How to Define Social Enterprise
Since the mid-1990s when the dot.com millionaires applied their entrepreneurial instincts and skills to creating self-sustaining charitable enterprises, there has been a controversy over what can be considered social enterprise. The debate ranges over whether a not-for-profit organization (NPO) or association can fund itself by selling products and services to customers who pay, or whether it must be funded only through grants and donations. Many believe a social enterprise does not necessarily have to be a not-for-profit.
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Instructions
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1
Define whether the organization lobbies. If it performs a political or lobbying function for an industry it is a trade association, is a 501(c)(6) designation, and donations are not tax deductible. It also cannot conduct a for-profit business and remain tax exempt even as a trade association.
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2
Define whether the organization provides services to benefit scientific, educational, charitable or religious groups. This is the 501(c)(3) designation which is by definition a social enterprise and allows donors to deduct their donations from their income taxes.
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3
Define whether any money collected by the organization is paid to someone who controls the organization as an owner. This would be someone who holds a majority or large interest in the stock of the underlying corporation, such as an investor. This would make the organization a for-profit and, unless it services the social good, is not likely to be a social enterprise.
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4
Establish whether the organization solicits money through fundraising activities. Often a for-profit corporation will partner with a not-for-profit and donate a portion of the revenues of merchandise sales or professional services. If it serves the social good and qualifies as a not-for-profit, it is probably a social enterprise.
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Define whether a social enterprise, as you recognize the term, is necessarily a not-for-profit or whether it merely must perform a function that benefits the broad social good.
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Tips & Warnings
All not-for-profits are first organized as corporations and then submit application to qualify in their state as a not-for-profit for tax purposes.
In general, profits are not to be distributed to anyone if the organization wants to maintain its tax-free status; however, there is considerable discussion over what constitutes profits and an attorney can best assist in discovering what qualifies as a profit.
The biggest problem in defining what is and is not a social enterprise is the definition of social benefit. Alternative energy companies benefit the general social good by producing products that create clean or non-fossil fuel energy and are often considered socal enterprises by venture capital funds. Companies that produce genetically engineered fruits and vegetables benefit the social good if they have developed plants that can be grown in hostile climates where starvation has been a social problem. However, whether they are social enterprises in the true sense of the word may depend on other characteristics of their total enterprise such as whether they also manufacture chemical weapons.
