ENTR 4800 Class 6 - HR, Operational & Legal Considerations

ENTR 4800: Introduction to Social

Entrepreneurship

Class 6: Operational, HR and Legal

Considerations

Monday, October 24, 2011

1

Instructors:

Norm Tasevski ([email protected])

Assaf Weisz ([email protected])

© Norm Tasevski & Karim Harji

http://www.benjerry.com/activism/inside-the-pint/greyston/


Agenda

• Greyston Bakery

• HR Considerations

• Operational Considerations

• Legal Considerations

• What did we learn?

• Next Week

3

HR Considerations…

4


Where does HR Fit?

5 5


A Caveat…

Think of your HR from the perspective of “running a

business”, not “running a charity”

6


A Second Caveat…

Your HR Strategy must align with your business model

and align with organizational values

7

What if you were a…

8

Product-based Social Business…

Tethered Social Enterprise…

Employment-Based Social Business…

Accessibility-Based Platform…


A business/business model that provides

products or services with social benefit.

1. Product-Based


2. Employment-Based

A business that hires marginalized people

in good employment opportunities.


3. Tethered An enterprise started by a charity or non-profit that

generates revenue for the organization.


A business that maintains a purposely low profit margin to make their products accessible.

4. Accessibility-Based


Other HR Considerations…

• Who/what do you need?

• How do you find the right people?

• How do you define what they do?

• How (and from where) do you pay them?

13


14

Exercise: What HR Strategy makes sense for…

Your venture???


15


Balancing Financial and Social

Tensions

• “Social cost”

• Business acumen

• Two missions – may lead to confusion/conflict

16


Summary: Key Questions

• Who will manage the business?

• How do you plan to staff the venture?

• Will staff require special training or accreditation?

• Will the non-profit’s clients be hired? If so, are there any special

accommodations that will require additional staff or other resources?

• Will staff work on contract, for honoraria, or on a permanent basis?

• Do you have a person with business experience and/or training on

staff and how will that person be utilized?

• Does the staffing plan match your operational needs and revenue

growth projections?

• How will the staffing needs change as the enterprise grows?

• Are any of the positions transitional by design? If so, how will the high

turnover rates be accounted for in the enterprise?

• How easy will it be to attract qualified staff with anticipated working

conditions and salaries?

• What is the organizational chart? What is the accountability of each

staff member? Source: http://www.enterprisingnonprofits.ca/sites/www.enterprisingnonprofits.ca/files/uploads/SEGUIDE_Web_Chapter_Five.pdf 17

Operational Considerations…

18


DAY 1

19

What do you do first?


DAY 180

What does your average week look like?

20


How do you… Operationalize your Value Proposition?

21

Your venture???


How do you… Operationalize your “Customer” function?

22

Your venture???


How do you… Operationalize your Channels?

23

Your venture???


How do you… Operationalize your “Relationships” function?

24

Your venture???


How do you… Operationalize your Key Resources?

25

Your venture???


How do you… Operationalize your Key Activities?

26

Your venture???


How do you… Operationalize your Partner Development?

27

Your venture???



• How will you operationalize each segment of the

business model?

• How will you ensure that you adequately

understand and capture your considerations and

assumptions?

28


Some Resources: MaRS workbooks

1. Building an A-Team

• What values do you seek in new hires?

• As the company grows, what new hires will you need and when?

• What skills do successful employees at your company require?

• What qualities do your employees need to make them excellent?

• How should you screen and interview to find the best candidates?

• How do you make an official offer of employment?

2. Compensation

• What forms of compensation are most effective for a start-up?

• How do I structure my employee stock option plan?

• What benefits am I legally required to provide and how much will they cost?

• How do I build a realistic and comprehensive HR budget?

3. HR at Work

• How do I effectively bring new people on board?

• How do I establish and conduct performance reviews?

• What are the essential HR policies and procedures I need to have in place?

• How do I create an effective employee handbook?

29

http://www.marsdd.com/entrepreneurs-toolkit/workbooks/HR-Workbook-1-Building-an-A-Team



http://www.marsdd.com/entrepreneurs-toolkit/workbooks/HR-Workbook-2-Compensation

http://www.marsdd.com/entrepreneurs-toolkit/workbooks/HR-Workbook-3-HR-at-Work

Break

30

Legal Forms Applicable to Social

Enterprise…

31


A Caveat…

There is no defined (national or provincial) legal form

for social enterprise in Canada

32


A Second Caveat…

Form follows function

33

For-Profit

Corporation

34

Non-Profit

Corporation

Charity Partnership

Sole

Proprietorship

Co-Operative

Corporation


For-Profit Corporation

• Incorporated under the Business Corporations Act (Ontario) (the “OBCA”) or the

Canada Business Corporations Act (federal) (the “CBCA”)

• With share capital

35

• Most flex in terms of

profit-making activities

• Can access all forms

of investment (debt,

equity, etc)

• Provides clarity of

purpose (i.e. the

financial bottom line)

• Limited personal

liability

• Pay corporate tax

• Cannot access grants

• Cultural/psychological

barriers with operating a

“for-profit social

business”


Charity

• Incorporated via Letters Patent under the Corporations Act (Ontario) or Canada

Corporations Act (federal)

• Without share capital

36

• Don’t pay corporate

tax on earnings

• Can issue tax receipts

• Can access many

government/foundatio

n/corporate grants

• Least flex in terms of

profit-making activities

• Limited in the types of

investments you can

access (e.g. equity)

• Time-consuming!

