You’ve probably heard the term ‘Social Enterprise’ thrown around, but what does it actually entail? Throughout this series, we’ll guide you through the legal considerations surrounding social enterprises, starting off by defining what exactly a social enterprise constitutes.
There isn’t a legal definition for the term Social Enterprise in Australia. However, a Social Enterprise is commonly understood to be an organisation with three key features:
- It is led by an economic, social, cultural or environmental mission which is consistent with a public or community benefit;
- It trades to fulfil that mission and derives a substantial portion of their income from that trade; and
It reinvests the majority of their profit in the fulfilment of their mission.
- A Social Enterprise can operate for-profit, not-for-profit or a combination of both. However, since the enterprise operates to benefit the public or the community instead of their owners and shareholders, their value is typically measured in terms of the achievement of their social, cultural or environmental mission and their financial sustainability.
Difference Compared to A Charity
The key differences between a Social Enterprise and a charity include:
- A Social Enterprise is connected to the open market because it is selling products and services to generate an income and is influenced by changes and opportunities which arise in the market;
- A Social Enterprise may produce goods and services which may be aimed at different people to those it is trying to assist; or
- A Social Enterprise may mirror a commercial business except that their income goes toward achieving their social mission.
A Social Enterprise may be a business that:
- Provides employment, training and support for marginalised groups, such as a café that hires and trains disadvantaged young people and uses their profits to sustain and expand their enterprise to assist more young people in their community;
- Creates or maintains services in direct response to social or economic needs in the community, such as an Op Shop that sells goods for the community; or
- Generates profits to support other community or charitable activities, such as a community investment bank who may offer banking services and small loans to fund businesses and groups in their community.
A Case Study: Fair Trade Coffee Company
The Fair Trade Coffee Company was established in 2006 as the first trade-exclusive café in Sydney, Australia. Their profits are reinvested into Palms Australia, their parent company, who place skilled international development volunteers all around the world, at the request of local communities. The café trades to fulfil the mission of a just and fair world and encourages everyday people to play a role in social and economic justice with simple acts, such as purchasing fair trade tea or coffee.
Are you thinking about setting up a Social Enterprise and want to know what issues you should consider? Learn more in Part 2 of our Social Enterprise series or contact one of our business lawyers on 1300 544 755.