how to kick start a social enterprise
DESCRIPTION
How to Kick Start a Social Enterprise. Joanne O’Brien Carne Reidy Herd Lawyers Level 10, 193 North Quay Brisbane Qld 4000 P: 07 3236 2900 E:[email protected]. CONTEXT. Sourcing finance Delivery of products & services Marketing Employees & Volunteers - PowerPoint PPT PresentationTRANSCRIPT
How to Kick Start a Social Enterprise
Joanne O’BrienCarne Reidy Herd LawyersLevel 10, 193 North QuayBrisbane Qld 4000
P: 07 3236 2900E:[email protected]
Carne | Reidy | Herd
CONTEXT• Sourcing finance• Delivery of products & services• Marketing• Employees & Volunteers• Legal structure to support desired aims
outcomesLEGAL COMPLIANCE
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WHAT IS SOCIAL ENTERPRISE?• NFP organisations were engaged in social enterprise
long before it had a name• Economic and social factors have created an increased
need– Reduced government funding– Increased focus on profit in the market
• Growing field of academic study & research• Plethora of definitions
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WHAT IS SOCIAL ENTERPRISE?• A more creative capitalism that can adapt business
and the market to better address unmet social needs.
• Non-loss businesses with social objectives
• Profit for purpose
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LEGAL STRUCTURE• What legal structure will you use?• Options:
– Operate within your existing structurePossible regardless of whether you are a company
limited by guarantee or an associationEstablish a separate business unitIts own reporting lines
– Establish a new separate legal entity
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IN HOUSE OPTION
• Advantages– Minimal establishment costs– Utilises existing staffing & financial reporting
frameworks– No changes at Board level– Surpluses become part of general revenue &
can be utilised for core purposes
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IN HOUSE OPTION
• Potential problems– Impact on charitable status– Impact on tax endorsements – Risk to core business
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CHARITABLE STATUS• Distinction between being a charity and being
entitled to tax exemptions• ACNC determines charitable status• ATO determines entitlement to tax exemptions &
concessions• But if an entity is not registered with ACNC as a
charity, it is not entitled to ATO endorsement• Must maintain registration with ACNC
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MAINTAINING REGISTRATION• Entity must continue to:
– Operate on a NFP basis;– Pursue charitable objectives;– Meet requirements of sub-type;
e.g. PBI– Report to the ACNC;– Keep records; and– Comply with governance standards
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CHARITABLE STATUS
• Charities Act 2013• Passed by both houses of Parliament on 27
June 2013• Commences 01 January 2014• Query impact of Federal election
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CHARITIES ACT 2013• Statutory definition of Charity
– Not for profit– All of its purposes are charitable purposes or– Purposes incidental or ancillary to & in furtherance
or in aid of charitable purposes– No disqualifying purposes– Not an individual, political party or government
entity
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CHARITIES ACT 2013• Charitable purpose
– Advancing health, education, social or public welfare, religion, culture
– Promoting reconciliation, mutual respect & tolerance– Promoting or protecting human rights– Advancing the security or safety of Australians or
the Australian public– Preventing or relieving the suffering of animals
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CHARITIES ACT 2013• Charitable Purpose (cont’d)
– Other purpose beneficial to the general public that may reasonably be regarded as analogous to or within the spirit of the above;
– Promoting or opposing change to law, policy or practice in Australia or another country.
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CHARITIES ACT 2013• Public Benefit
– Satisfied by purposes directed to benefit the general public or a sufficient section of the general public
– Tangible or intangible• The aim is that the benefit should be widely available
and not directed to people closely connected with the entity e.g. founders, trustees, employees
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IMPACT ON REGISTRATION• Issues to consider:
– Is the enterprise an activity undertaken in pursuit of the entity’s charitable purposes?
– Does the entity’s Constitution need to be amended to allow for this activity?
• If the enterprise does not fit within the charitable purposes as set out in the constitution then other structures will need to be considered
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UBIT• Unrelated Business Income Tax• Better Targetting of NFP Tax Concessions• Start delayed to 1 July 2014• Response to the Word Investments Case• Profits generated from business activities
must be directed to charitable purposes
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OUT HOUSE OPTION• Set up a new separate legal entity to operate
the social enterprise• Alternatives:
– Company limited by guarantee– Proprietary Limited company– Incorporated Association – Trust
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COMPANY ALTERNATIVES• Minimum requirements:
– Public Company (Ltd)3 Directors 1 Member & that can be a corporate member
– Private Company (Pty Ltd)1 Director 1 Shareholder
– Both can be NFP but that would negate the main advantage of a Pty Ltd company
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COMPANY ALTERNATIVES
• The main distinction between the two company types in this context is the ability for a private company to distribute dividends
• A company limited by guarantee can only use its income to further its objects
• One of those objects can be “To contribute funds to XYZ Foundation/Ltd”
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COMPANY ALTERNATIVES• Issues:• Registration as a charity with ACNC?• Entitlement to tax concessions?• Who will be the Directors?
– The whole Board of the parent; or– Sub-set of the parent Board; or– Individuals with particular skills + a representative of
the parent Board
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COMPANY ALTERNATIVES
• How those issues are resolved depends on:– The nature of the enterprise; and– Its dominate objective:
To generate funds; orTo provide social outcomes
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CASE STUDY 1• Aged Care Provider Ltd• PBI• Operating a construction business• Building for itself & other Providers• Builder’s Licence required minimum asset ration that
could not be met because of the accommodation bond liabilities
• Large cash reserves
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CASE STUDY 1
• The Solution:– Amend Constitution to allow the entity to set up an
enterprise– Register a Pty Ltd company– Issue shares equal to the cash injection required –
minimum amount to secure BSA Licence– CEO became the sole Director
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CASE STUDY 2• Endorsed environmental organisation• Incorporated Association• Aim was to reduce reliance on government funding• Used expertise to secure private contracts• Delayed establishing a separate entity until
satisfied it would be successful• Costs associated with financial reporting became a
burden
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CASE STUDY 2• The Solution:
– Amend Constitution to allow the entity to set up an enterprise
– Register a Ltd company– Objectives included providing funds for the Association’s
charitable fund– Association became sole member– Lent the capital built up in the parent to the new company
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CASE STUDY 2
• The Solution (cont’d):– Association continued to provide
administration functions– Documented arrangements through loan
agreement & service agreement
Thank YouJoanne O’BrienCarne Reidy Herd LawyersLevel 10, 193 North QuayBrisbane Qld 4000
P: 07 3236 2900E:[email protected]