The Myth About Social Enterprises and Why I Don’t Believe in Them

October 6, 2015

Below is an extract from the top Amazon book, ‘How to Make Your Tax Sexy’:

Over the past couple of weeks I’ve spoken to a lot of budding entrepreneurs who ask me the same question, ‘Should I set up a social enterprise, or a limited company?’

It’s a great question. But it gets to me every time!

If you’re also a budding entrepreneur who’s passionate about giving back to the community and helping others, then running a social enterprise has probably crossed your mind too.

I really admire this. It crossed my mind when I was starting up too.

But there’s a big myth about social enterprises. And this is why I don’t believe in them.

Let’s clear this up in real time….

Over the years, the art of doing businesses has developed so much so that distinct and innovative ideas seep into the minds of people such as setting up a business in name of a Social Enterprise or for a social cause will definitely raise many eye balls and get many people interested in your venture.

The fact however is that social enterprises are not new to this age, they have been operating as far back when cooperative societies and nonprofit organizations were working; it’s just that it is a hot concept recently gaining momentum in many countries because of it large scale social welfare focus.

Let’s gain an insight of what a typical social enterprise looks like:

*They have a well-defined socially benefiting mission

*They will earn their income by selling goods and services like any normal business

*Profits will be reinvested back for supporting the social cause

*They have an autonomous existence

*They are controlled by mission of serving society and not maximizing profits of shareholders.

*They are transparent and accountable in their operations

The Myth Uncovered: A social enterprise is NOT a legal structure on it’s own.

The growth of these enterprises has been exponentially high in the last two decades; however the main challenge lies in finding the accountability of how and when they use their profits, who is checking for transparency and what is the scale of assessing their contribution to the social cause they are claiming.

This is daunting, complex and time consuming.

Further confusing part is that social enterprises may exist in various legal forms or even chose to remain unincorporated.

They only sound similar in their purpose of existence – social benefit.

They can take the form of a Limited Company, Community Interest Companies (CICs), Limited Liability Partnership, Cooperative Societies and even a sole proprietor.

Each of them is governed by different regulating bodies with varied levels of complex and/or simple formalities and obligations to follow.

The absence of a single regulating body, uniform set of rules of incorporation and a legal form throw a great challenge in understanding their true social mission, working pattern and accountability.

As such one must do a careful analysis before choosing a legal structure.

The evidence suggest a Limited Company structure is the best as it limits the personal liabilities of the members. You can still pursue your social goal rather using the label of a Social Enterprise for wide scale acceptance and good reputation.

Plus you can donate and contribute to the community anyway that you choose. After you make money, claim back your expenses and pay yourself first of course!

Whatever form of business you choose, the essence lies in maintaining the integrity of the social mission in the long run and not losing vision once you scale heights of success.

So if we speak on the phone and you mention a social enterprise, I’ll probably yell these 2 questions at you:

1) What type of company structure will you use?

2) Will you have enough time & money to pay yourself probably while running your social enterprise?

(Said in a sweet voice with love & care!)