Calls for review into social enterprise structure
4 December 2019 at 8:28 am
A proposed restructure could mean big growth in the for-purpose business model
A government investigation into the legal structures of social enterprises could bring the leadership confidence it’s been missing, members of the social enterprise community say.
The Australian Law Reform Commission (ALRC) said in a report that an inquiry into social enterprise structures was needed, acknowledging that current structures were failing the needs of for-purpose businesses.
The ALRC report said the suggested inquiry would consider whether existing corporate structures should be adapted so a social enterprise could operate efficiently, or if entirely new corporate structures were needed.
The Social Enterprise Legal Models Working Group submission in the ALRC report noted that while the number of social enterprises in Australia is growing, “the lack of a dedicated corporate structure at law is a particular obstacle”.
“Social entrepreneurs are sometimes required to spend a disproportionate amount (for example $20,000) to set up a trust ensuring that the entity’s assets are protected and used only for the intended purpose, and to design a bespoke constitution to suit the organisation’s particular purpose,” the submission said.
The submission pointed to the United Kingdom, which in 2004 legislated for “community interest companies”, which means the government provides a range of model company constitutions, and online registration costs £27 (A$51).
“There are now over 14,000 registered community interest companies in the United Kingdom, with a total of around 30,000 anticipated to be registered by 2025,” it said.
Anna Crabb, head of strategy and partnerships at B Lab Australia and New Zealand, told Pro Bono News that members of the social enterprise community have often felt stuck between the binary of not for profit and for-profit at the time of incorporation.
“Founders often tell us that they are concerned that being for-profit will mean that they have to compromise on their mission when they raise capital or if they decide to sell,” Crabb said.
“But the flip side is that if they were to structure as a not for profit then they wouldn’t have the funds to scale as quickly.”
Angela Perry, a lawyer and former-chair of Employee Ownership Australia, told Pro Bono News while the exact structure was up for debate, she said a “hybrid legal structure” which allowed maximum flexibility for social enterprise could be a good option.
“That means it would be within a company structure but has some kind of identification so that it is a social enterprise allowing it to have a mission lock and also an asset lock,” Perry said.
Crabb said she wanted the inquiry to deliver standards for accountability and transparency so that businesses could pursue profit and purpose simultaneously.
“We would like to see legal structures and clarity for business leaders, directors and investors so that the sector can thrive,” she said.
“Doing so will provide founders with more confidence to create and grow businesses in ways that generate profits and benefit the community and environment, and avoid costly work arounds.”
Perry added that defining legal structures would show for-profit businesses that having a community impact can be a normal way to do business.
“I think the more people that are operating within the social enterprise model, the more likely it is all for-profits will start thinking about impact,” she said.
The ALRC said the inquiry should take up to 12 months to finalise.
This article was updated on 4 December, correcting information that first stated the ALRC had launched an inquiry into social enterprise legal structures. The ALRC has put forward a proposal to the Commonwealth Attorney-General to launch the inquiry which has not yet been approved.