the supervisory board and the shareholders), which may have an impact on directors’ liability and the right of investigation. It is the case that in the Netherlands, the social mission can already be established in the articles of association without the introduction of a new type of legal form.
The statutory social objective guides the remit of the management board
Dutch private limited company (besloten vennootschap, BV) are suitable for social enterprises. Management boards in the Netherlands are already obliged to serve multiple interests rather than exclusively those of the shareholders. This company form presents social enterprises with opportunities to organise themselves in legal terms. B Corp certification would allow these companies to obtain a distinctive social character, with the mission being established in the articles of association. Nonetheless, a new type of legal form could create added value in the Netherlands, if it were accompanied by tax arrangements. Also could be considered restricted profit distribution, equity restrictions, or special provisions on governance, supervision and transparency.
It is encouraging to see social entrepreneurship take pride of place on the political agenda, as well as it is interesting to monitor the corresponding developments.
Sjoerd van Velden, co-owner and founder, Bruggink & Van der Velden Attorneys & Tax Consultants.