Legal structures for social enterprises

The Department of Internal Affairs (DIA) has published a report on legal structures for social enterprises.

To be classed as a social enterprise an organisation demonstrates the following:

  • A social, cultural, or environmental mission
  • A substantial portion of its income coming from trade; and
  • Most profits/surplus reinvested in the fulfilment of its mission.

Social enterprises have been operation in various guises for many years. Non profit organisations have often derived some income by selling goods and services. As well, some business entrepreneurs are looking to achieve “social good” alongside, or instead of private profit. This means that social enterprises exist in a “hybrid” state – where social environmental goals and commercial objectives come together, and questions can arise about which legal structures are best for them.

None of this country’s array of legal structures (charitable trust boards, incorporated societies, limited liability companies, limited partnerships, industrial and provident societies, co-operative companies and Maori land trusts) is tailor made for a social enterprise, the limited liability company structure is being used by new social enterprises. One advantage of using this structure is that it can be made clear that profit maximisation is to be balanced by “social good” objectives in the company’s constitution. The report is at www.dia.govt.nz/cvs.

Welcoss Newsletter August 2013