This report outlines how a social enterprise business can preserve its mission as it grows and raises further investment
Big Society Capital and Hogan Lovells were connected through TrustLaw, the Thomson Reuters Foundation’s global pro bono programme.
Most new businesses require investment to grow. However, new investment should not move a social enterprise away from its social mission. So how can an investor be sure that her target investment is truly a social business? How can a founder be sure his investor's economic concerns won't steer his business away from the social goals? With no badge and no clear differentiator (unless structured an asset-locked entity such as a CIC or Bencom), the assurances can be hard to find.
The golden share is a valuable tool for social enterprise because it eliminates the risk that a social mission could be ignored by incoming shareholders whilst not restricting the day to day management of the business. Whilst a variety of rights can be attributed to a golden share, in the context of social enterprise, it’s purpose is to protect only what is necessary to ensure the continued centrality of the social mission to an enterprise and it can be structured so as to be redeemable by the company or otherwise restrict eligible transferees of the golden share - both important safeguards tailored to the enterprise. Having this mechanism in place helps the social enterprise operate freely whilst safeguarding its social purpose more robustly and with more longevity than a social object clause in its articles can achieve alone, and can also serve as a flag to differentiate those businesses which are committed to a social good in the long term.
This report considers the current investment climate for social businesses and the challenges of linking investors with enterprises that share compatible goals against a diverse backdrop of business models and legal forms. The golden share model is presented as a potential solution to the challenges faced by social and commercial investors and social enterprises and the report further sets out guidelines for structuring a golden share into the social business of the future.
Golden shares can help preserve the social purpose within a social enterprise, help it stay accountable for external scrutiny and raise investment.