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A Guide to Legal Forms for Social Enterprise

The Internet contains a lot of information about the particularities of each legal form. Unfortunately, there is no clear advice to social entrepreneurs on whether they should choose one of the non-profit or for-profit legal forms for their business. The willingness to evolve brings with it a variety of questions and challenges for a start-up. Not only a validated product or service, viability, impact measurement, etc. are essential to attract the necessary investments that enable growth (BENHAYOUNE, 2017). An important point is also the legal structure of a company, which offers a legal status with certain rights and protective measures, but also responsibilities and responsibilities. Although it is not easy to find and maintain the right legal structure for a start-up. The choice of an appropriate legal form depends on local laws and regulations and must therefore be considered individually for each country in which a clean water company operates or wishes to operate (OSINOWO, 2016). An overview of the different corporate legal structures around the world can be found here. Defines a social enterprise by the purpose of a business, with primarily social goals. Explains the different forms of social enterprises without legal capacity and the different registered forms of social enterprises, which include limited liability companies, community interest companies (CCIs), industrial and public service companies (ISPs) and limited liability companies (LLP).

See also: There is also no better single legal form for social enterprises in South Africa. Even a “new” legal form will not provide all the answers. It`s not a magic bullet that suddenly allows social enterprises to thrive. Choosing a legal structure can be confusing. There are many different structures that a social enterprise can adopt, and there is no legal definition of what constitutes a social enterprise, making it a jargon-filled issue. There are also complex and specific rules for each different structure. Here`s a good place to start if you`re thinking about legal structures. Muhammad Yunus is a Bangladeshi social entrepreneur, banker, economist and civil society leader who was awarded the Nobel Peace Prize for founding the Grameen Bank and developing the concepts of microcredit and microfinance. Impact investing offers these social enterprises significant opportunities. JP Morgan estimated that the market was worth $60 billion last year and is growing rapidly.

In addition, it is estimated that 22% of the market is located in sub-Saharan Africa. There is concern that CSI foundations and departments may not want to work with social enterprises that have a for-profit legal form. There are cases where this is justified (for example, it is forbidden for a tax-exempt foundation to give money to anything other than a tax-exempt entity). However, as we have shown, there are other methods to pay a social enterprise in order to achieve a number of results. There are also signs of global change where donors are more interested in outcomes than legal forms. There are three questions that social entrepreneurs should consider when choosing which legal form to use. A common desire of these “for-profit” social enterprises is to communicate their philanthropic intentions. Fortunately, there are a number of things these companies can do to achieve this.

Some social enterprises in Europe and England have even received quasi-equity investments, which are the financing of a share of profits from a certain stream of income over a certain period of time. However, this form of return on investment is not possible in South Africa for non-profit legal entities, as they are prohibited from distributing/sharing profits in any way and can only be remunerated at a reasonable rate for the services actually provided. Instead, these organizations are encouraged to adopt a hybrid model to implement such contracts. A set of criteria and questions are then provided to help a clean water company plan, identify and obtain the most appropriate legal form. The first criteria for choosing a legal structure depend on the needs of the company, and for this the World Bank has defined some general criteria (WORLD BANK GROUP, 2017). It`s also important to build a brand and get people excited about it. Use social media; For now, don`t worry about complex websites and corporate stationery. A legal structure is the legal business structure that your organization adopts. Your legal structure determines things like how much tax you pay or what kind of grants or investments you can receive. Choosing the right legal form is important for any scale-up planning.

Depending on the legal form obtained, companies show potential investors a different business majority, a different purpose and also a different title. On the other hand, the right legal structure also offers security for the entrepreneur. For example, in the case of a failing business, this can protect the entrepreneur from private bankruptcy. (LAURIC, 2014). Social enterprises with a non-profit legal form can do many of the things that a traditional business can do; They are not as limited as people think. There are strict conditions under which a hybrid model is recommended. These are described in the e-book “Setting up a hybrid social enterprise”, which is available on the author`s website. There are a variety of ways in which social enterprises can make money with a for-profit legal form. For example, Siyavula was sponsored by Vodacom to help learners in around 100 schools practice and improve their math and science skills. GreenPop is often paid to help with green campaigns. Shonoquip sells wheelchairs and Citizen Surveys conducts research on social issues for the government. Social enterprises can take a variety of legal forms, which makes this topic confusing.

The objective of this study is to analyse different definitions and forms in which social enterprises operate in five countries and the impact on public policies. The study is based on desk research and a series of interviews in Italy, Malaysia, South Korea, the United Kingdom and the United States, where social enterprises have attracted government interest. The study analyzes how the government has operationalized its cooperation with social enterprises. These social enterprises also make attractive impact investments for two main reasons. First, investors are able to acquire equity. Second, investors believe that these social enterprises are more likely to have profitable business models. For example, Impact Amplifier recently facilitated an investment deal for Biogreen – a social enterprise with a strong business model that converts used cooking oil into biodiesel. As part of this transaction, the business partners provided the company with the necessary funds to expand in exchange for some equity.

The Tinkisso case highlights how the Guinean drinking water NGO has transitioned to a limited liability company and highlights the challenges and lessons of this process. In addition, the case of ECCA, a Nepalese NGO operating in the WASH sector, shows how important it is to choose the appropriate legal form that corresponds to the product sold by ECCA, while it is itself an NGO. The second consideration is how the company will generate most of its revenue. If the company relies on donations from philanthropic funds and CSI departments, a non-profit structure is attractive. However, if the business intends to derive its income from beneficiaries, corporations or the government, a for-profit entity would also be profitable. This brings us to a very important point. Too many social enterprises choose to establish hybrid models when they don`t need them. In trying to achieve the “best of both worlds”, they fail to fully understand and exploit the possibilities inherent in a single legal form. They dilute their energies instead of concentrating them and double their bureaucratic burden.

In some countries, the procedures for registering a business are complicated, time-consuming and quite expensive (WORLD BANK, 2018). In particular, the creation of a social enterprise that wants above all to pursue social impacts while being financially viable and expecting, for example, tax cuts, is not yet a widespread legal structure. Even though Mohamed Yunus is committed to social entrepreneurship, there is still little evidence of how such concepts can be put into practice. As Milton Friedman put it, “The business of business is business”, and even today, “the guiding principle of commercial value creation is a simple and refreshing construction: companies that grow and achieve a return on investment that exceeds their cost of capital create value” (GOEDHART, KOLLER & WESSELS, 2015). When a social enterprise wants to create different value, it can cause problems for its shareholders or investors. Finding a legal structure capable of reconciling these seemingly contradictory goals of profit and social impact may require innovative ways to enable compromises.