Charities/NFP - Parry Field Lawyers

From businesses doing good to charities running businesses and everything in between, social enterprise as an industry is growing up and holding its first national conference.

In 1942 the New Zealand poet Allen Curnow wrote: “Simply by sailing in a new direction, you could enlarge the world.” He was talking about the first European explorers arriving in New Zealand on their wooden ships but his statement could also apply to the expanding social enterprise movement in New Zealand.

The movement is actively pushing boundaries in the pursuit of a combination of both profit and purpose. It involves re-imagining the future of business as a means to provide incomes for employees and generate profit for owners, while also addressing social or environmental needs. In short, the organisation acts ‘for purpose’.

So where are we on the social enterprise journey in New Zealand? Is it even right to start describing this as a sector, and where does social enterprise fit in the spectrum between charity on the one side and entrepreneurial upstarts on the other? My view is that social enterprise is now charting into new territory and enlarging our understanding of the world, and that is shown by a few indicators on our map.

First, the sure sign of legitimacy for a group is a national conference devoted to gathering like-minded people together. A year ago in Christchurch the Social Enterprise World Forum was held with more than 1,600 attending. A global event held in this country was perhaps an unusual mountaintop, but it certainly kick-started a lot of discussions and planted many seeds for those who attended.

But the truest signal that social enterprise as a sector has really landed here is happening this Friday, when Wellington Zoo plays host to the Ākina-organised Aotearoa Social Enterprise Forum. The day-long event will feature an overview of the scene in New Zealand as well as 14 sessions on topics such as:

• measuring impact
• Māori and indigenous enterprise
• social procurement
• youth and social enterprise
• legal structures for social enterprises
• activating impact investment
• environmental accountability

These topics show that those involved are thinking more deeply about the real impact and implications of starting a social enterprise. They are important issues for those involved in starting or running social enterprises, although some cautions and questions I wrote about here almost a year ago still apply. The credibility of the sector will depend on social entrepreneurs having some good answers.

I’ve certainly noticed an elevation in the thinking among the 65 guests interviewed for my podcast, seeds, which focuses on social entrepreneurs. The depth of understanding about the basics of social enterprise we are seeing now has been revealing. It’s like we really are sailing in the new direction that Allen Curnow talked about, which is opening up new horizons for the possibilities of social enterprise.

Additional evidence of this local growth in social enterprise is the fact that the term itself is becoming more widely known, discussed and – most importantly – understood. That wasn’t the case even a year ago. You can also see changes in how each end of the charity/business axis is approaching social enterprise principles. For example, an increasing number of entrepreneurs are incorporating social enterprise into their standard business models. It’s clear that younger generations do this more naturally than previous ones, who were more likely infected by the “greed is good” mantra of movies like Wall Street.

A diverse range of start-ups are demonstrating this. Check out the stories of 27 Seconds, a social enterprise winery where profits go towards reducing modern day slavery (more on Alanna Chapman and their journey here), Crave Café in Morningside (Nigel Cottle’s story is here and earlier in Spinoff here), or Digital Journey which provides free resources for companies to check their internet presence and promotes better use of technology (hear Stuart Dillon-Roberts’ story here).

But what about corporates? They’re getting in on the act too. NZ Post recently introduced a new “Social Procurement” strategy as a way for it to interact and engage meaningfully with social enterprises. Earlier this year it won the Sustainability Project of the Year award at the New Zealand Procurement Excellence Awards for its efforts in this area. There are many other private, public and not-for-profit entities also interested in pursuing a social procurement approach in New Zealand. It’s an encouraging trend: a large customer base that social enterprises can sell their goods and services to will be vital for their long term success.

Over in the ‘traditional’ not-for-profit world, many charities are realising that grant funding can only go so far, and they are exploring other ways (including setting up businesses) to achieve their charitable purposes. An example is Pathway, a charitable trust that helps prisoners reintegrate into society. Pathway has two companies which operate for profit while also providing employment for the very group the trust is focused on. Other examples of larger charities operating businesses are Trade Aid and Kilmarnock, both of which provide employment opportunities for those with disabilities (hear an interview with Kilmarnock CEO Michelle Sharp here and read more here).

