What is a Social Enterprise?

Charities struggle to fund services due to higher demand and less donations. Social enterprises can provide additional revenue.

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The fact that “things aren’t the way they used to be” is one of those things that never change. This is the case whether in the context of the way kids behave, how cars are made, or the successes of family businesses. In particular, charities and non-for-profits are finding it increasingly difficult to fund their activities and services. There are several contributing factors to this phenomenon, including a higher demand for services, declines in donations, and the greater complexity of charities.

This situation leads many charities and non-for-profits to pursue various forms of commercial activity as an additional revenue. There are various forms of such commercial activity, including investing, professional fundraising, or opening a social enterprise. In Australia, there is no legal definition of a social enterprise, but it is often described as a trading enterprise that uses its profits exclusively to fund a social or public mission. For example, a charity might open a business to supplement its income and provide financial security for the future.

A social enterprise need not be operated by or be an extension of another charity or non-for-profit. Social enterprises are usually self-contained, using its profits to support and grow the enterprise itself. For-example, a café can be established for the purpose of hiring disadvantaged people, using the profits to further its activities. Thus, social enterprises can either be as part of an existing charity or non-for-profit, or a separate entity.

Starting a social enterprise out of an existing organisation

Many charitable and non-for-profit organisations will fundraise by means of providing a product or service for a fee. Often these services are directly related to the nature of the organisation, such as a religious institution opening a bookstore, a museum operating a gift store, or a school providing after-school child-care. Other fundraising services have no such direct relationship, such as a bake sale or an op shop. Regardless, since it is merely an extension of an organisation it will have the same access to tax concessions.

Here are several considerations of which to be mindful:

  • Are its profits used in the same way as the organisation, or are some of the profits for private benefit?
  • Will the enterprise subject your institution to reputational or financial risk?
  • Does your institution have the relevant capabilities, expertise, and capital to engage in the enterprise?

Creating a separate social enterprise entity

A social enterprise can have social benefit by its operation and activities. It can provide employment and affordable product to those in need. It can also promote education or cultural awareness by providing educational or cultural products and services. If you are starting a social enterprise not as part of an existing organisation, there are several legal structures to choose from:

  • Incorporated association (Inc.)
  • Company limited by Guarantee (Ltd)
  • Co-operative
  • Indigenous Corporation

The difference between these structures affects whether you can operate nation-wide or only within your state, your tax concession eligibility, your funding and ongoing reporting responsibilities.

If you are interested in creating a hybrid form of for-profit and non-for-profit, you also have the option of creating a Private company (Pty Ltd).

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