Social Enterprise: What Is It?

May 17, 2019
Reading Time: 2 minutes
Written by Lachlan Ward

There is no reason why you can’t make a difference in the world and a profit at the same time. While seemingly opposites to each other, you can start a business that aims to be financially successful and have a social impact. If this sounds like your type of business, learn about social enterprises and how to create a social enterprise here.

What Are the Features of a Social Enterprise?

While there is no legal definition of a social enterprise, generally a social enterprise will have the following features. Firstly, it will have a social or environmental mission, at the core of its business function. Furthermore, the mission will have a community or public benefit. Typically, this mission will be the main source of income for the business, and a significant portion of the profits will be reinvested in the business. This enables the business to more effectively contribute to realising its mission in the future. Finally, the business can operate with either a profit or not for profit structure. Moreover, they usually measure their performance in reference to their environmental or social impact rather than a pure financial analysis.

How Is a Social Enterprise Different to Charities?

The major difference between a social enterprise and a charity, is that a social enterprise remains a business. A social enterprise relies upon its goods or services for the majority of its revenue, where as a charity will rely upon donations and grants. Furthermore, a charity is required to be registered as a company whereas a social enterprise can choose its business structure. Furthermore, social enterprises are required to pay corporate tax as opposed to charities which are tax exempt.

How Do I Start One?

To start a social enterprise, you should have a clearly defined issue that you are seeking to address. Maybe it is an environmental concern, or a social issue that is affecting your community. By having a clearly defined issue, you will better be able to integrate this concern into the operation of your business. As you will be running a business, it is important to consider potential competitors in the industry that you will be operating in. Furthermore, it is important to decide on whether you will be a profit or not for profit business.

Keep in mind, that not for profits are required to reinvest all profits into the running of the business. This means you will be unable to provide dividends to shareholders. However, not for profits are more likely to be eligible for various government grants to assist in the financing of your business. You should also consider which corporate governance structure to implement if you want your business to be a company.

Conclusion

Therefore, social enterprises are a great way to have a positive social impact and run an economically viable business. To assist creating your enterprise, you should get in contact with a business formation lawyer for relevant legal advice.

Don’t know where to start? Contact us on 1800 529 728 to learn more about customising legal documents and obtaining a fixed-fee quote from Australia’s largest lawyer marketplace.

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