It would be remiss not to mention the other big growth area, impact investing. Social enterprises need funding to start and grow. New Zealand now boasts its own impact investing network and earlier this month it was announced that the Impact Investing National Advisory Board of Aotearoa New Zealand has become a member of the Global Steering Group for Impact Investing. A real-life example of this trend here is the Impact Enterprise Fund that had a first close of an impressive NZ$8 million. Impact Ventures’ Chris Simcock is currently working on finding investment opportunities for that fund and he explained how this whole area is evolving in New Zealand when I spoke to him recently. Another local example is the work of Soul Capital which invests in social enterprises.

Lastly, it is heartening to see that business in general is becoming more aware of social enterprise concepts; it may be that more organisations will self-identify as social enterprises in the near future. Research is currently being undertaken on whether options including new legal structures to empower social entrepreneurs would help the sector grow. Enabling organisations (whatever their legal form) to act with purpose and helping them articulate, clearly communicate and report on their purpose will become increasingly vital. There is also a growing realisation of how important it is that the work of social enterprises not become isolated as something “they do”. Instead the ethos behind the movement must be encouraged to permeate the mainstream business world as well.

It really is an exciting time to be involved with social enterprises as we further expand the boundaries and explore what it means in the New Zealand context – for example, what businesses can learn from Māoritanga that is unique and distinctive.

It will be fascinating to watch what emerges from the hui this week in Wellington as more connections are made among those who attend. The social enterprise sector is here to stay. I hope those on the journey will continue to sail in new directions and in doing so the world will keep enlarging as we push out further and discover more about the power of doing business that also does good.

This article for appeared in The Spinoff

Trustee Duties

The Trustees have certain duties and liabilities placed on them under the relevant Trust Deed, New Zealand Legislation and Common Law (decisions of the Courts in New Zealand and Overseas). These duties include:

– to know the trust deed, the trust assets and liabilities;
– to advance charitable purposes;
– fiduciary duties of honesty and loyalty and acting in the best interests of the trust;
– exercise care, skill and prudent diligence;
– act impartially amongst beneficiaries;
– to sell wasting property;
– to exercise reasonable care;
– to insure assets and keep property safe;
– to keep inventories;
– to invest within a reasonable time;
– to repair trust property;
– to invest prudently;
– to not delegate;
– to act jointly where there is more than one trustee;
– to not profit from trust property;
– to be accountable; and
– to be honest, loyal, diligent and prudent in carrying out the terms of the trust.

If you would like further explanation of any of these duties, please get in touch with us.

Generally a charitable trust will have between 3 to 7 trustees. Usually trustees are a mix of professional executives and non-executives. They will be held to the same standard of care in their actions as applies to directors of a business (there is not a lower standard due to it being a charitable trust).

Trustee Liability

Trustees are representatives of the Trust. As noted above when discussing duties, they act as fiduciaries who hold the trust property for the benefit of the charitable purpose set out in the deed. It is important that trustees clearly understand what those purposes are and do not overreach and act in a way that is further than what was set out in the deed. If trustees fail to perform their duties then they may be subject to proceedings taken out by interested persons. Ultimately the New Zealand Attorney General has certain rights as the ultimate power ensuring accountability. It is common for trust deeds to include some limits on trustee liability. However, as mentioned before it is possible that trustees will be jointly and severally liable where a trust fails to account for GST, ACC levies or PAYE payments.

Every situation is unique so please discuss your situation with a professional advisor who can provide tailored solutions to you. We offer advice on all aspects of charitable trusts and are happy to answer any questions that you might have. Contact Steven Moe at stevenmoe@parryfield.com or 03-348-8480 for more information.

This article is the second in a series on charitable trusts. To have a look at our first article which sets out the advantages and disadvantages of charitable trusts, click here.

Requirements for a Charitable Trust

At the very least, a charitable trust must:

– have a charitable purpose;
– have trustees to administer the trust;
– have a registered address in New Zealand;
– be internally managed by a trust deed;
– keep a record of trustee meetings through minutes and resolutions; and
– keep proper financial records.

Annual returns and Auditing

A charitable trust will be required to submit annual returns that vary in requirements depending on the tier of charity. This varies as follows:

– Tier 1: Over $30 million expenditure;
– Tier 2: Under $30 million expenditure;
– Tier 3: Under $2 million annual expenses; or
– Tier 4: Under $125,000 annual operating expenses.

Regarding the auditing of accounts, if the total operating expenditure for the last two accounting periods was:

– over $500,000 – financial statements must be either audited or reviewed by a qualified auditor; or
– over $1 million – financial statements must be audited by a qualified auditor.

