5 Differences Between Social Enterprises and Charities

Hireup and the Cancer Council were both created to achieve social goals. The Cancer Council aims to increase knowledge and to reduce the burden of cancer on people affected by the illness. Hireup’s mission is to help disabled people take control and choose a caregiver that is suited to them. However, there is a difference in the way they go about achieving their respective missions. Hireup is a social enterprise, whereas the Cancer Council is a charity. This article will discuss the key differences between social enterprises and charities.

1. Legal Definition

Charities have:

• a legal definition;
• may seek Deductible Gift Recipient (DGR) status from the Australian Taxation Office (ATO);
• receive tax benefits; and
• are regulated by the Charities Act 2013.

To be classified as a ‘charity’, an organisation must:

1. be a not-for-profit entity;
2. exist for charitable purposes that are for the public’s benefit;
3. not have purposes which are ‘disqualifying’; and
4. not be an individual, a political party or a government entity.

‘Social enterprise’, in contrast, is not a legal term. Because of this, there are no legal requirements specific to social enterprises. Instead, social enterprises employ conventional business structures and must comply with the legal requirements applicable to all businesses.

2. Profit and Not-For-Profit

Profit is the amount of money remaining when all expenses are paid. However, the term ‘not-for-profit’ does not mean that the organisation does not make money.  

3. Charitable Purpose

Firstly, charities must operate for a charitable purpose for the public’s benefit. A charity can only have charitable status if it meets one of the specific ‘charitable purposes’ in the Charities Act 2013. Examples of ‘charitable purposes’ are:

• advancing health, education, religion, culture, or social/public welfare;
• promoting reconciliation, mutual respect and tolerance between groups of individuals that are in Australia;
• promoting or protecting human rights;
• advancing the security or safety of Australia or the Australian public;
• preventing or relieving the suffering of animals;
• advancing the natural environment; and
• any other purpose that is analogous or within the spirit of the above-mentioned purposes.

Additionally, their purpose cannot be to promote activities that are:

• unlawful;
• contrary to public policy; or
• to promote or oppose a political party or a candidate for political office.

Public Benefit

The purpose of a charity under the Charities Act 2013 must also be ‘for the public benefit’. When determining whether an entity’s mission falls under this definition, the court considers:

• any benefits and detriments to the general public or a section of the general public arising from the purpose; 
• who benefits from the achievement of the charity’s purpose; and
• whether the benefits are available to a sufficient section of the general public.

Related Charitable Purposes

Finally, any other purposes of the charity must be related to the charitable purpose. For example, the National Breast Cancer Foundation (NBCF) operates with the goal of reducing deaths caused by breast cancer. Because it is aimed at ‘advancing health’, this purpose is a charitable purpose under the Charities Act 2013.

In order to raise funds for research, NBCF organises an annual Mother’s Day Classic Fun Run. The fun run is related to NBCF’s mission and therefore furthers their charitable purpose. Therefore, the NBCF can be classified as a charity.

4. Purpose and Social Enterprises

Social enterprises seek to achieve philanthropic goals using business practices. While these goals will often be a ‘charitable purpose’, having a ‘charitable purpose’ is not a legal requirement for social enterprises. 

For example, the Melbourne cafe ‘Long Street Coffee’ can be classified as a social enterprise as it uses a business model to achieve philanthropic goals. The owners train and employ refugees and asylum seekers in the coffee shop, helping them feel welcome in Australia and assisting them in finding jobs.

This social goal does not legally have to be the primary object of their coffee shop. Because they are not a charity, their primary purpose can be to serve coffee, with a secondary purpose of achieving social good.

Key Takeaways

Both charities and social enterprises try to further social benefit and achieve philanthropic goals. However, while there are some similarities, the key differences between social enterprises and charities lie in their:

• legal definition;
• organisational structures; and
• approach to achieving social benefits.

Additionally, charities:

• are defined in the Charities Act 2013;
• must meet strict requirements; and
• must have a specific ‘charitable purpose’. 

Social enterprises, on the other hand, do not have a legal definition. Therefore, they have more freedom in:

• the goals they pursue;
• the way they use proceeds; and
• their approach to philanthropic goals.

Accordingly, if you have any questions about the differences between social enterprises and charities, contact LegalVision’s startup lawyers on 1300 544 755 or fill out the form on this page.