Social Enterprise Structures

Organizational Structure

A social enterprise may be structured as a department, program or profit center within a nonprofit and lack legal definition from its parent organization. It may also be a subsidiary of its nonprofit parent, registered either as a for-profit or nonprofit. Many organizations use a mix of different structures simultaneously.

This section further discusses three types of social enterprise structures vis-à-vis its relationship to the parent organization:

  • Structured Internally
  • Structured as a Separate Entity
  • Structured as the Same Entity

Legal Structure

A social enterprise may be incorporated either as a for-profit or a nonprofit. It is however important to recognize that social enterprises are not defined by their legal status: legal status may be arbitrary. A social enterprise’s structure or model is not a definitive determinate of its legal status.

The decision to incorporate the social enterprise separately from the parent, and then to do so as a for-profit or nonprofit is driven by one or more of the following factors:

  • Legal Environment
  • Regulatory Environment in Emerging Market Countries
  • Access to Capital
  • Capitalization
  • Leadership Decision

Ownership Structures

Three different types of social enterprise ownership structures exist: private, public and collective. Ownership can be either a driver for a social enterprise's legal structure or a determinate of it. In most counties nonprofits are considered "public good" or property of the public, thus calling into question the legal ownership of their assets, goodwill, brand, etc.

Public ownership may be practiced in the form of decision-making and participation as long as the organization is a going concern. Similar to traditional nonprofits, a public ownership structure indicates that governing board of directors directs strategy and financial oversight. Legally, nonprofit ownership becomes an issue if the owner(s) wants to sell the social enterprise, or close it and liquidates the assets.

Private ownershipof a social enterprise offers benefits of equity financing, unambiguous asset ownership and valuation, and the freedom to sell the enterprise. Conflict can arise between fundamental motives of profit-making and mission. For-profits must minimally breakeven and often have tax liabilities, limiting the type and purpose of the enterprise to more productive and financially driven models than those that may serve a social need, yet run at a deficit.