By Hayes Knight – 1 July 2013

We are increasingly seeing our charitable and not for profit clients either actively involved in social enterprises, or strategically looking at getting into this area as a means of ensuring their longer term financial and hence organisational sustainability.

In most cases the aim of running a social enterprise is to reduce absolute reliance on Government grants or the general public donations for funding so the charity or NFP can have more control over its destiny.  Some organisations operate social enterprises with the aim to be able to cover administrative costs for their charity or NFP.  This then allows them to go to the public or their other funders with a very compelling message that every dollar donated or granted will go directly to the service or goods that they offer.

So what is Social Enterprise?

Basically any form of business activity carried out by a charity or NFP with a view to earning income to allow that entity carry out its social aims.    A good example is an opportunity type shop run by a social service charity.

Legal Entity Types

One of the questions that often arises with this sort of activity is whether the charity or NFP should use their main operating vehicle or instead set up a separate legal entity to run and risk ring fence the activities of the social enterprise.   While there are others, by far the most common forms of legal entity types currently used in New Zealand are:

  • Charitable trusts
  • Incorporated societies
  • Charitable limited liability companies

Each situation will need to be assessed on a case by case basis and should consider legal, accounting and operational aspects.  Independent professional advice is a very good idea at this point to ensure the legal entity is best for your organisation, strategy and future intentions.

Helpfully given the growth in interest in this area in New Zealand in recent times, the Department of Internal Affairs recently released both the results of a survey and a paper exploring Legal Structures for Social Enterprise. To access the latter report click here.

If you have abny queries about this area for your charity or NFP organisation please contact us.