1 Introduction

Social entrepreneurship is a global trend. New initiatives, concepts, and organizational forms are constantly being developed by and for social enterprises.Footnote 1 The basic idea behind this movement – to tackle social challenges with entrepreneurial means – has meanwhile also been met warmly by policymakers.Footnote 2 In 2020, the European Commission dedicated to the topic a summary report of almost two hundred pages titled ‘Social enterprises and their ecosystems in Europe’,Footnote 3 and in December 2021 it presented an ‘Action Plan for the social economy’.Footnote 4 At the international level, the OECD published a guide on the legal frameworks for the social and solidarity economy in March 2023.Footnote 5 In Germany, the current coalition agreement proclaims that a modern corporate culture should also include new organizational forms such as social enterprises and raises the prospect of developing a national strategy for social enterprises to provide greater support for public-welfare-oriented economic activity and social innovation.Footnote 6

Legal commentators committed to analyzing and examining the subject matter can hardly keep pace with the developments. A recent monographFootnote 7 and a handbook on the ‘law of social enterprise’Footnote 8 deal mainly with the legal situation in the United States; a freshly published anthology provides a first international overview.Footnote 9 By comparison, studies from a German perspective have so far been extraordinarily rare.Footnote 10 Against this background, this article undertakes a tour through the ‘Social Enterprise Zoo’Footnote 11 from a corporate law perspective. For better orientation, it first outlines the multifaceted, real-world phenomenon of social enterprises in business practice and management research (Sect. 2). Subsequently, it explains the legal framework for social enterprises in Germany, Europe, and the United States (Sect. 3). Finally, it addresses research perspectives and open questions in the new field of social enterprise law (Sect. 4).

2 Social Enterprises in Business Practice and Management Research

Social enterprises come in numerous forms. The spectrum ranges from traditional associations aiming to integrate unemployed and disabled individuals into the workforce, to modern manufacturers of outdoor clothing attentive to the issue of sustainability.Footnote 12 To gain an impression of the multitude and diversity of actors, ideas, and forms of organization,Footnote 13 it is advisable to start chronologically with the figure of the social entrepreneurFootnote 14 and then to move on to the social enterprise. Along this path – and in this context – it is, however, important to keep in mind that the key terms of social entrepreneurship, social entrepreneur, and social enterprise are often associated with different meanings.

2.1 Social Entrepreneurs as Promoters in the United States and Asia

The start of the contemporary social entrepreneurship movement in the United States and Asia was characterized by the emergence of charismatic individuals, social entrepreneurs with sparkling ideas and an enormous drive to create positive change in society.Footnote 15

2.1.1 Bill Drayton as a Visionary and Supporter

Referred to reverently as the ‘Godfather of Social Entrepreneurship’, Bill Drayton (USA) was a central figure in recognizing the importance of social entrepreneurs as key drivers of economic change and social innovation.Footnote 16 Drayton studied economics at Oxford, earned a law degree at Yale, and worked for McKinsey for a number of years before joining the US Environmental Protection Agency. In 1980, he and several like-minded people founded the non-profit organization Ashoka, based in Arlington, Virginia.Footnote 17 Ashoka is devoted to identifying visionary social entrepreneursFootnote 18 around the world, nurturing these individuals with targeted support, and allowing them to proceed from small beginnings to greater success – in line with Drayton’s favorite saying: ‘From little acorns do great trees grow’.Footnote 19 The first Ashoka Fellow was Gloria de Souza, a 45-year-old primary school teacher from what was then Bombay, who introduced and disseminated new, interactive teaching methods that were more closely aligned with indigenous experiences.Footnote 20 Today, Ashoka operates in more than 95 countries on all continents.

2.1.2 Muhammad Yunus as a Pioneer and Idol

The best-known Ashoka Fellow and at the same time the shining example for many social entrepreneurs is Muhammad Yunus, a Vanderbilt-educated economist from Bangladesh. In 1976, he founded the Grameen Bank, based in Dhaka, which provides collateral-free microcredit to poor micro-entrepreneurs, mostly women, in order to help them to escape abject poverty. As ‘Banker to the Poor’ – the title of his autobiographyFootnote 21 – Yunus received the Nobel Peace Prize together with the Grameen Bank in 2006. He has explained his concept of a ‘social business’ in various books.Footnote 22

2.2 Social Enterprises in Europe and Germany

In Europe, the idea of social entrepreneurship also took hold, albeit with a slightly different focus: it was not the individual social entrepreneur who was – and is – at the center of interest here, but rather the social enterprise as a collective entity,Footnote 23 a structure deemed more impactful than individuals acting alone.Footnote 24 In the beginning, mainly associations and cooperatives aggregated under the collective term ‘Work Integration Social Enterprise’ (WISE) emerged. They were products of the severe economic crisis witnessed at the end of the 1970s and the beginning of the 1980s, a dynamic which led to high structural unemployment in many European countries, and they primarily aimed to create employment opportunities for socially disadvantaged people.Footnote 25