Charities Services

After your trust board is incorporated, you may apply to Charities Services to register as a charity. Once you are registered with Charities Services you will engage with them in relation to ongoing compliance requirements such as annual reports and notifying changes. The following areas need to be updated if there are changes:

– the name of the charity;
– a change in the officers;
– the rules;
– the address for service;
– the purposes of the charity; and
– the balance date.

These changes can be made online rather than by filing paper forms.

After a long period that involved several rounds of consultation and drafts, the IRD this week issued their views around the meaning of “wholly or mainly” as it relates to tax donee organisations operating in New Zealand. We were sent a copy of the fact sheet and statement because we were involved in the consultation process and provided feedback on this so this is a short news flash – a more detailed analysis will follow.

As at the time of writing the documents are not yet available on the IRD website and we will include a link to that soon. In the meantime, if you would like a copy of the fact sheet email stevenmoe@parryfield.com for more information.

Prior to this interpretation statement, 50% was the figure accepted as being “wholly or mainly” that was used to determine if an organisation was operating in New Zealand in order to be eligible for tax donee status – that is, it needed to apply its funds to specified purposes within New Zealand. So, if it applied 51% or more for purposes overseas it was not operating “wholly or mainly” in New Zealand.

This figure has now changed to 75% – a substantial difference potentially particularly in the context of aid organisations or Church groups because if they apply funds of say 30% to overseas purposes then they will potentially not be tax donee organisations. At one point it had been proposed that the figure be increased to 90% so it is good to see it is lower than that but it will still have impact on many organisations who support work offshore.

This interpretation statement will apply from the beginning of an organisation’s 2019/20 income year so you should consider if there will be impact on your operations prior to that point. For example, some groups may want to potentially look to implement some giving before it takes effect.

There will be a “safe harbour” regime which involves looking beyond any one year to take into account dips or unusual increases (eg due to natural disasters overseas).

We are preparing a more detailed analysis and summary and will post this in the coming week so check back for more.

What is a Charitable Trust?

In New Zealand a common form that a charity will take is a charitable trust. These are used where there is not a “profit” motive for private gain for an individual from the activities of the trust. The regulator is both Charities Services (which registers charities if they meet legal criteria under the Charities Act 2005) and the Registrar of Incorporated Societies (which approves the incorporation of the trust boards under the Charitable Trusts Act 1957).

A registered charitable trust has the following key features:

– it is a separate legal entity;
– the liability of trustees is limited if the trust board has been incorporated;
– there is some cost involved in establishing the trust as certain documents are required but there is no cost to registering it; and
– there are ongoing reporting and administrative requirements.

Some Advantages

1. Separate Legal Entity

A charitable trust board which has been incorporated is a separate legal entity which can contract with others. A settlor (sometimes called donor) is needed to provide the initial amount which is how the trust is created (this is often a nominal figure such as $10).

2. Limited Liability

The liability of trustees is limited if the trust board has been incorporated. It is also common for a trust to provide indemnities for its trustees and officers and to take out insurance. Note, however, that trustees will be personally jointly and severably liable for certain taxes (GST, ACC levies, PAYE).

3. National Registration

New Zealand does not have a state-based system like Australia, so when a charitable trust has been registered by Charities Services that is a national registration.

4. Purposes are Restrictive

A charity in New Zealand must act to further its purposes which are set out in a trust deed. To be accepted as a registered charity those purposes must be charitable as defined in New Zealand law (which includes advancing religion). The charity cannot distribute funds or assets for the private gain of any individuals.

5. Powers of Trustees

Trustees can have a wide range of powers depending on how they are written in the Trust Deed. They can include matters such as use of funds, purchasing property, accepting money and carrying on a business.

Some Disadvantages

1. Establishment Costs

A charitable trust has some costs involved to set it up (usually more than $2,000.00 NZD). A lawyer will likely be involved to make sure that the purposes are charitable according to New Zealand law. They can also provide ongoing advice on the trust’s ongoing regulatory and filing requirements.

2. Disclosure and Reporting Requirements

A registered charity will have reporting requirements which can vary depending on their size (there are four tiers). There are financial reporting and auditing obligations on registered charities.

Every situation is unique so please discuss your situation with a professional advisor who can provide tailored solutions to you. We offer advice on all aspects of charitable trusts and are happy to answer any questions that you might have. Contact Steven Moe at stevenmoe@parryfield.com or 03-348-8480 for more information.

