Tuesday, April 3, 2012

Social Enterprises Legal Society in the News

The Social Enterprises Legal Society was highlighted in Sarah Stankorb's article for American Today, Social Enterprises Have a Triple Bottom Line. After discussing social enterprises and their legal structures generally, the article continues on to discuss the implications for law students, giving a great background on Karina Sigar, Professor Walter Effross, and the formation of the Social Enterprises Legal Society. The article also highlights the emerging collaboration between the Social Enterprises Legal Society and the Social Enterprise Program at School of International Service. Go check it out!

In other news about the Social Enterprises Legal Society, we will go up before the Student Bar Association for funding on April 17, 2012. Stay tuned...

The Paradigm Project and the L3C

The Paradigm Project, mentioned briefly in a prior article, is a perfect demonstration of the immense flexibility of the L3C structure and an example of what the right hands can do with this new tool. This organization subsidizes the sale of stoves to communities in need, reducing the amount of fuel, time, and energy required to cook. The reduction in fuel consumption results in the creation of carbon offsets, which are then bulk packed and sold to entities in Europe or the United States. Unlike Vestergaard-Frandsen, the Project was created with social benefit as a primary objective. A group of Wall Street veterans ― individuals with intimate knowledge of the challenges they would face creating a commercial entity ― wanted to create a positive social impact and saw an opportunity in the L3C structure. One of the first 10 L3C’s to register when Utah passed legislation permitting the structure, the Paradigm Project wanted to avoid the pitfalls of the 501(c)(3) structure, avoid the cannibalization of their core entity for project funding, and stand out as something different to investors who wanted to make a sustained and significant impact. They are achieving these goals with a tiered corporate structure.

Their primary L3C operates as a parent company. The Board of this organization oversees the development of subsidiary L3C’s to manage each of their regional efforts. There are currently three of these operations. Two are in development, and one is fully operational. This structure insulates the parent company and allows for freedom in capitalization. The L3C structure enables the subsidiaries to receive contributions from charitable organizations as well as private capitalization. The charitable contributions can only be used for program related investments (PRIs), but access to these funds is one of the primary differences between an LLC and an L3C. To this end, the Paradigm Project has established a 501(c)(3) to take donations and funnel them to different regional projects according to the donor’s desires. The donors can deduct charitable donations made to the 501(c)(3) and the non-profit entity then converts these donations into program related investments.

The subsidiary projects establish organizations according to the domestic laws of their host countries and operate as businesses in those locations. They train workers to market and sell the stoves that they provide at subsidized rates. This involves the community and stimulates economic growth in other ways. The stoves they provide create carbon offsets through a significant reduction of fuel needed for cooking. They also decrease the time necessary for cooking and through the diminution in fuel needs reduce the time devoted to gathering wood. The benefits to the community manifest as rapidly as the stoves can be distributed. The Paradigm Project handles the 3rd Party verification and registration of the Gold Standard offsets they create, and then Blue Source, an affiliated entity, markets and sells those offsets to American and European organizations seeking to reduce their respective carbon footprints. Blue Source keeps a commission, but the net proceeds are then returned to the Paradigm Project for distribution to the subsidiaries.

They plan to begin distributions to their investors once the project in question breaks even. Each investor purchases a 10-year equity position with an anticipated 15 to 20% return over the 10-year span. The Project just delivered its first set of offsets approximately a month ago and they expect to have a solid picture of sustainability and profitability within three years. Gregory Spencer, a co-founder of the Project noted in a phone interview on February 29th that it is “tough to find the balance between social and environmental impact and company sustainability,” but as the Board of the Project seems to be on the same page, no serious hiccups have occurred.

The Gold Standard carbon offsets the Project is marketing require the most rigorous registration process available currently, so they command a premium on the voluntary market. Image conscious corporations―those looking to make a difference and establish a reputation at the same time―pay top dollar for these particular offsets, and the future for this organization looks bright indeed.

The Project has created a time-savings for fuel gatherers and cooks, generated a cost savings for the same group, helped to establish local business and fuel economic growth in some of the neediest areas in the world, reduced the number of trees cleared for fuel, and figured out how to profit in a manner that is non-extractive. This should serve as a demonstration of the significant value of this corporate form and the remarkable potential it has for global impact given the right combination of cognitive capacity and capital.

For more information on the Paradigm Project, what they are doing and how they plan to accomplish their goals, please visit them at their web site.