When we first set out on this grand adventure, we thought we would become a nonprofit 501c3 organization. After all, “social sector” and “nonprofit sector” are synonyms, right? Nonprofits are the trustworthy agents of social change, right? In many cases these assumptions are accurate, nonprofits do a lot of great work, but we had a few deep-seated organizational commitments that made us think critically about whether we might be different.

First, as college students who would rather be activists than waiters, we have to get by eating our fair share of top ramen and..uhh… plastic? Anyhow we have a very personal empathy for a lot of people and organizations who can barely pay the bills at the end of the month. With each decision we make, we are also really dedicated to stepping back and thinking about the big picture: how does this make the world a better place? While we are crafting our product we want to think beyond, how does this make donors happy? We want to ask ourselves “is this tool, or this feature, or this graphical flourish going to make activists happier and more effective at changing the world?”

For many organizations, some compromises would be in order. For us, a few simple solutions presented themselves, one of these was to show ads to people who didn’t want to or couldn’t pay to use the site. This is a very easy way to generate enough revenue to make sure our work is sustainable, scalable, and all around the best it can be. After we did a little research though, we discovered that advertising is not an acceptable form of income for nonprofits. It is taxed as “unrelated business income” and if it exceeded 2/3 of our total revenue (and we really thought that it might), then we could loose our 501 c3 status.

So, what is a social enterprise?

Basically, social enterprise is a marketing buzzword analogous to “Web 2.0” (which means ajax and a few cultural things). Activists and scholars are still debating what the term actually means;* suffice it to say that we increasingly agree that becoming a nonprofit is not the only valid organizational route to social change. In fact, more and more of us believe that even companies and corporations can choose to make social justice the cornerstone of their organizational DNA. We don’t care enough for this name game to call ourselves social entrepreneurs, but some thought leaders in the social enterprise movement did encourage us to investigate the Limited Liability Company structure. This legal structure offered us a few major advantages over becoming a nonprofit.

Agile: Simple set-up and tax reporting. Takes thirty minutes and costs 50 dollars to set up in Oregon versus months/years and hundreds/thousands of dollars for a nonprofit.

Safe: Offers us limited liability – if we make a big mistake we could loose the venture, but they won’t garner our children’s children’s wages.

Flexible: Can pass through taxes to our own tax returns, or file to be taxed as a corporation. Also perfect for a hybrid nonprofit/llc business model.*

Independent: We are allowed to make money. In our particular situation we felt that building a site that could make a little money would not distract us from our mission as much as trying to build an organization and a perpetual fundraising arm that people wanted to donate to.

So in the end we decided to become a limited liability company, and we formalized that intention by filing articles of organization in Oregon (you can do it on their website now!) on December 20th, 2007. For us, the moral of the story was to be true to our goals and think carefully about our current and future needs. Organizations are about as diverse as the people they serve. A llc was the right legal structure for us, even though we hope we won’t make a dime unless we are making the world a much better place. If you are considering founding a venture, you should definitely consider all your options, and check out what some of the people in the social enterprise movement are doing. Of course, we’d also be happy to offer advice about going through this process, just shoot us an email.

Notes: Various groups favor very different definitions of social entrepreneurship. For the time being, you can expect to hear us call ourselves social entrepreneurs about as frequently as you will hear us call ourselves a ¡Revolutionary Web 2.0 Phenomenon! (never).

In the future we might found a nonprofit to partner with our llc. Or we might not. We’ll probably wait a while before we reexamine whether that kind of complex but interesting hybrid legal structure would fit our mission and our organizational capacity.