Until recently, not many people knew what a social enterprise even was. But in the last few years there’s been a growing awareness of companies that pursue “for purpose” objectives beyond the traditional profit motive. Often, these companies are able to reinforce and grow the communities they operate in, often meeting social needs which might otherwise have resulted in state-sponsored intervention or social programmes. Simply put, they do good.

While the term ‘social enterprise’ itself is relatively new, the fundamental concepts behind it are not. We are still at the early stages of the growth of the social enterprise sector here in Aotearoa. What better time to think about how Māoritanga – Māori culture, practices and beliefs and way of life – can help flavour our particular recipe?

By examining some of the key principles of Māoritanga, we can better understand what social enterprises are – and what they could be.

Here are some examples:

Kaitiakitanga

Kaitiakitanga is the guarding of treasures and the concept of reciprocity and giving back. When creating a social enterprise it is vital that the purpose is well defined, understood and articulated for others. That purpose then needs to be closely guarded so that there is not a slow creep away from the core values in the midst of either success or failure – either extreme lends itself to a reframing of what the entity stands for. Keeping a sharp focus on the purpose of a social enterprise is a discipline: guarding the treasure.

Mōhiotanga

Mōhiotanga is the sharing of information, the building up of knowledge, and the provision of new information and strategies. In order for a business to succeed there is a lot of information which needs to be absorbed – and this is particularly true of social enterprise, which challenges the traditional way of doing things. The early days of a social enterprise are critical as the right structures are chosen, the team is assembled and the vision cast.

Tuakana/Teina

Tuakana/teina refers to relationships between older and younger people, and in particular the experienced helping those who are less experienced. This is reflected in many social enterprises with community elements where more experienced people work alongside – and support the career growth of – those who have less experience.

Manakitanga

Hospitality, kindness, generosity and support. The process of showing respect and care for others directly relates to the altruistic and community focus of social enterprises. Often these social enterprises exist to meet some need in society through the business operation itself – for example, the type of person who is employed or the kind of product made.

Wairua

Wairua is spiritual well-being that involves a connection to our whenua (land), ngahere (forests), moana (sea), maunga (mountains) and awa (rivers). Many social enterprises consider natural resources and how they use them (or don’t). From the first, they focus on their impact on the environment and how they can operate in a sustainable way.

Mātātoa

Mātātoa is the Māori concept of being fearless, courageous and energetic. In a similar way, social enterprises need to be open to embracing new and innovative ideas that generally go against an established way of doing things. They often challenge the inbuilt assumption that a business is all about making a profit as they strive to also fulfil their purpose, which is usually the real driver.

Social enterprises have a unique opportunity to do something different here in Aotearoa; embracing the perspectives of Māoritanga and understanding their full breadth and impact could help us achieve just that. Instead of doing things the same way as every other country, we should try a new way of operating. The result could be a truly homegrown version of social enterprise which acknowledges and learns from our own rich cultural heritage and embraces it fully as a means to explain what we do and why we do it.

Tihei mauri ora!

This article was originally published on The Spinoff: https://thespinoff.co.nz/business/21-08-2018/what-social-enterprises-in-aotearoa-can-learn-from-maoritanga/

Legal Mashup recording now available: Kris Morrison and Steven Moe talked about what a social enterprise is, best legal structure options for them, the charitable option, governance, board size, liability, intellectual property, overseas considerations, employment, start-up issues .. a lot was covered!

“To go fast, go alone. To go far, go together”

Returning from a conference it is always important to reflect on some of the themes and key learnings while they are fresh. I’ve just come back from three days at Te Papa with around 500 attending the biennial Philanthropy Summit 2019 which is organised by Philanthropy New Zealand. This post describes the highlights and gives a chance to type out some reflections.

Overview

In this post I am going to explain what I attended at the conference (info here) and set out any key learning from that – perhaps the particular stream of which of the four workshops I chose and what I took from the keynotes will even help others who attended and went to different sessions. Also, I am linking within this post any of the content I recorded (with permission) so that others can benefit from it, if they choose to do so. I host a podcast called seeds which is a platform for sharing interviews about inspiring people as well as other challenging content that helps build up the ecosystem of knowledge here in New Zealand. Where a session was recorded on video will add those links too. The reason for making the effort to record and democratise access to the information is that I have been challenged by Kaye Maree Dunn recently who asked in a Korero, “so, who is not in the room??” When we are having our discussions this is important to ask – and the follow up is how can we at least make content more accessible to those who are not able to attend for whatever reason. Seeds is one way to empower those who could not be there by spreading the knowledge.