2.2.1 Italy as a Forerunner

Social enterprises flourished first on Italian soil. Here, they emerged in the 1970s as a grassroots movement in response to serious weaknesses in the state welfare system.Footnote 26 Initially, in the 1980s, a manner of cooperative served as a loose organizational model for them,Footnote 27 and this structure took on a more solid form as a social cooperative after legislation was passed in 1991.Footnote 28 The cooperativa sociale – as it is known – comes in two sub-forms: the WISE cooperatives for labor market integration (type B); and the new, broad-purpose cooperatives providing social welfare and/or educational services (type A), which explicitly pursue the general interests of the community.Footnote 29 In 2005, the legislature subsequently introduced the legal status (or label) of an impresa sociale, thereby giving social enterprises access to other organizational forms outside of the cooperative sector.Footnote 30 In 2017, the ‘third sector’ was newly organized by a legislative decree.Footnote 31

2.2.2 Germany as a Latecomer

In Germany, social entrepreneurship was comparatively late in gaining a foothold,Footnote 32 despite the existence of certain historical models. Reference can be made in this regard to Friedrich Wilhelm Raiffeisen, one of the two fathers of the German cooperative movement together with Hermann Schulze-Delitzsch. As early as the middle of the nineteenth century, he had established cooperative loan funds that provided money to destitute farmers for operational resources – a social entrepreneur avant la lettre with a model that was not so dissimilar to that of Muhammad Yunus.Footnote 33 Subsequently, however, these early approaches petered out. In their place, and in the wake of Bismarck’s social legislation of 1883–1889, there grew an entrenched expectation that the state and the church, together with their welfare associations, were responsible for the social good.Footnote 34 This assumption, along with an underdeveloped entrepreneurial culture, a weakly developed commitment to civil society, and the comparatively minimal willingness to donate money, led to an infertile breeding ground for privately initiated social enterprises.Footnote 35 Initial approaches with WISE organizations in the form of social enterprises as well as employment and qualification companies in the mid-1990s did not offer what they had promised.Footnote 36

It was not until the end of the 1990s that social entrepreneurship gradually gained traction in Germany,Footnote 37 especially through external actors who dedicated themselves to the promotion of social enterprises. One of them is Klaus Schwab, the founder of the World Economic Forum, who founded the Schwab Foundation for Social Entrepreneurship together with his wife Hilde in 1999. The Schwab Foundation can in a certain way be seen as a German equivalent to Bill Drayton’s Ashoka.Footnote 38 Ashoka itself has been active in Germany since 2003,Footnote 39 and further support is offered by the Social Enterprise Network Deutschland e.V. (SEND), founded in 2017. According to the latter’s Social Entrepreneurship Monitor, social enterprises now exist in all sectors, most commonly in education, health, and social work, as well as in the areas of information and communication technology.Footnote 40 Clear statistics are lacking. One rough estimate puts the number of social enterprises between 2000 and 70,000,Footnote 41 while others speak of 70,000.Footnote 42 According to a third source, there are as many as 154,000 German social entrepreneurs.Footnote 43 Most of them are still in the implementation and growth phase.Footnote 44 Typically, these entities are founded by younger people in an urban milieu.Footnote 45 They are also referred to as ‘new-style social enterprises’.Footnote 46 A frequently cited example from Hamburg is GoBanyo, an organization which operates a shower bus for homeless people that is financed through crowdfunding.Footnote 47 However, GoBanyo’s entrepreneurial approach is not yet very developed.Footnote 48 A more suitable illustration might be Hinz&Kunzt, Germany’s most widely distributed street magazine sold by homeless people.

2.3 Social Enterprises as an Object of Academic Research

Academic research into the new phenomenon did not take long to emerge. However, the discourse in the United States and Europe initially had only few intersections.Footnote 49

2.3.1 The Discussion in the United States

In the United States, 1983 is considered a ‘watershed year’:Footnote 50 in that year, two important papersFootnote 51 and a book publicationFootnote 52 on the entrepreneurial activities of non-profit enterprises appeared. Ten years later, Harvard Business School launched its ‘Social Enterprise Initiative’Footnote 53 and soon found followers among other leading business schools. Subsequently, competing theories for a better understanding of social enterprise mushroomed.Footnote 54 These include the cross-subsidy model, which sees social enterprises as the commercial arm of non-profit organizations;Footnote 55 the innovation school, which places social entrepreneurs in the ranks of the Schumpeterian entrepreneur;Footnote 56 the hybridity approach, according to which social enterprises are combinations of various types of social and business entities;Footnote 57 the institutional view, which emphasizes the historical and institutional context in which different varieties of social enterprises developed;Footnote 58 and the behavioral and evolutionary economics strand, which views social enterprises as a response over time to changing social needs and entrepreneurial motivations.Footnote 59

