New hopes and hazards for social investment crowdfunding

New economy advocates, including Gus Speth, look to transform the corporation from an enterprise designed primarily to provide profits for shareholders to one concerned about a broader set of values and stakeholders. Such a shift ideally would help us prioritize people, place and planet. Perhaps those who bring leadership to businesses that focus on social and environmental concerns – social entrepreneurs – can answer the call by reorienting the corporations they create. Such efforts to transform individual firms could inspire widespread change. The timing is good for such a transition, as social entrepreneurs have promising new options available for broadly soliciting like-minded investors and organizing their business enterprises to include social goals. Yet, due to distrust of the existing system, some may not explore these opportunities. Not attuned to mainstream matters, they may be unaware of the recent legal changes that make it easier for them to engage within the existing financial and corporate governance systems to fund their enterprises and to organize them with a social or environmental mission in mind. These recent legal developments are significant. Now in the US, those seeking to fund an enterprise can forgo a complex, time-consuming full federal registration process with the Securities and Exchange Commission (SEC) while still reaching out to solicit a wide group of potential investors. This general solicitation can take place in a variety of media including advertising online through crowdfunding portals. The ability to bypass the full SEC registration process is the result of recent legal reforms that streamline how businesses can raise money through the offering and sale of securities. These legal reforms impact social entrepreneurs because the law covers the methods they might use to attract funding. Unlike donations made via crowdfunding, which are not subject to the securities laws, investments with an expectation of profit could be. This chapter provides background on securities laws in the US to contextualize the legal changes and proposals. Then it details how three recent legal developments at the federal and state levels can aid the startup or expansion of social, community and environmental business enterprises. These are (i) advertising unregistered securities offerings to the public with sales just to accredited investors; (ii) investment crowdfunding of unregistered securities to an unlimited number of non-accredited investors; and (iii) state law changes permitting benefit corporations as well as one state’s law to smooth the path for investing in local solar energy businesses.