Conference Overview

The theme was “The Future of Trust” and the conference was organised by Philanthropy New Zealand with 19 sponsors such as AMP Capital (and a big shout out to Rebekah Swan and Emily Woodland who invited me along). I enjoyed attending the conference because it got me out of the silo of only being with other lawyers or professionals – there were few of those here. Instead, those in attendance were mainly from large and small Community Trusts, private family foundations as well as people on the ground working in a variety of charities and social enterprises. Keynote speakers included Sir Stephen Tindall and Dr Jane Goodall – there were 9 key notes in total. There were also many workshops with 4 sessions of breakouts and 8 running at each for a total of 32 sessions. I counted in the program at least 140 different speakers who were involved in delivering content and there were around 500 who attended.
The event was curated well with a particularly noticeable and really beautiful strand woven through of Te Ao Maori that went beyond mere tokenism – for example, not only did key note speakers have a song sung for them when they finished, some of the topics tackled were thorny and not easy to grapple with (such as one key note “Undoing colonialism to do good: building constructive relationships between philanthropy and tangata whenua”). That session (discussed below) really raised the difficult – often ignored – issues around the current state of our society.

My hat is off to all of the volunteers and organisers led by Sue Mcabe and Yvonne Trask. These events take a lot of mahi – the content described below is good but just as important are the connections made over coffee or lunch, collaborations started and ideas shared that may only have measurable ripples some years in the future. It is possible that thought leaders in an area have connected with others and through challenges received each of their research and understanding will go deeper. The “vibe” in the room was not one of white privilege giving out grants – instead questions were being asked of how change can be empowered and enabled at a structural level and new ways of thinking about philanthropy encouraged – both from a Te Ao Maori perspective as well as looking to the next generation and harnessing their ideas as well as recognising the diverse ethnic communities in Aotearoa.

The Themes

As a way to break down the main theme of “The Future of Trust” there were many breakout sessions that you could choose from often centred around the following four themes:

• Future trends in Philanthropy: What changes are coming?

• Building trust: engagement and relationships and how to build them to in turn build capability

• The work we do: the “how-to” and a focus on the practical side to enable bigger change

• Impact: what difference are we making and how do we know?

Dinner: Disruption and the future of Philanthropy

First up for me was a dinner hosted by Sam Stubbs from Simplicity. This was an intimate discussion over some really good food with the focus on disruption and technology and how it is changing the face of philanthropy – and how it might change even more. Sam explained how Simplicity works and how it would not have been possible even a few short years ago. Operating a Kiwisaver scheme where a large amount is given away to charities is a unique business model for sure. We had an interesting debate about whether they are a social enterprise or not, probably concluding that the terms fade in importance when what you ultimately need to consider is “impact” and how it is reported on – the word I am hearing more and more these days (and using myself!). I encourage you to check out what they are doing as they are seeking to disrupt the traditional banking models and drive lower prices for consumers while also doing good. It was an engaged group

Key discussion points:

• The next generation is not trusting institutions and looking for online recommendations/social media guidance – threat and opportunity;
• Consumers have desire to do good with their dollar and technology enables them to do that;
• What form does new reporting take on impact?;
• Is there a new paradigm coming where business itself is transformed (see Akina report “Structuring for Impact” released in April here and discussed in detail here).

Key note: “The future of people, planet, money and technology”.

The next morning the first keynote discussed “The future of people, planet, money and technology”. There were four speakers who provided different perspectives on each aspect of that. An interesting perspective was provided by Matthew Monahan who had sold his tech start-up in America and moved to New Zealand several years ago. He talked about his philanthropy journey and helping set up the Edmund Hillary Fellowship here. Each of the other speakers (Rod Oram, Shamubeel Eaqub and Tahu Kukutai) shared their concerns about the state of our world and the need to take action individually and collectively if we want to halt the big issues facing us of climate change, economic disruption and relations between Maori and Pakeha.

Key discussion points: We have the data, we know the state of issues like climate change – what next? Do we inherit the planet from our parents, or hold it as guardians for our children?

