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The Legal Framework for Social Enterprises: Are We Just Playing Old Games Under a New Name?

The emergence of social enterprises, entities that aim to solve societal problems with entrepreneurial strategies, has disrupted the traditional understanding of businesses and nonprofits. While these organizations offer immense potential for change, there have been ongoing debates about whether to establish separate, outstanding legal forms for them. As much as I appreciate social entrepreneurship's innovation and flexibility, I respectfully disagree with these attempts. Here's why.


Legal forms of social enterprises

The first argument against this special legal categorization centres around taxation. The motive behind advocating for a unique legal framework is often to simplify running a social enterprise as a business, including potential exemptions from paying taxes. However, this poses an ironic contradiction. Paying taxes is one of the most significant social impacts a business can make, so avoiding this obligation for enterprises claiming to have a central social purpose seems inherently contradictory.


Here, I want to highlight the Swedish model, where authorities have categorically rejected any waiver or exemptions for social enterprises from paying taxes. This stand aligns with the notion that their primary role is contributing to the public good. If any special arrangement is to be considered, it should be towards paying more taxes, not less.


Next, introducing a mechanism that provides certain businesses with a competitive advantage raises fairness and justice issues. While efforts to alleviate administrative and bureaucratic burdens are commendable, these efforts should be applied universally across all types of businesses, not just social enterprises.


Some argue that a hybrid legal format could accommodate both revenue generation and the attraction of investors, grants, and donations. However, this isn't a new concept nor an exclusive need of social enterprises. Existing models within large corporations demonstrate this. Multinational corporations like McDonald's have established nonprofits like the Ronald McDonald House Charities, while others like the Ford Foundation channel their philanthropy. These organizations attract donations and grants, even with large business-like corporations backing them.


Similarly, NGOs aren't prohibited from generating profit; they can't distribute it among shareholders. If NGOs want to engage in business activities, they can create separate entities for their business wing while running their non-profit operations simultaneously. A great example is the structure of Goodwill Industries, which operates thrift stores as a revenue-generating business wing alongside its nonprofit services.


Moreover, social entrepreneurship can be perceived as a response to the traditional welfare system's challenges and the charity model's shortcomings. Instead of imitating these failing sectors, social enterprises should lean into their entrepreneurial potential.


In many places, like the UK, and I find the EU definition similar, social enterprise regulations increasingly resemble a rebranded charity sector. This approach threatens to convert these enterprises into another group of organizations reliant on public funding, playing the same game under a new name. It's a direction that, in my view, may lead us down the same unproductive path we've been trying to avoid.


By creating unique definitions and criteria for social enterprises, we may inadvertently create an exclusive club that limits resource access to a select few. This would be counterproductive, merely reestablishing barriers rather than breaking them down.


So, what's the alternative? I suggest we open the term "social enterprise" to be as inclusive as possible. We should embrace non-profit and for-profit organizations under social entrepreneurship, welcoming any entity contributing measurable social impact, regardless of their legal form or business model.


Lastly, I envision a future where "social" becomes redundant in "social entrepreneurship." The social impact should be naturally integrated into every business's DNA, to the point where businesses will not survive if they ignore their social and environmental impact. In this sense, "social entrepreneurship" is a transitional term leading us to a new era of responsible and impactful enterprise.

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