Due to the broad range of activities which can fit under the concept of ‘social enterprise’, they can take almost any legal form. Rather than give in depth information about each type of legal structure some real life examples of operating social enterprises are presented. You should seek legal advice on what legal structure you should adopt for your proposed enterprise.
Below are some of the examples of social enterprises represented in interviews by Associate Professor Jo Barraket and Heather Anderson of the Australian Centre for Philanthropy and Nonprofit Studies (ACPNS) for their research paper 'Developing strong social enterprises: a documentary approach’ published in November 2010. You can read a full copy of this paper or watch a short video about the enterprises.
You can find more information about setting up a community organisation in the Community Door section: Start a community service organisation
Case study 1: Biddy Bags, Brisbane: Company limited by guarantee
Biddy Bags was started by Samantha Jockel, a former youth worker, to bring together the skills of socially isolated older women with a younger generation’s interest in quality handcrafted goods. It is based in Brisbane, and manufactures products like iPod holders, bags and tea cosies. Biddy Bags currently employs six women.
Biddy Bags is a non-profit company limited by guarantee. A company limited by guarantee (CLG) works differently from most companies, which are owned by shareholders. The members of CLGs agree to ‘guarantee’ (pay the company’s debts) up to a certain dollar amount. A CLG cannot raise money by issuing shares, or give dividends to its members. CLGs are considered to be ‘public’ companies under Australian law, which usually have the strictest rules, but the CLG rules are specially designed to make running one easier for organisations with fewer resources. For example, a ‘small’ CLG (revenue less than $250,000 and not a deductible gift recipient) does not have to prepare or submit financial or directors’ reports at all, as long as neither ASIC nor a member requests one.
Case study 2: Reverse Garbage, Brisbane: cooperative
Reverse Garbage collects industrial discards from around 300 businesses, and sells them to the public from its Woolloongabba warehouse. In this way, it prevents about three tonnes of usable material from going to landfill each week. Reverse Garbage also runs awareness workshops with school students, and hosts a gift shop stocking goods by local artists and craftsmen made with at least 75 per cent re-used materials.
Reverse Garbage is a cooperative. Cooperatives are organisations based on voluntary, democratic participation. Members contribute and control the property of the group, with income used to develop the cooperative, for activities members want to support, or proportionally returned to members. They may be run by and for their members, but must also operate out of community concern. Once registered, they become a special kind of company. A trading cooperative has a share capital and gives returns to members. A non-trading cooperative does not give returns to members, and may or may not have share capital.
Case Study 3: Yackandandah Community Development Company, Victoria: public company
The fuel station in the small town of Yackandandah was about to close down so a few members of the community used their own money to buy it, and run it for the benefit of the community. The company now sells hardware, produce and farm products as well as fuel. Shares are mostly held by members of the local community; the company gives 50 per cent of profits to its shareholders, and the rest to community projects.
Yackandandah Community Development Company is an unlisted public company (not listed on the stock exchange). Companies limited by shares are registered under the Corporations Act 2001 (Commonwealth) and report to ASIC. They can operate on ‘for profit’ or ‘not-for-profit’ basis and may be either a private or public company. If private the company must have no more than 50 non-employee shareholders and must raise funds privately. If it is a public company then it will be subject to investor provisions e.g. financial and audit reports must be lodged with ASIC as well as an Annual Report and an AGM must be held. Member liability is limited to the unpaid amount on shares owned in the corporation.
Case Study 4: The Social Studio, Melbourne: incorporated association
The Social Studio uses fashion production and retail to offer employment, education, community engagement and social inclusion to refugee youth in Melbourne. It offers training in retail, fashion and hospitality (through its attached cafe), formal study in the form of a Certificate III in Clothing Production, apprenticeships and traineeships. In addition, most of the materials used in the Studio are recycled – off cuts from industrial production, or donations – and the Studio facilitates other support services like counselling, tutoring and driver training.
The Social Studio operates as an incorporated association. An incorporated association is essentially a group of people forming an entity which has gone through its state’s registration process to give the group a legal identity of its own, so that the association itself can sign contracts, sue people and be legally responsible for its actions. Incorporated associations cannot return profits to members, and in some states, must be run for one of several allowable purposes – e.g. a ‘community’ purpose. An incorporated association is run by an elected management committee. The rules for incorporated associations are different in each Australian state/territory.
Case Study 5: Gumala Aboriginal Corporation, WA: Aboriginal Corporation
Gumala Aboriginal Corporation (GAC) was formed in 1996 in the process of negotiating the Yandi Land Use Agreement with a subsidiary of Rio Tinto. GAC has more than 1200 members, and seeks to reduce poverty and develop the Banyjima, Innawonga and Nyiyaparli communities while remaining true to its members’ values and culture. GAC’s activities are diverse, including:
- administering Gumala Investments Pty Ltd, which is the trustee of benefits received from the mining company on the community’s behalf
- Gumala Contracting, an earthmoving, contract mining and other road/landscape works company. Part of its mission is the employment of local people
- Karijini Eco Retreat, a tourism business
- ESS Gumala, the third largest catering company in WA
- The Housing Strategy – sourcing affordable housing for GAC members
- Capital works in communities, e.g. playgrounds for children
- Gumala radio
Aboriginal and Torres Strait Islander Corporations are corporations established under the Corporations (Aboriginal and Torres Strait Islander) Act 2006 (CATSI Act) (Commonwealth) and registered with the Federal Office of the Registrar for Indigenous Corporations (ORIC). The laws about incorporation under the CATSI Act were written to meet the needs of Aboriginal and Torres Strait Islander organisations. Under the CATSI Act, corporations are classified as large, medium or small. Small corporations with a consolidated gross operating income of less than $100,000 have general reporting requirements only whereas medium corporations (gross operating income over $100,000 but less than $5 million) have to lodge a financial report and audit report annually as well as a general report. Large corporations or any corporation with a consolidated gross operating income of over $5 million have to lodge a general report, financial report, audit report and a director’s report each year. To register a corporation must have at least five members and have passed a resolution with 75 per cent member support.
Other types of legal structures
Unincorporated associations are groups of people who have come together for a particular purpose. These ‘associations’ may be formal or informal, small or large; unlike incorporated associations, they do not have a legal identity of their own. This can present problems if the group wants to do something like buy land, since one or more group members will have to buy it in their own name on behalf of the group. All the group’s members will be held collectively responsible for the group’s actions.
Proprietary companies are smaller companies (no more than 50 non-employee shareholders); with liability of their owners generally limited to the amount of capital they have contributed to the company, or the amount they still owe for their share, if any. They have more complicated financial reporting rules than companies limited by guarantee.