What legal structure is best for our social enterprise?

[Startup]

Hi Dave,

thanks a lot for your swift reply.

I guess you could be right about the trust issue with a for-profit and a NPO. Still, it is the image attached to a NPO which lets me think a small business owner rather prefers to deal with a "proper" business.

"The right legal entity will probably depend on your annual budget, but assuming in excess of 75% of the income will come from donations or member subscriptions, there's no need to be anything other than a non-profit organisation in one form or another."

We do not know our annually budget yet, but it is for sure that our venture is not going to earn 75% or more of its income from donations or member subscriptions. The venture will earn its necessary income from its service offerings to SMMEs, thereby we will not depend upon donations for maintaining our operations running. One reason we are looking for donations is to facilitate our incubation process. Apart from that, it is our focus on social impact maximisation instead of monetary profit maximisation which sets us clearly apart from normal For-profit organisations. The whole communication with our very different stakeholders becomes much more straight forward, when there are two faces of our venture. Business owners get a plain business offering while social investment parties/ social supporters get to see how we achieve the social change we are aiming at. The later is not so much of interest for business owners, we reckon.

To sum it up: Its mainly for the sake of straight forward communication to our business side stakeholder on the one side and the social development stakeholders on the other side that we want a hybrid social/ business organisation. But how could we do it, that remains the question.

I am grateful for any comments, hints etc.

[Marq]

A section 21 sounds like the best way to go. From the outside it will appear as a solid company doing regular business operations and from the inside you get the trust NPO stuff.

The overseas donor would probably like an audit and proper record keeping so this should be done in any case to ensure ongoing funding.

[Startup]

A section 21 sounds like the best way to go. From the outside it will appear as a solid company doing regular business operations and from the inside you get the trust NPO stuff.

The thing is that we have two faces, two outsides: One for our SMME clients and one for people and organisations interested in our social impact. Once again, we will have a traditional value proposition for SMMEs and a blended value proposition for social minded organisations and individuals. The blended value proposition contains a monetary and a social return on investment.

[Dave A]

We do not know our annually budget yet, but it is for sure that our venture is not going to earn 75% or more of its income from donations or member subscriptions. The venture will earn its necessary income from its service offerings to SMMEs, thereby we will not depend upon donations for maintaining our operations running.

OK then - If there is no intention of paying a dividend to shareholders/members, you can still go the section 21 company route.

However, it's going to be pretty tough to frame this as an NPO for tax purposes.

[Startup]

OK then - If there is no intention of paying a dividend to shareholders/members, you can still go the section 21 company route.

However, it's going to be pretty tough to frame this as an NPO for tax purposes.

That is another reason why we want to split the organisation in two parts. Isn't there any way to do so?