• Psychological barriers with

operating a “social

business”

• An aversion to “risk taking”

• Can lose status if “too

successful”


Sole Proprietorship

• Registered via Business Names Act (Ontario) or Canada Corporations Act (federal)

• Without share capital

37

• The simplest (and

quickest) legal form

• You have full control of

business decisions

• Flexibility to make

business decisions

quickly

• No separate filing for

income tax

• Unlimited liability!!

• The business is the

entrepreneur

• Hard to find investors

• Limited creative input

(i.e. you’re the only one

with ideas!)

• Less “professional” than

other forms


Non-Profit Corporation

• Incorporated via Letters Patent under Corporations Act (Ontario) or Canada

Corporations Act (Federal)

• Generally without share capital

38

• Can access grants

• Can access debt

financing

• Tax exempt as long as

organized and

operated for defined

social/community

benefit

• Some NPs are more

open to (limited) risk-

taking

• Can’t issue tax receipts

• Limited in the types of

investments you can

access (e.g. equity)

• Psychological barriers

with operating a “social

business”

• Can lose status if “too

successful”


Partnership

• Registered under the Partnerships Act (Ontario)

• With or without share capital

• Usually organized using a Partnership Agreement

39

• Similar benefits to sole

proprietorship

• Combines

skills/competencies of

two people

• Can sign contracts

and borrow money in

its own right

• For most partnerships,

unlimited liability! (at

least in Canada…)

• Acrimony between

partners is common

• Difficult to find investors


Co-Operative Corporation

• Incorporated under the Co-Operative Corporations Act (Ontario) or Canada

Cooperatives Act (Federal)

• Wither with or without share capital

40

• Well-established

structures

• Integrates the concept

of “community benefit”

already

• Cannot issue tax receipts

• Generally not exempt

from paying tax

• Psychological barriers

with operating a “social

business”

• Difficulty making

decisions (too many

people at the table)


Exercise: Which legal form makes sense for…

41

Your venture???


CRA Guidelines

• Direction (law, regulations, guidelines, precedents)

around social enterprise are not completely clear

• Community economic development (CED)-specific

exemptions:

– Relief of unemployment: training business.

– Relief of poverty through operating stores: business that

provides low-cost necessities.

– Relief of people with disabilities: “social business.”

– Relieving suffering in economically challenged

communities

• Federal view of the business activity may differ from

any provincial position

42


43


An Evolving Conversation…

44


Hybrid Structures

45


Talk to a Lawyer!

46

Legal Innovations…

47


Legal Innovation: CIC (UK)

• Established to trade (goods or services) for the

community good

• Requires “community interest statement” application to

the CIC Regulator. Publically-available annual reports

required to confirm (adherence to) community interest

requirement

• May issue shares in order to raise capital

• Cap on returns (dividends paid) set by the Regulator

• Subject to an “asset lock”

– Assets and profits must be permanently retained by the CICs

for community benefit, or transferred to another CIC subject

to an asset lock, or to a charity

• Taxed in the same manner as other businesses

48


Legal Innovation: L3C (US)

• Variation on American Limited Liability Companies (LLCs)

• LLC investors are members rather than shareholders

• Terms of the operating agreement guarantee the public benefit nature of the entity’s work

• Like LLCs, L3Cs are not subject to federal income tax themselves, but the income they pay to members is taxable according to the rates applicable to each member

• Able to attract private capital through the sale of shares and other securities, various forms of loans, or other commercial financial arrangements.

• Ability to receive Program Related Investments from foundations

• No asset lock and no dividend cap

49


Legal Innovation: B Corp (US)

• To be certified as a B corporation under the B Lab system, the corporation must: – Achieve a minimum score of

80 (out of 200) on the B Ratings System, a tool to assess a company's social and environmental performance.

– Agree to make legal changes to its articles of incorporation to expand the responsibilities of the company to include consideration of stakeholder interests.

– Pay B Lab an annual licensing fee.

– Recertification is required every two years.

50


51



• Is the venture’s primary mission mostly social or profit?

• What are the founders’ views, skills, motives, and intentions? How closely held is the organization?

• What is the market for the primary activities (goods/services)?

• How much money is needed and where will you get it?

• What level of risk and liability is your organization willing to take?

• What will be the relationship between the enterprise and the parent organization? Will the enterprise be a separate entity? What is the governance structure of the enterprise (separately and in relation to the parent organization)?

52


What did we learn?

53

ENTR 4800 Class 6 - HR, Operational & Legal Considerations

Business

Transcript of ENTR 4800 Class 6 - HR, Operational & Legal Considerations