Brave ideas

Interspersed through the days were 5 minute talks which provided short challenges. These were:
• Lani Evans from the Vodafone NZ Foundation: Declaring our intentions and launching the NZ Youth Accord – see www.nzyouthaccord.org
• Manaia King and Chelsea Grootveld from JR McKenzie Trust: On Internatioaln Funders for Indifenous People
• Sam Stubbs from Simplicity on whether companies love their shareholders more than their community
• Leighton Evans from Rata Foundation on the idea of a tradeable impact investment market
• John McLeod from J B Were on The changing shape of giving in New Zealand.

The talks by Lani, Sam and Leighton are going to be put up as a short podcast episode on seeds in the near future so be watching out for that…

Breakout 1: Investment trends and the case for impact investing

This whole breakout has been released as a seeds podcast bonus episode here because I thought the content was great and deserved to be heard by more than the 86 in the room on the day.

Description: This workshop will provide insights into the future of investing, and will pay particular attention to the role of Responsible Investing generally and impact investing in particular. The workshop will be interactive and will provide practical advice and useful insights for everyone with an interest in future-focussed investing.

I was fortunate enough to be able to help out with facilitating the Q&A session here and realy enjoyed that. Prior to that the four speakers, Rebekah Swan, David Woods, Emily Woodland and Clive Pedley had shared their perspectives on investment trends when it comes to impact investing. If this is of any interest then suggest you listen to the podcast episode.

Key themes and questions:

• how do you actually measure “impact” across diverse sectors and drivers;
• how you report on it – what shape will reports in the future take and will their be standards of how you talk about impact?
• What due diligence is needed into an entity beyond the usual financial checks when you are also concerned about impact?
• How do you build a community of investors who are willing to think in this way and could there be co-investment opportunities?

Key note: Undoing colonialism to do good: building constructive relationships between philanthropy and tangata whenua.

This was a two part session with Ani Mikaere (Te Kahui Whakatupu, Te Wananga o Raukawa) and a response to her talk from John McCarthy (The Tindall Foundation). Probably one of the most challenging sessions the questions being asked were cutting to the heart of our society and asking if we are perpetuating colonialism. At a personal level the challenge to me was to think more deeply about my attitudes and whether I am truly seeking to know and understand the perspective of others. For example, do I suggest that the headings in a document be translated into Te Reo when nothing else will change about the organisation? How do we deepen the engagement and willingness to listen closely and what does that mean practically? Those were some of the questions that surfaced for me while listening to this talk.
John McCarthy gave a response to the talk from Ani which showed that he had been grappling with similar questions in his role at The Tindall Foundation. I spoke to John afterwards and learned that they have been having someone come in every two weeks or so to provide guidance and training in both Te Reo but also the culture so that it can be better understood among the staff.

Key themes and questions:

• How much do we each know about the past and have we thought about what the implications are for the present?
• What does meaningful engagement look like and what shape does that take?

Breakout 2: Bridging the generational divide to redefine philanthropy

This was a fun session with four young people who have each started their own charities/businesses or gotten involved in some way with movements that challenge the old ways of thinking. The description of the session was:

Millennials are doing things differently, redefining generosity, disrupting traditional models with radical collaboration, harnessing technology and social capital to drive positive impact. But how can we work together better across generations? We know there are challenges from succession planning, to funding youth-led change. Share your questions, concerns and opportunities leading us to find common ground so that together we can re-define philanthropy. We know you’ll leave with golden nuggets to take action on!

This session was recorded on video here.

It will also be released as an audio episode of seeds soon.

Key themes and questions:

• how do you transfer wisdom between generations – is it a baton passing? Is it another wave rolling in? Do you reinvent / disrupt the old ways or adapt the old and combine with new thinking?;
• how do you identify and encourage those young people with skills coming up and give them opportunities for leadership – and potentially failure too – so that they can learn and grow;
• What does the next generation need, particularly millenials, who may want to be fluid with how they use their time and what they are supporting/

The Legal Mashup is back!

With a focus on social enterprises, not-for-profits and charities, Parry Field Lawyers will be having another free evening of discussions on the topics you want to hear about.

When? Tuesday 4th September at 6pm.

Where? XCHC, 376 Wilsons Road, Christchurch

RSVP to Steven Moe at stevenmoe@parryfield.com with a question or topic you want to be covered and we will add it tot he list and cover all we can!

We look forward to seeing you there

Social enterprises have become a trending term in the business world over the last year, as proven by the more than 1,600 delegates attending the Social Enterprise World Forum in Christchurch last year. But what are some of the concerns with the legalities of social enterprises? And what actually is a social enterprise, anyway?

What is a social enterprise?

