What is social enterprise?

Social enterprises are:

(i) organisations that have a social cause as their primary mission, such as poverty reduction or preserving the environment, and

(ii) use a private sector business model to sustain themselves.

A social enterprise acts as a catalyst of change, identifying social problems and introducing solutions to them.

Unlike NGOs, a social enterprise is not designed to sustain itself through donations.

Social enterprises have a revenue source similar to private businesses — anything from selling crafts to providing HIV testing services — and use that revenue to sustain their social mission.

When trying to identify a social enterprise, you can ask yourself two questions:

  • Is the primary purpose of this organisation to create social impact or to create profit?
  • Is this organisation designed to sustain itself financially using a private sector business model?

 

What is the difference between a social enterprise and…

… A social business?

Social business is a term coined by Professor Mohammed Yunus, Nobel Peace Laureate and Founder of the Grameen Bank. Yunus defines a social business as:

A non-dividend company created to solve a social problem. Like an NGO, it has a social mission, but like a business, it generates its own revenues to cover its costs. While investors may recoup their investment, all further profits are reinvested into the same or other social businesses.

In other words, a social business is a special kind of social enterprise that does not provide dividends to investors. The key idea behind a social business is that investors might be able to recover the amount of money they initially invested in the social business, but they would not be able to profit from an investment in the business.

On the other hand, there are no limitations on the dividends issued to investors in a social enterprise.

 

… Corporate Social Responsibility (CSR)?

Companies often dedicate a portion of their revenues towards social causes. How are they different from social enterprises?

The key distinction between a social enterprise and a conventional business is that the primary purpose of the social enterprise is to address a social issue, while the primary purpose of a conventional business is to maximise profit for shareholders.

Sometimes, organisations in the social sector can appear as though they are social enterprises, even if they are not. Take for example, a company manufacturing refugee tents for the United Nations High Commission for Refugees (UNHCR).

Even if that company is generating social impact as part of its activities, as long as it is set up to maximise profit for shareholders, it is a conventional business. We can only say that it is a social enterprise if it has a different kind of business model, like cross-subsidisation where private buyers of tents help decrease the price of tents for refugees.

 

Legal structure for social enterprise

In Malaysia, there is no specific legal structure for social enterprises. Social enterprises can be incorporated as private limited companies, enterprises, and associations. However, some organisations have reproduced a similar structure under the current laws. You can read about that one Malaysian social enterprise has done in this area here.

 

Next:

Why is social enterprise important?
Social enterprise business models

 

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