How to Kick Start a Social Enterprise

Joanne O’BrienT: +61 7 3236 2900E: jobrien@crhlaw.com.au

WHAT IS SOCIAL ENTERPRISE?• A more creative capitalism that can adapt business

and the market to better address unmet social needs

• Non-loss businesses with social objectives• Businesses that trade to tackle social problems,

improve communities, people’s life chances or the environment

• Profit for purpose

WHY SOCIAL ENTERPRISE?• Economic and social factors have created an increased

need– Reduced government funding– Need for innovative solutions to new problems

• Growing field of academic study & research• Plethora of definitions• Social Traders, Social Ventures Australia

CONTEXT• Sourcing finance• Delivery of products & services• Marketing• Employees & Volunteers• Legal structure to support desired aims

outcomes LEGAL COMPLIANCE

LEGAL STRUCTURE• What legal structure will you use?• Options:

1. Operate within an existing NFP/charity• Possible regardless of whether the NFP/charity is a

company limited by guarantee or an association• Establish a separate business unit• Its own reporting lines

2. Establish a new separate legal entity

IN HOUSE OPTION• Advantages

– Minimal establishment costs– Utilises existing staffing & financial reporting

frameworks– No changes at Board level– Surpluses become part of general revenue & can

be utilised for core purposes

IN HOUSE OPTION (Cont’d)• Potential problems

– Impact on charitable status– Impact on tax endorsements – Risk to core business

OUT HOUSE OPTION• Set up a new separate legal entity to operate

the social enterprise• Alternatives:

– Company limited by guarantee– Proprietary Limited company– Incorporated Association – Trust

COMPANY ALTERNATIVES• Minimum requirements:

– Public Company (Ltd)• 3 Directors • 1 Member & that can be a corporate member

– Private Company (Pty Ltd)• 1 Director • 1 Shareholder

ISSUE (CONT’D)• A private company can distribute dividends• A company limited by guarantee can only

use its income & property to further its objects– One of those objects can be “To contribute

funds to XYZ Foundation/Ltd”

– Loans & service agreements can be used

ISSUES (CONT’D)• Registration as a charity with ACNC?• Entitlement to tax concessions?• Who will be the Directors?

– The whole Board of the parent; or– Sub-set of the parent Board; or– Individuals with particular skills + a

representative of the parent Board

KEY CONSIDERATIONS• How those issues are resolved depends on:

– The nature of the enterprise; and– Its dominate objective:

• To generate funds; or• To provide social outcomes

CASE STUDY 1• Aged Care Provider Ltd• PBI• Operating a construction business• Building for itself & other Providers• Builder’s Licence required minimum asset ratio

that could not be met because of the accommodation bond liabilities

• Large cash reserves

CASE STUDY 1• The Solution:

– Amend Constitution to allow the entity to set up an enterprise

– Register a Pty Ltd company– Issue shares equal to the cash injection

required – minimum amount to secure builders licence

– CEO became the sole Director

CASE STUDY 2• Endorsed PBI – Homelessness • Incorporated Association• Aim to provide free/low cost health service• Partnership with established health services• Substantial investment required for premises fit

out• Collaboration with charitable foundation

CASE STUDY 2• The Solution:

– Amend Constitution to allow the entity to set up an enterprise

– Register a Ltd company– Association and Foundation members– Capital to be raised by way of loans & donations to

the new company– Written agreement between members

Thank You

Joanne O’BrienT: +61 7 3236 2900 E: jobrien@crhlaw.com.auLevel 10, 193 North Quay Brisbane Qld 4000