There are many issues to consider when setting up a Social Enterprise or adding a Social Enterprise to an existing organisation like starting any new business. It is important to deal with them at the outset to save you time, money and effort later on! This article will guide you through the key issues to consider at the initial stages of setting up a Social Enterprise.

Initial Questions

  • Who is going to set up your Social Enterprise? Is it going to be new or added to an existing organisation?
  • What will be the social or environmental mission of your Social Enterprise? What approach will you take to achieve that mission
  • When will it be set up? Now or in the future?
  • Where will it be set up? Will it be in a physical location or online?
  • Why are setting up your Social Enterprise? What issue will your Social Enterprise address?
  • How will you set up the Social Enterprise? What structure will you choose and how will it be funded?

Funding

It is crucial to identify the source/s of funding you will use to set up your Social Enterprise dependent on whether the enterprise will be for-profit, not-for-profit or a combination of both. You should consider your own circumstances when deciding on the complexity of the funding sources which may include:

  • Equity;
  • Debt;
  • Donations;
  • Grants;
  • Crowdfunding;
  • Donations; and/or
  • Membership Fees.

For-profit, not-for-profit or both

There are a number of factors to consider when choosing between incorporating as a for-profit or not-for-profit entity as it will impact on the way you will be able to run and fund your Social Enterprise. For example, it will affect the:

  • Sources of funding available to your Social Enterprise and whether you can attract investors for funding;
  • Tax concessions that your Social Enterprise may be eligible for;
  • Ongoing reporting and governance requirements you must meet; and
  • Registering as a charity.

Registration as a Charity

A Social Enterprise which operates as a not-for-profit entity can register to become a charity, and if eligible, the enterprise can register as a charity with the Australian Charities and Not-for-profits Commission (ACNC). According to the ACNC, an eligible enterprise must:

  • Meet the definition of a charity;
  • Have an Australian business number (ABN);
  • Meet the Commission governance standards; and
  • Not be an organisation that cannot be registered, such as political parties, government entity or being engaged in, or supporting terrorist or other criminal activities.

There are a number of benefits to becoming a charity that you should consider which include:

  • Deductible Gift Recipient (DGR) endorsement;
  • Federal tax concessions; and
  • Searchable on the register of charities.
  • There are also a number of limitations which you should also be aware of including:
  • Charity members cannot receive any benefit;
  • Activities of the charity are limited by their charitable purpose; and
  • Details of directors are publicly available on the register of charities.

A Case Study: Fair Trade Coffee Company

The Fair Trade Coffee Company is a subsidiary company of Palms Australia, which is a not-for-profit entity. Palms Australia is an overseas development agency so the Fair Trade Coffee Company does not pay tax on their earnings. They were also in a unique position to self-finance the start-up costs associated with opening the Fair Trade Coffee Company, which allowed Palms Australia to be thoughtful and selective about the location of the café which has played a major part in their success. This success has enabled Palms Australia to complement their skill exchange program by offering internships to students from a Timor Leste vocational school.

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Are you thinking about setting up a Social Enterprise and want to know what business structure to choose? Learn more in Part 3 of our Social Enterprise series or contact one of our business lawyers on 1300 544 755.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.
Rachel Amiri

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