2.3.2 The European Discussion

An early point of scholarly crystallization in Europe was the founding of the journal ‘Impresa sociale’ on the initiative of the Centro Studi del Consorzio in 1990.Footnote 60 More recently, the EMES research group,Footnote 61 which was founded in 1996 with EC funds and led under the direction of the social economist Jaques Defourny from the University of Liège, has become a key source of impetus. The resulting EMES network is now one of, if not the leading institution in the field.Footnote 62 As a result of the ‘International Comparative Social Enterprise Models (ICSEM) Project’, its researchers have recently published a four-volume series of books dedicated to social enterprises in Asia, Latin America, Central and Eastern Europe, and Western Europe.Footnote 63 The young discipline received further impetus from newly founded journals in the UK: the Social Enterprise Journal (since 2005, Cambridge)Footnote 64 and the Journal of Social Entrepreneurship (since 2010, Oxford).Footnote 65

2.4 Definitional Dilemma

Despite the enormous growth in knowledge, there is still no generally accepted definition of a social enterprise: ‘The concept of social entrepreneurship continues to mean different things to different people and there is no clear understanding on where to locate it and how to qualify social entrepreneurs.’Footnote 66 One article counted a total of 87 different definitions as early as 2009.Footnote 67

In a recent publication, the OECD characterizes social enterprises as providers of goods or services that fulfil a social objective and whose main purpose is not the maximization of profit for the owners but the reinvestment of profits generated for the continued attainment of its social goals.Footnote 68 A self-description elaborated by the German entity SEND reads as follows:

The primary goal of social entrepreneurship is to solve social challenges. This is achieved through the continuous use of entrepreneurial means and results in new and innovative solutions. Steering and control mechanisms ensure that social goals are lived internally and externally.Footnote 69

The aforementioned EMES research group retreated quite early to the position that it was unrealistic to think the essence of social enterprises could be captured in a concise and elegant definition and that it would in any event be preferable to identify and outline archetypal criteria – with EMES ultimately settling on four economic and entrepreneurial indicators and five that were social in nature.Footnote 70 More recently, EMES and many other researchers have emphasized that a uniform definition is impossible given the diversity of social enterprises.Footnote 71 Instead, actors in the field are shifting to an alternative research strategy that identifies different types of social enterprises and enquires as to the reasons for this diversity.Footnote 72 In a similar direction, from a US perspective, a well-received publication is guided by a taxonomical metaphor, with the Social Enterprise Zoo comprising six broadly conceived types of animals (or cross-breeds between them): ‘commercial nonprofits, social cooperatives, social businesses, sustainable businesses, public-private partnerships, and public sector social enterprises’.Footnote 73

2.5 Social Enterprises on a Spectrum of Organizational Forms

A valuable heuristic tool for locating social enterprises within the overall framework of business organizations is the approach of the spectrum school.Footnote 74 According to this approach, all organizational forms can be drawn on a spectrum with two endpoints: one end is marked by traditional non-profit organizations that yield a high social return and are financed exclusively by charitable donations; the other end is marked by classic for-profit companies that strive solely for a high financial return. In the middle range, various mixed forms having a ‘blended value’ can be found: non-profit companies generating income, for-profit companies that carry out CSR activities, and finally – and very centrally – social enterprises with a social mission whose income is distributed to investors only to a lesser extent (if at all) and to a greater extent is reinvested or used completely for social purposes.Footnote 75

figure a

2.6 Social Enterprises and the ‘Fourth Sector’ of the National Economy

According to a common classification, three sectors are distinguished in an economy: the state (first sector),Footnote 76 private for-profit enterprises (second sector), and the social economy (third sector).Footnote 77 The latter traditionally includes foundations, non-profit associations, non-profit limited liability companies, and various kinds of charitable corporations,Footnote 78 which are often also referred to as non-profit organizations.Footnote 79 This classic three-sector model might prove too narrow given the further rise of social entrepreneurs and social enterprises: a negative delimitation alone (‘non-profit’) is no longer sufficient.Footnote 80 Rather, such entities follow an institutional logic of their own that seeks to combine a public interest orientation with profit-making. Nationally and internationally, it is therefore increasingly common to speak of an emerging ‘fourth sector’.Footnote 81

