Legal forms for regenerative enterprises

👉🏽 This story is developed as part of the Doughnut Economics for Policymakers guide.

Countries worldwide are creating diverse legal forms that help companies lock in their social and ecological missions, distribute ownership more fairly, and separate financial control from decision-making. These frameworks can raise awareness, reduce administrative burden, and lower risks for regenerative enterprises.

Overview

Legal forms are the official classifications of businesses under the law, often defining ownership, governance and taxation. Many countries have created diverse legal forms to recognise and support more regenerative enterprise design. Some examples of this include: 

• Distributive ownership: Many governments provide legal recognition for collectively-owned enterprises. For example, cooperatives are a legally recognised enterprise collectively owned by their members, with over 3 million operating globally. In addition to cooperatives, the UK and USA have frameworks for indirect employee ownership through dedicated funds that manage employees’ company shares. France has a special form of employee-owned cooperative that includes other stakeholders like customers or local authorities in its governance. 
• Social and ecological purpose: Colombia, Denmark, Italy, Thailand,  and the UK, have legal forms for for-profit companies with a social mission that reinvest profits for social or ecological causes. All EU countries offer public benefit status for not-for-profit businesses with an explicit mission for the common good (such as education or health).
• Separating decision-making from financial power: While most legal frameworks give financial owners most control, some enterprises have found ways to separate financial ownership from decision-making, including the establishment of trusts with veto power to safeguard their long-term mission. Germany and the Netherlands plan to simplify legal procedures for such enterprises by creating a distinct legal form, called steward-ownership. 

Implementation 

Legal forms are typically national, though regional versions exist in sub-national governments with more devolved legislative power such as California (USA) and British Columbia (Canada). There are also transnational laws: for example, 17 African countries adopted an act to harmonise legal recognition of cooperatives, which provided the basis for more targeted financial and capacity-building support. 

Countries vary in how they award this status, which can be permanent, for limited periods only, or while criteria are being met. Eligibility differs by legal form type: for example, cooperatives focus on democratic ownership and governance, while social enterprises require mission lock-in and sometimes profit reinvestment.

Impacts 

These frameworks help enterprises establish distributive ownership, ensure long-term purpose, and uphold democratic governance. They provide legal recognition, raise awareness of diverse business structures, ease administrative burden when aligned with business goals, and reduce risks for investors and entrepreneurs. They work best as part of broader national strategies with supportive taxation.

Challenges 

• Choosing the right legal form and understanding the full range of implications (like taxation) can be a complex undertaking for new businesses.
• If legal statutes are not accompanied by capable administrative bodies and capacity building for entrepreneurs, implementation and uptake can remain low.
• Mismatches between existing legal forms and regenerative business needs create barriers and risks. For example, no comprehensive legal form for steward-ownership exists globally, so these businesses often navigate complex legal procedures to ensure their structure is compliant and binding. 
• Strict rules (like mission lock-in) are important but require legal expertise to navigate correctly.

Reference and further reading 

• Research on the legal status of cooperatives worldwide (including statistics): International Cooperative Alliance (2020).
• Legal frameworks for the social and solidarity economy: OECD Global Action (2022).
• The Alternative Ownership Enterprise Report: Transform Finance (2023).

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