There’s been a bit in the media lately about the relative merits (or otherwise) of social enterprise. To some, social enterprise is the panacea for an under-funded community sector; a way to decrease community organisations’ dependence on donations and government funding. To others, social enterprise is merely green-wash; a way for businesses to profit from social and environmental issues in society.
Social enterprise Eat My Lunch – a business that gives a meal to a schoolchild for every meal that they sell to customers – has come under particular scrutiny for the role that volunteers play in making the meals both for sale to customers, and that go to schoolchildren. Some argue that because Eat My Lunch is a business with private shareholders, volunteers should not be involved in the work because at the end of the day, the profits from Eat My Lunch are privatised. Other opponents of Eat My Lunch see the donation of a meal to a schoolchild as a calculated (and somewhat sinister) marketing ploy.
On the other hand there are those who see Eat My Lunch as a great example of an ethical business working to make the world a better place; they see Eat My Lunch as a leader in Corporate Social Responsibility and argue that individuals should be able to decide who they volunteer for, regardless of what is done with the profits of the organisation.
Where you sit on this issue is entirely up to you and your moral compass. There is no right or wrong answer and each person will form their own opinion on this situation. It does, however, highlight one of the main challenges for organisations that call themselves social enterprises in New Zealand: that there is no agreed definition of—or legal structure for—such organisations.
What is social enterprise?
In 2014 the Department of Internal Affairs defined social enterprise in the following way:
“Social enterprises use commercial methods to support social or environmental goals. They principally reinvest surpluses in the social/environmental purpose rather than maximising profit for shareholders and owners.”
The Ākina Foundation is the government’s strategic partner in developing the social enterprise sector in New Zealand and define social enterprise as “purpose-driven organisations that trade to deliver social and environmental impact.” According to the Ākina Foundation, social enterprises exhibit the following three characteristics:
- That the social, cultural and/or environmental mission provides a public or community benefit and that is the primary purpose of the organisation;
- That the majority of income is from trading a good or a service;
- That the majority of either expenditure or profit is spent in the fulfilment of the purpose of the organisation.
Because there is no agreed definition or legal structure for social enterprises in New Zealand there is a range of different types of organisations using the term ‘social enterprise’ to describe what they do.
Typically social enterprise organisations in New Zealand are set up as either a Charitable Trust or a Limited Liability Company.
What is a Charitable Trust?
A Charitable Trust is the standard structure for most public benefit, not-for-profit organisations in New Zealand. Charitable Trusts can make a profit from their work, but all of the profit must be reinvested into furthering the public benefit of their organisation’s work. This is the key point that makes a Charitable Trust different from a company.
What is a Limited Liability Company?
A Limited Liability Company is the most common type of business structure in New Zealand. They can be recognised because they have ‘Ltd’, ‘Limited’ or ‘Tapui’ at the end of their name. The purpose of a Limited Liability Company is to make a financial profit for its shareholders who receive this profit in the form of a dividend.
So a social enterprise can be either a Charitable Trust or a Limited Liability Company?
Yes, and this is where the confusion arises because we generally equate ‘Charitable Trust’ with not-for-profit, social benefit driven organisations while we typically consider ‘Limited Liability Companies’ to be focused on selling goods or services to produce a profit for their shareholders.
Because social enterprises can be either a Charitable Trust or a Limited Liability Company, there can be confusion about what happens with their profits. The situation becomes more complex when you add ‘Charitable Status’ to the mix.
What does it mean if an organisation is ‘a registered charity’ or has ‘charitable status’?
Any entity – a Charitable Trust, a Limited Liability Company etc – can apply for ‘Charitable Status’ to become ‘a registered charity’ by proving to Charities Services that they meet the definition of charitable purpose as defined in Section 5(1) of the Charities Act 2005:
“…charitable purpose includes every charitable purpose, whether it relates to the relief of poverty, the advancement of education or religion, or any other matter beneficial to the community.”
Charities Services only confer Charitable Status to an organisation (regardless of its legal structure) when they are confident that the organisation has exclusively charitable purposes and that it is working for public benefit. This is really important because organisations with Charitable Status are exempt from paying tax on income.
Note that not all Charitable Trusts are registered charities with Charitable Status. Just because an organisation is set up as a Charitable Trust does not mean that it is a registered charity with Charitable Status. Similarly, not all Limited Liability Companies privatise their profits. If a company has Charitable Status, then their profits are going towards independently verified charitable purposes.
So how do you know if the organisation you’re volunteering for is a registered charity?
All registered charities (those with Charitable Status) are regulated by the government’s Charities Services and are listed on the Charities Register. They also have a registration number that starts with the letters ‘CC” followed by six digits which is often published on their website.
The Charities Register summarises each charity’s purposes, activities, sector and includes their Annual Return – a yearly report which details their income, expenditure and activities. This information ensures transparency for the public to see where their funds have been spent and (for most charities) what services they have delivered.
What should I do before volunteering for—or donating to—a social enterprise (or for any other organisation, for that matter!)?
We encourage you to check to see if the organisation is listed on the Charities Register. If it is, then you can be confident that it has Charitable Status which means that all of the money is going towards independently verified charitable purposes. If you have concerns about the business of an organisation with Charitable Status, you can contact Charities Services who have the ability to investigate organisations.
If you think an organisation might be a company, you can easily search for them on the Companies Register.
There’s certainly nothing to stop you from volunteering for an organisation that is not listed on the Charities Register. For example, Eat My Lunch is not on the Charities Register and they openly state that they are a company. Furthermore, they report that they have a waitlist of two months for volunteers!
Ultimately the choice about where you donate your time or money is yours, but we encourage you to do your homework and consider where you sit on the social enterprise spectrum.
 Note that Incorporated Societies are another common organisational structure for not-for-profit organisations in New Zealand, however they are not required to have a charitable purpose and are not as commonly used for social enterprises.
 The organisation’s public benefit is enshrined in the purpose section of their organisation’s trust deed (their ‘constitution’ or founding document).