To start with, we need to get the definition right. In New Zealand the Ākina Foundation works in the social enterprise sector and its definition is a good one: Social enterprises are purpose-driven organisations that trade to deliver social and environmental impact.

The key word there is purpose. Traditional business has had more of a focus on profit than purpose. In fact, that focus on profit is baked into our business model. For example, how important the shareholders of a company are and the focus on the directors returning profit to them.

Social enterprise flips that around and places the primary importance on purpose over profit. While these are businesses which are trading and they need a profit to continue, there is often some other reason for their existence beyond the money factor. In the past we might have relegated this ‘do-good’ approach to the realm of charities and not-for-profits. Social enterprises bring purpose front and centre and, perhaps most critically, provide a self-sustaining model for achieving good in society. Think about it – how are charities and not-for-profits operated? Often they are dependent on grants or funding streams, which may dry up over time and as the political climate or giving habits of donors shift. Social enterprises are longer-term solutions that often address real needs in a practical way. They seek to combine the heart of charity with the profit-making mindset of business.

Other factors making social enterprises different

This all may be intriguing, but what are some of the additional elements that set social enterprises apart?

1. Purpose: This should be clearly defined and set out

2. Profit distribution: A percentage should be reinvested into the purpose (how much is a point of debate)

3. Asset lock: May provide for the distribution of assets on wind-up to another similar entity acting for a comparable purpose, and

4. Reporting: Transparency and clear communication of how the purpose is being fulfilled and its tangible impact.

In New Zealand, there is no bespoke form of legal entity for social enterprises. If an entity has most of the elements above then it may start calling itself a social enterprise. In other words, there is no box to be ticked on a form or a particular legal structure that signals to the world that intention. This is in contrast to countries such as the United Kingdom, Canada and the United States that have adopted legal structures better suited to social enterprises.

Legal forms of social enterprises

Often a social enterprise will end up being a limited liability company. Some may choose to become charitable entities, either as charitable trusts or companies. There is a tension here, of course, because a charitable entity cannot return profits to investors. That means they are not the best option to raise money (investors seek a market rate return). In contrast, while a company may attract investors, it can be difficult explaining that the business has more than just profit in mind.

A good argument can be made that we need some new legal form that sits in the middle between a charity and a profit-making entity and embraces the best of both those structures. Such a ‘social enterprise company’ would certainly raise the profile of the sector and provide a means to empower those individuals who want to combine purpose and profit.

How might all this affect traditional business?

By now, you will recognise that the intention behind social enterprises is not new – people have acted in ways that go beyond profit for years. Often the outlet has been through charities (think op shops) so, in some ways, ‘social enterprise’ is just a fresh term and new way of expressing older concepts. What is clear is that it aligns with the next generation seeking purpose in their work. Often job interviews are not ending with questions such as, “Will I get a company car”, but instead, “How will my role contribute to society?”

Traditional business can learn from the approach of social enterprises and even be involved in supporting them in different ways, such as:

Social procurement: Consider how goods and services are secured. For example, at the next board retreat have lunches from a social enterprise catering company?
Purpose and vision: Whatever your business, it can be helpful to write down your purpose and vision. Get your ‘why do we do this?’ right as that can also help motivate staff, and
Impact: What is the footprint of your business? Who are your suppliers? Who do you employ? Is your corporate social responsibility policy gathering dust in a drawer?

Social enterprises are a growing force, but they will only have true impact if they can scale. To do that, they need traditional companies to better understand what they are and support them too.

Challenges ahead for social enterprises

Some of the challenges have been hinted at already such as gaining access to funding and finding buyers for the products made, or the services offered.

At the upcoming conference at Te Papa in April, Perspectives on Charity Law, Accounting and Regulation in New Zealand, there will be a session about social enterprises and where they fit in the not-for-profit world. Many charities are actively exploring what it might look like for them to start a social enterprise to diversify their income streams. Increasing education and awareness about the role social enterprises can play remains a challenge for the sector.

Another more subtle challenge is when businesses adopt the term ‘social enterprise’ as a way to entice consumers to buy what they are offering. This could result in the entire sector being discredited and dilute the true value of what the term stands for.

Looking ahead

This is more than a passing trend. The social enterprise sector is growing and it provides an alternative way of thinking about doing business. Whether or not you choose to be involved in starting a social enterprise or working for one, the principles that sit behind them have broader application to all businesses that are looking to have a positive impact on the world.

This article originally appeared on Idealog.

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