3 Regulatory Framework for Social Enterprises Under Company Law

3.1 Absence of Special Regulations in Germany

In Germany, there is neither a legal definition nor a particular legal form for social enterprises. Rather, company founders can (and must) choose between the generally available company forms,Footnote 82 each of which has its advantages and disadvantages for social enterprises.Footnote 83 Of not least importance for this choice is whether the founders seek a non-profit status, which carries with it tax advantages but also organizational and financial restrictions.Footnote 84

According to surveys of the Social Enterprise Monitor, almost half of the social enterprises in Germany have non-profit status.Footnote 85 Notwithstanding, there is great heterogeneity with regard to the organizational forms chosen: 22.8% are organized as a profit-making limited liability company (‘GmbH’), 19.5% as a non-profit limited liability company (‘gGmbH’), 18.4% as a non-profit association, 10.6% as an entrepreneurial company with limited liability (‘Unternehmergesellschaft’, or ‘UG’), and 9.5% as a sole proprietor.Footnote 86 The two already mentioned companies, GoBanyo and Hinz&Kunzt, are both non-profit and use the form of a gGmbH. As a second option, the GoBanyo founders had considered choosing a registered association.Footnote 87

3.2 Organizational Forms Available in Selected European Jurisdictions

In Europe, the range of organizational forms specifically tailored to social enterprises is broad. This is due to different political, social, and economic contexts, but also to path dependencies and historical contingencies. Ground-breaking research has been done, above all, by the above-mentioned ‘International Comparative Social Enterprise Models’ project of EMES, which involved 250 researchers from 55 countries all over the world.Footnote 88 From a legal perspective, it is appropriate to single out the comparative work by Italian law professor Antonio FiciFootnote 89 as well as the EU study on social enterprises and their ecosystems in Europe, mentioned at the beginning of this article.Footnote 90

3.2.1 New Variants of the Cooperative

The most common organizational form for social enterprises in Europe is a further-developed version of the classic cooperative: the so-called social cooperative. It first appeared in Italy with the law of 8 November 1991 on cooperative sociali.Footnote 91 The main innovation is that the purpose of the cooperative is no longer limited to facilitating mutual self-help among the members, instead also including general social goals.Footnote 92 In practice, this modification of the cooperative was quickly adopted; today there are about 15,500 of them.Footnote 93 Following the Italian example, many neighboring countries have introduced variants of the social cooperative under different names, such as the cooperativa de soliedaridade social in Portugal (1997), the cooperativa de iniciativa social estatal in Spain (1999), or the société coopérative d’intérêt collectif in France (2001).Footnote 94

There are several reasons for the popularity of the cooperative system in the social economy, these including the historically grown importance of cooperative structures in Southern European countries and the legal anchoring of the cooperative in the constitutions of, for example, Italy, Portugal, and Spain,Footnote 95 and the participatory elements of cooperative law in the form of voting done according to headcount instead of capital shares. Against this background, the cooperative has been described as the ‘natural’ legal form for social enterprises.Footnote 96

3.2.2 Special Company Forms

Alongside Italy, the United Kingdom has emerged as an early promoter of social enterprises.Footnote 97 The UK Industrial and Provident Societies Act introduced the Community Benefit Society as early as 1965, but comparative research has hardly noticed it.Footnote 98 By contrast, the Community Interest Company (CIC), which was launched in 2005 as a special form of a company limited by guarantee or a company limited by shares, has received greater attention.Footnote 99 The British legislature designed it as an organizational subtype specifically for social enterprises.Footnote 100 Politically, its codification during the so-called New Labour government under Tony Blair was embedded in a larger strategy (the ‘Third Way’Footnote 101) that had as its aim a more intense privatization of public services as well as state social welfare measures.Footnote 102 The CIC is considered a success, with around 19,000 now to be found. Throughout Europe, however, social enterprises in the form of special subtypes of companies or corporations have remained rare, despite enjoying significant comparative advantages in terms of financing.Footnote 103

3.2.3 Legal Status for Different Organizational Forms

A third regulatory approach consists of assigning the label of ‘social enterprise’, and at present such a legal status is accessible to entities associated under a variety of organizational forms once certain requirements are met.Footnote 104 In Italy, this includes qualification as an impresa sociale, originally introduced by a 2006 legislative decree.Footnote 105 For tax reasons, the prospect of obtaining this status had little impact initially, but subsequently a 2017 legislative decree revised the designation such that it is linked to the pursuit of civil societal, charitable, and socially beneficial goals without the intention of making a profit.Footnote 106 In general, all private organizational structures, including corporations as well as cooperatives, can acquire this status.Footnote 107 Furthermore, the same regulatory technique was also used by the Italian legislature when it created the società benefit, which was introduced in 2016. However, this status does not follow the tradition of Italian social enterprises as it was instead inspired by the US benefit corporation.Footnote 108 Nevertheless, with its dual purpose of profit and public benefit, it can also be adopted by all partnerships and corporations as well as cooperatives.Footnote 109

