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ENTR 4800 Class 6 - HR, Operational & Legal Considerations

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ENTR 4800 Class 6 - HR, Operational & Legal Considerations

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Theory: What are the unique HR and operational considerations that social entrepreneurs need to incorporate in their social enterprise?

Practice: What strategies and techniques can social entrepreneurs apply to effectively execute the operational and HR aspects of their social venture?

Theory: What are the unique HR and operational considerations that social entrepreneurs need to incorporate in their social enterprise?

Practice: What strategies and techniques can social entrepreneurs apply to effectively execute the operational and HR aspects of their social venture?

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ENTR 4800 Class 6 - HR, Operational & Legal Considerations

  1. 1. ENTR 4800: Introduction to Social Entrepreneurship Class 6: Operational, HR and Legal Considerations Monday, October 24, 2011 Instructors: Norm Tasevski (norm@socialentrepreneurship.ca) Assaf Weisz (assaf@socialentrepreneurship.ca) 1
  2. 2. © Norm Tasevski & Karim Harji
  3. 3. © Norm Tasevski & Karim Harji Agenda • Greyston Bakery • HR Considerations • Operational Considerations • Legal Considerations • What did we learn? • Next Week 3
  4. 4. HR Considerations… 4
  5. 5. © Norm Tasevski & Karim Harji Where does HR Fit? 5
  6. 6. © Norm Tasevski & Karim Harji A Caveat… Think of your HR from the perspective of “running a business”, not “running a charity” 6
  7. 7. © Norm Tasevski & Karim Harji A Second Caveat… Your HR Strategy must align with your business model and align with organizational values 7
  8. 8. What if you were a… Product-based Social Business… Tethered Social Enterprise… Employment-Based Social Business… Accessibility-Based Platform… 8
  9. 9. 1. Product-Based © Norm Tasevski & Karim Harji A business/business model that provides products or services with social benefit.
  10. 10. 2. Employment-Based © Norm Tasevski & Karim Harji A business that hires marginalized people in good employment opportunities.
  11. 11. 3. Tethered © Norm Tasevski & Karim Harji An enterprise started by a charity or non-profit that generates revenue for the organization.
  12. 12. 4. Accessibility-Based © Norm Tasevski & Karim Harji A business that maintains a purposely low profit margin to make their products accessible.
  13. 13. © Norm Tasevski & Karim Harji 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. 14. © Norm Tasevski & Karim Harji Exercise: What HR Strategy makes sense for… Your venture??? 14
  15. 15. © Norm Tasevski & Karim Harji 15
  16. 16. © Norm Tasevski & Karim Harji Balancing Financial and Social Tensions • “Social cost” • Business acumen • Two missions – may lead to confusion/conflict 16
  17. 17. © Norm Tasevski & Karim Harji 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
  18. 18. Operational Considerations… 18
  19. 19. © Norm Tasevski & Karim Harji DAY 1 What do you do first? 19
  20. 20. © Norm Tasevski & Karim Harji DAY 180 What does your average week look like? 20
  21. 21. © Norm Tasevski & Karim Harji How do you… Operationalize your Value Proposition? Your venture??? 21
  22. 22. © Norm Tasevski & Karim Harji How do you… Operationalize your “Customer” function? Your venture??? 22
  23. 23. © Norm Tasevski & Karim Harji How do you… Operationalize your Channels? Your venture??? 23
  24. 24. © Norm Tasevski & Karim Harji How do you… Operationalize your “Relationships” function? Your venture??? 24
  25. 25. © Norm Tasevski & Karim Harji How do you… Operationalize your Key Resources? Your venture??? 25
  26. 26. © Norm Tasevski & Karim Harji How do you… Operationalize your Key Activities? Your venture??? 26
  27. 27. © Norm Tasevski & Karim Harji How do you… Operationalize your Partner Development? Your venture??? 27
  28. 28. © Norm Tasevski & Karim Harji Summary: Key Questions • 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
  29. 29. © Norm Tasevski & Karim Harji 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
  30. 30. Break 30
  31. 31. Legal Forms Applicable to Social Enterprise… 31
  32. 32. © Norm Tasevski & Karim Harji A Caveat… There is no defined (national or provincial) legal form for social enterprise in Canada 32
