What is a Social Purpose Business?
Since the enactment of hybrid laws in 2008, a steady increase in hybrid businesses has been recorded. As a result, several entrepreneurs combine both approaches, for-profit and non-profit making. In addition, the structure has received support from individuals who believe it enhances the creation of socially conscious ventures. The hybrid business systems have faced several criticisms, where critics maintain that they create more conflicts than they can solve and hence should not be embraced. However, a push to exempt taxes has been initiated based on the benefits attached to these businesses towards the society (Mayer and Ganahl 387). A social purpose business plays a significant role in solving societal problems. Although some individuals maintain that such ventures should be exempted from tax, others think otherwise.
The hybrid structure should not receive tax preferences previously enjoyed by charitable organizations unless under special conditions. The initiative to exempt tax may adversely affect the public entities, charitable firms, and hybrids. Hence, to adopt tax exemptions, a clear definition of benefit to the public from the entity should be formulated (Mayer and Ganahl 389). Additionally, it is essential to ensure that those businesses that enjoy tax relief should offer significant benefits to the public to avoid overburdening the government or undermining the public support for tax preferences, which are only enjoyed by nonprofit organizations (Mayer and Ganahl 387). Thus, to achieve maximum benefits for all businesses, it is important to guarantee that laws that recognize hybrids without aggravating their weaknesses are enacted.
Furthermore, a nonprofit firm was created under the benefit corporation to recognize the businesses or entities that contribute towards the public. The underlying reason was to create nonprofit organizations that meet specific environmental and social performance criteria, with certifications, to benefit from tax preferences. Exempting hybrid businesses from taxes may play a significant role in addressing the needs of society, which should encourage entrepreneurs to create new hybrid entities (Mayer and Ganahl 398). However, it would be wrong to extend tax preferences to non-profit entities since the action could undermine the very benefits its creators had while developing the idea. The tax exemption is not a solution to the economic challenges, and if wrongly applied, it could have devastating effects.
Businesses that seek to address societal issues have several opportunities under the tax code and revenue rulings that could increase efficiency in their operations. The hybrid, whose mission is to provide renewable energy, affordable housing, or find cures for various diseases, have certain tailor-made tax advantages that allow them to fulfill their purpose. Thus, to ensure business continuity and growth, it is crucial to have equal opportunities for both hybrid organizations and other businesses, even in bidding preferences, to avoid unfair competition. In Cook County, a contract would be awarded to a social entity if the bid price is not higher than 5 percent of the lowest bidder of the non-social entity. Therefore, both types of organizations should have equal opportunities since they positively impact society (Lane). For instance, the non-social organization can contribute significantly through taxes while the other hybrid entity would drive much of its resources and benefits towards social growth. Hence, to ensure fair competition, all firms should have the same platform without any undue preferences on bidding procedures.
Lane, Marc J. Cook County Gives Social Enterprises an Edge! Nov 2017. www.marcjlane.com/news/2017/11/01/2017-lane-reports/cook-county-gives-social-enterprises-an-edge/. Accessed 13 Apr 2019.
Mayer, Lloyd and Ganahl Joseph. “Taxing Social Enterprise,” Stanford Law Review, vol. 66, no. 2, 2014, pp. 387-442.