In France, since 2014, all commercial enterprises may acquire the status of économie sociale et solidaire (ESS).Footnote 110 This gives rise to advantages, for example in public procurement procedures and in securing financing from the state investment bank, but it also entails significant restrictions on profit distribution, with the result that there has thus far been only sparse use of the ESS in practice. In 2019, a further status was added to French law with the société à mission, which was inspired by the US benefit corporation.Footnote 111 All commercial entities can obtain the status if certain statutory requirements are fulfilledFootnote 112 – legal benefits do not flow from this status, but it does offer possible reputational advantages.Footnote 113

3.2.4 Characteristics of the European Model

In searching for a common denominator of the special European organizational forms for social enterprises, which allow the use of a corresponding designation when doing business, we find one in the prioritization of the social objective. To ensure the pursuit of a social mission, which is (at least in part) being pursued with entrepreneurial means, particularly statutory distribution restraints are foreseen.Footnote 114 Admittedly, they vary in strength from jurisdiction to jurisdiction. An Italian cooperativa sociale must use at least 50% of its profits to achieve its statutory objectives or to increase its assets.Footnote 115 A French société coopérative d’intérêt collectif is required to allocate at least 15% of its profits to a statutory revenue reserve and at least 50% of the remaining profits to a statutory development fund.Footnote 116 The British CIC is characterized by two safeguards, i.e., an asset lock on its shareholdersFootnote 117 and a dividend cap: it is allowed to distribute a maximum of 35% of the profit to its shareholders.Footnote 118

Another common feature is regular reporting requirements regarding those activities undertaken by a social enterprise to promote the common good. However, the specific reporting requirements and their form similarly vary from jurisdiction to jurisdiction.Footnote 119 For example, a CIC must submit annual community interest company reports,Footnote 120 and a société coopérative d’intérêt collectif has to integrate corresponding information into its financial statements and annual reports.Footnote 121

Differences in voting rights, on the other hand, depend on the basic organizational form: while the Italian and French variations of the social cooperative follow the basic cooperative model of ‘one member – one vote’, the British company subtype does not vote according to headcount but rather according to capital shares. Where social entrepreneurs assume a specified legal status, the voting rights follow the organizational model on which the status is based.

3.3 Organizational Forms Offered in the United States

Just as in Europe, the legal landscape for social enterprises has changed considerably in the United States in recent times.Footnote 122

3.3.1 Low-Profit Limited Liability Companies

First of all, the low-profit limited liability company (L3C) was introduced in Vermont in April 2008 and later in seven other states.Footnote 123 Conceived by Robert Lang,Footnote 124 the organizational form had – like social entrepreneurship in the United States in general – close links to the third sector: it was, owing to the legal purpose of social and sustainable enterprises, supposed to allow such entities to receive special grants (program-related investments) from charitable foundations,Footnote 125 where such grants would otherwise be reserved for purely non-profit enterprises.Footnote 126 The new laws were, however, inadequately drafted and therefore failed to achieve their purpose.Footnote 127 Today, the L3C seems to have led to a dead end.Footnote 128

3.3.2 Social Purpose Corporation

Another variant is the Social Purpose Corporation (SPC).Footnote 129 It was introduced in California in 2011, under the name Flexible Purpose Corporation (FPC); it then appeared one year later in Washington and two years later in Florida. However, it failed to establish itself on the market of organizational formsFootnote 130 and can therefore be neglected here.

3.3.3 Benefit Corporation

In current US practice, the choice of an organizational structure for social entrepreneurs focuses almost exclusively on the so-called benefit corporation.Footnote 131 Its intellectual authorship lies with three student friends from Stanford who, after successful careers in business and investment banking, developed an increasingly strong aversion to the relentless pursuit of short-term profit.Footnote 132 With the help of a lawyer, they drafted a model law for a benefit corporation.Footnote 133 According to the model’s provisions, a benefit corporation must commit itself, in its articles of association, to creating a general public benefit.Footnote 134 The first version of this organizational form was introduced in Maryland in 2010.Footnote 135 Today, a total of 36 states and Washington D.C. allow the formation of a benefit corporation, among them Delaware with a slightly different version that is called a public benefit corporation. According to rough estimates, there are now between 7,000 and 10,000 benefit corporations in the United States.Footnote 136

3.3.4 Characteristics of the US Model

The US organizational forms for social enterprises are characterized by an anchoring of the pursuit of ‘social purpose’ or ‘general public benefit’ in their articles. The model legislation (MBCL § 301(a)(1)) obliges the directors of a benefit corporation to consider the impact of their conduct not only on shareholders but also on their employees, on suppliers, on the local and global environment, on the beneficiaries of their public-benefit efforts, and – not least – on the corporation itself in terms of its ability to achieve its public benefit goals. Furthermore, the mandatory ‘benefit report’ is intended to provide transparency by reporting on the company’s performance regarding its public purpose.