  33. 33. © Norm Tasevski & Karim Harji A Second Caveat… Form follows function 33
  34. 34. For-Profit Non-Profit Corporation Corporation Partnership Charity Sole Co-Operative Proprietorship Corporation 34
  35. 35. © Norm Tasevski & Karim Harji For-Profit Corporation • Incorporated under the Business Corporations Act (Ontario) (the “OBCA”) or the Canada Business Corporations Act (federal) (the “CBCA”) • With share capital • Most flex in terms of • Pay corporate tax profit-making activities • Cannot access grants • Can access all forms • Cultural/psychological of investment (debt, barriers with operating a equity, etc) “for-profit social • Provides clarity of business” purpose (i.e. the financial bottom line) • Limited personal liability 35
  36. 36. © Norm Tasevski & Karim Harji Charity • Incorporated via Letters Patent under the Corporations Act (Ontario) or Canada Corporations Act (federal) • Without share capital • Don’t pay corporate • Least flex in terms of tax on earnings profit-making activities • Can issue tax receipts • Limited in the types of investments you can • Can access many access (e.g. equity) government/foundatio n/corporate grants • Time-consuming! • Psychological barriers with operating a “social business” • An aversion to “risk taking” • Can lose status if “too successful” 36
  37. 37. © Norm Tasevski & Karim Harji Sole Proprietorship • Registered via Business Names Act (Ontario) or Canada Corporations Act (federal) • Without share capital • The simplest (and • Unlimited liability!! quickest) legal form • The business is the • You have full control of entrepreneur business decisions • Hard to find investors • Flexibility to make • Limited creative input business decisions (i.e. you’re the only one quickly with ideas!) • No separate filing for • Less “professional” than income tax other forms 37
  38. 38. © Norm Tasevski & Karim Harji Non-Profit Corporation • Incorporated via Letters Patent under Corporations Act (Ontario) or Canada Corporations Act (Federal) • Generally without share capital • Can access grants • Can’t issue tax receipts • Can access debt • Limited in the types of financing investments you can • Tax exempt as long as access (e.g. equity) organized and • Psychological barriers operated for defined with operating a “social social/community business” benefit • Can lose status if “too • Some NPs are more successful” open to (limited) risk- taking 38
  39. 39. © Norm Tasevski & Karim Harji Partnership • Registered under the Partnerships Act (Ontario) • With or without share capital • Usually organized using a Partnership Agreement • Similar benefits to sole • For most partnerships, proprietorship unlimited liability! (at • Combines least in Canada…) skills/competencies of • Acrimony between two people partners is common • Can sign contracts • Difficult to find investors and borrow money in its own right 39
  40. 40. © Norm Tasevski & Karim Harji Co-Operative Corporation • Incorporated under the Co-Operative Corporations Act (Ontario) or Canada Cooperatives Act (Federal) • Wither with or without share capital • Well-established • Cannot issue tax receipts structures • Generally not exempt • Integrates the concept from paying tax of “community benefit” • Psychological barriers already with operating a “social business” • Difficulty making decisions (too many people at the table) 40
  41. 41. © Norm Tasevski & Karim Harji Exercise: Which legal form makes sense for… Your venture??? 41
  42. 42. © Norm Tasevski & Karim Harji 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. 43. © Norm Tasevski & Karim Harji 43
  44. 44. © Norm Tasevski & Karim Harji An Evolving Conversation… 44
  45. 45. © Norm Tasevski & Karim Harji Hybrid Structures 45
  46. 46. © Norm Tasevski & Karim Harji Talk to a Lawyer! 46
  47. 47. Legal Innovations… 47
  48. 48. © Norm Tasevski & Karim Harji 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
  49. 49. © Norm Tasevski & Karim Harji 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
  50. 50. © Norm Tasevski & Karim Harji 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. 51. © Norm Tasevski & Karim Harji 51
  52. 52. © Norm Tasevski & Karim Harji Summary: Key Questions • 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
  53. 53. © Norm Tasevski & Karim Harji What did we learn? 53

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