In a remarkable contrast to their European counterparts, the US models are not subject to any distribution restrictions, neither in the form of a dividend distribution constraint nor in the form of an asset lock. Although this is not explicitly regulated, it follows from the blanket reference to the general provisions of corporate law. For example, § 362a Delaware General Corporation Law clarifies that a public benefit corporation is a ‘for-profit corporation’. Unlike non-profit corporations in Germany, a prohibition on profit distribution is considered unnecessary for the benefit corporation also because it does not enjoy any tax benefits or other privileges.Footnote 137 Further, the general principles for corporations apply to voting rights: voting is not based on headcount but on capital shares. The basic democratic features of European social cooperatives are alien to the US benefit corporation.

Generally, the US legal understanding is based on a broader conception of a social enterprise than the continental European model of a social cooperative.Footnote 138 This is because the benefit corporation evolved from the notion of profit-oriented corporations, and the form remains available to enterprises that are of the opinion that financial returns should not fall short of social returns. Neither the Model Benefit Corporation Legislation nor the individual acts of state legislation require a prioritization of the social mission.

3.4 Definitions Under European Union Law

At EU level, various proclamations deal with social enterprises, starting with a Commission Communication of October 2011.Footnote 139 The first definition in a binding legal act can be found in the EuSEF Regulation of 2013.Footnote 140 An updated definition is contained in the Regulation establishing the European Social Fund Plus (ESF+) of 2021.Footnote 141 According to its Article 2, para. 1, no. 13, a ‘social enterprise’ is

an undertaking, regardless of its legal form, including social economy enterprises, or a natural person which:

  1. (a)

    in accordance with its articles of association, statutes or with any other legal document that may result in liability under the rules of the Member State where a social enterprise is located, has the achievement of measurable, positive social impacts, which may include environmental impacts, as its primary social objective rather than the generation of profit for other purposes, and which provides services or goods that generate a social return or employs methods of production of goods or services that embody social objectives;

  2. (b)

    uses its profits first and foremost to achieve its primary social objective, and has predefined procedures and rules that ensure that the distribution of profits does not undermine the primary social objective;

  3. (c)

    is managed in an entrepreneurial, participatory, accountable and transparent manner, in particular by involving workers, customers and stakeholders on whom its business activities have an impact.

In this definition, it is noteworthy, on the one hand, that the early catalogue of EMES criteriaFootnote 142 has left deep traces and that the prioritization of the social objective is bindingly prescribed in the tradition of the European model. On the other hand, it is striking that some of the organizational forms or statuses for social enterprises in the Member States have already incorporated the requirements of EU law, presumably also to benefit from corresponding EU funding.Footnote 143

4 Open Questions and Research Perspectives in the Law of Social Enterprises

Social entrepreneurship is not merely a trend; rather, it will most likely remain a ‘growth industry’ also in the medium term.Footnote 144 There are at least three reasons for this. First of all, there are numerous overlaps with the key theme of sustainability, even if social and sustainable enterprises are not fully congruent.Footnote 145 Secondly, in the emerging ESG era, the social component will soon be spelt out in more detail alongside the environmental component. Thirdly, social entrepreneurship fits well into the socio-political zeitgeist that – rightly or wronglyFootnote 146 – sees the basic structures of capitalism subjected to fundamental criticism.Footnote 147 Considering this, the law of social enterprises will also gain in importance. Fundamental discussions at the national and international level will likely focus on the overarching legal framework, alternative regulatory techniques, and organizational forms for social enterprises.

4.1 A Framework Regulation for the Social Economy in Germany?

On a fundamental level, a first question is whether a framework regulation for the social economy is advisable. So far, such framework laws have been encountered particularly in countries of the Romanistic legal family. The Spanish Law on the Social Economy from 2011 is of a pioneering nature in this regard.Footnote 148 It creates a common legal framework for all social economy institutions (Art. 1), provides them with various guiding principles (Art. 4), and contains a catalogue of organizational forms found in the social economy (Art. 5). The French Law on the Social and Solidarity Economy of 2014 follows a similar approach.Footnote 149 Its introductory provision sets out various requirements that private enterprises must fulfil to belong to the ‘économie sociale et solidaire’. The main impetus for this law came from a thriving social economy and a new generation of entrepreneurs who seek to combine economic efficiency with social justice under the slogan ‘entreprendre autrement’.

From the point of view of legal policy, the arguments in favor of such a framework are that it (a) creates definitional clarity about the specific features of social enterprises and thus facilitates their visibility and recognition, (b) offers political leverage to promote social enterprises in tax and public procurement law or with regard to corporate financing, and (c) improves the identification of social enterprises in the entrepreneurial continuum and distinguishes them from both non-profit enterprises without entrepreneurial activities and purely profit-oriented enterprises.Footnote 150 On the other hand, there are potential disadvantages in the form of considerable definitional difficulties and there is also the risk of future developments and innovations being cut off by premature codification.Footnote 151 In addition, there might be possible distortions of competition to the detriment of ordinary private sector enterprises. Furthermore, there are different assessments as to whether the social economy as such warrants such a degree of support.Footnote 152 Moreover, it is questioned whether further commercialization and privatization of the welfare state would be useful.

4.2 A Special Organizational Form for Social Enterprises in Germany?

From a comparative law perspective, the question arises as to whether an independent organizational form for social enterprises makes sense or is even necessary in Germany. After all, 21 of 28 Member States in the European Union have (at least) one specific organizational form for social enterprises.Footnote 153 In the United States, the benefit corporation is available in 36 states and Washington D.C.

According to a recent German survey, about 55% of the social enterprises surveyed are in favor of a special form.Footnote 154 The network organization SEND advocates, among other things, a reform of the cooperative.Footnote 155De lege ferenda, this would require a dilution of the legal tradition according to which cooperatives are, by virtue of their funding purpose, member-benefit institutions.Footnote 156 Other voices in academic literature, on the other hand, promote the introduction of a hybrid organizational form situated between profit motive and public welfare orientation, following the example of the US benefit corporation and/or the British CIC.Footnote 157 Opposing views doubt that there is such need because the German GmbH as well as the German joint-stock corporation are all-purpose vehicles and have, therefore, been sufficiently flexible to adapt to the concepts of social entrepreneurs.Footnote 158 The traditional forms, though, cannot emulate the signaling effect that could be achieved by an additional organizational form indicating the social mission of the enterprise.

In further discussions, it seems important to distinguish more strongly than before between different models for a new legislative creation. On the one hand, one can think of a social enterprise form in a narrow sense, with priority given to the social mission, far-reaching restrictions on profit distributions, and equal participation of all members, which is based on the Romanistic model of the social cooperative. On the other hand, a domestic version of the benefit corporation with a stronger capitalist flavor and greater leeway in balancing profit motive and public welfare orientation could be considered. The two regulatory models are not necessarily mutually exclusive; rather, they can coexist in the same legal system. In Italy, for example, we find both the cooperativa sociale and the società benefit, and in France the société coopérative d’intérêt collectif exists alongside the société à mission.

4.3 Regulatory Techniques for New Organizational Forms and Other Frameworks of Association

If a legislative reform impulse with regard to social enterprises is deemed sensible, then at least three regulatory approaches can be considered: a completely new version of a company, a mere organizational subtype, or a legal status; fourthly, also private certification can be considered as an alternative.Footnote 159

4.3.1 Creation of a New Organizational Form

A large-scale solution would be to develop a completely new version of a company, comparable to the invention of the cooperative, which was conceived in the Prussian GenG of 1867 and the later German GenG of 1889 as a special-purpose form falling between a commercial partnership (OHG) and a commercially operating joint-stock corporation (AG).Footnote 160 Most recently, the German Stiftung Verantwortungseigentum has indeed been pursuing a new organizational form with its project of a ‘corporation with tied assets’ (‘Gesellschaft mit gebundenem Vermögen, GmgV’),Footnote 161 whereas the two draft laws of an independent expert group from June 2020 and February 2021 were still conceived as special subtypes of the GmbH.Footnote 162 However, the choice of a social or non-profit purpose is not a ‘constitutive condition’Footnote 163 for a GmgV; thus, it cannot be classified as a form for social enterprises.Footnote 164

A new company form can make sense or even be necessary if its core elements differ significantly from those found in existing organizational forms or if one wants to leave behind their ballast and damaged reputation and instead initiate a legislative ‘fresh start’.Footnote 165

4.3.2 Subtypes of Existing Organizational Forms

As a small-scale solution, a subtype of an existing organizational form can be targeted, one which builds on the foundations of an established form and adds some special rules to it.Footnote 166 This was the approach taken, for example, by the Italian legislature with the cooperativa sociale, which is a special version of the cooperative. The same is true for the English CIC, which is based on the existing rules for companies,Footnote 167 and for the benefit corporation, which is a ‘subtype of the corporation’.Footnote 168 In Germany, organizational subtypes have been introduced at various occasions in recent times,Footnote 169 but not in the area of social enterprises.

The charm of a subtype lies both in its regulatory efficiency for the legislature and in advantages for legal practitioners: the latter have lower learning costs and can – at least in part – continue to draw on the wealth of experience they have accumulated from court decisions and contractual practice.Footnote 170

4.3.3 Legal Status

Adjacent to these two regulatory techniques lies a third, which is referred to internationally as legal status,Footnote 171 legal qualification,Footnote 172 or legal certification.Footnote 173 With such legal status, the legislature provides for certain special rules that are available as a regulatory option open to several or all forms of companies and associations. Early manifestations of this approach can be found in Belgium, where the société à finalité sociale, which is also open to corporations, was created in 1995,Footnote 174 and in the 2003 Finnish law on work-integrative social enterprises.Footnote 175 A better-known example is the Italian società benefit of 2016, which, unlike the US benefit corporation, is not an organizational subtype,Footnote 176 but with its dual purpose is available to all partnerships and corporations as well as cooperatives. The same applies to the French société à mission of 2019 – a status that all commercial companies can acquire.Footnote 177 Since 2017, there also exists, in Luxembourg, the société d’impact sociétal as a legal status for joint-stock corporations, limited liability companies, and cooperatives,Footnote 178 and since 2022 Spain allows joint-stock corporations and limited liability companies to be designated sociedades de beneficios e interés común,Footnote 179 though this status awaits further elaboration through a regulation. In Germany, although functioning from a slightly different perspective, companies can enjoy a non-profit tax status and be titled a gGmbH (§ 4 GmbHG), a gUG,Footnote 180 a gAGFootnote 181 and, according to the prevailing opinion, a geG;Footnote 182 there is, however, no similar designation for a non-profit partnership.Footnote 183 At the European Union level, the European Parliament has recommended the introduction of a label for social and solidarity-based enterprises.Footnote 184

The main advantage of a legal status is its holistic and universal approach to business associations: it is open to all forms of businesses equally or at least to several of them.Footnote 185 As a result, the company founders can choose the legal form that seems most suitable for their purposes.Footnote 186 This makes a prior change of form unnecessary, and it also eliminates the need for further conversion processes if the status requirements are no longer met at some point in the future.Footnote 187

4.3.4 Private Certification

Finally, one could consider private certification mechanisms for social enterprises. The international prototype is the Certified B Corporation (in short: B Corp), a private certificate from the non-profit organization B Lab, headquartered in Pennsylvania.Footnote 188 This certificate is awarded after successful completion of a standardized private certification process (B Impact Assessment) and should not be confused with the benefit corporation as an organizational form, even though the same idea generators stand behind both.Footnote 189 Today, B Corp is a globally established certificate of quality, and there are over 5,000 certified B Corporations in more than 70 countries across 150 different sectors.Footnote 190 As regards Germany, the B Corp directory now includes roughly 50 entries from 12 different business sectors. In addition, interested companies can also make use of domestic certification mechanisms: TÜV Rheinland, for example, offers several sustainability management certificates,Footnote 191 and non-profit organizations can obtain the ‘PHINEO Wirkt!’ seal.Footnote 192

An advantage of private certification is that it relies solely on market forces and does not require any legislative involvement.Footnote 193 In addition, competition between rival certifiers could serve to promote tailor-made certification criteria and effective autonomous control mechanisms.Footnote 194

4.4 Enforcement of the Social Mission and Prevention of Social Washing

A key legislative task in the design of a new regulatory regime is to ensure compliance with the stated social mission and prevent social washing. A central building block in this regard is the anchoring of the social purpose in the association’s statutes. The legal requirements for this can be strict or more forgiving and may concern not only the entity’s purpose but also its objects. Other options include provisions against a transfer of assets and a distribution of profits. In addition, carefully calibrated duties of board members as well as reporting and transparency requirements are suitable for counteracting ‘mission drift’.

With regard to enforcement of the social mission, both private and public enforcement can be considered. The spectrum of private law instruments includes rights and remedies granted to minority shareholders, stakeholders, and third-party beneficiaries, and it ranges on to the possibility of competitor claims for unfair competition. Public enforcement can be carried out by a specific authority, such as the UK Regulator of Community Interest Companies, or by a general competition authority such as the Italian Autorità Garante delle Concurrenza e del Mercato for the società benefit. As for Germany, reference should be made to the tax authorities as regards non-profit corporations and to the foundation oversight authorities with regard to foundations.

5 Conclusion

In social-economic literature, the task of surveying social enterprises has been compared to the mapping of stars and constellations in the galaxy.Footnote 195 The same applies to the law of social enterprises, a field whose systematic study has only just begun in Germany and abroad. From a company law perspective, the various regulatory techniques for new organizational forms and other frameworks of association deserve particular attention. When it comes to concrete design, it is of particular importance to adopt suitable safeguards so as to enforce adherence to the social mission and to prevent ‘social washing’.