If you’re thinking of starting an organisation with a social cause, then you might be considered a charity or a social enterprise. This depends on the way your organisation functions. 

There are a number of questions that need to be answered regarding the structure, funding, mission, and taxation for your organisation. Once you decide whether your organisation  is a charity or a social enterprise, it’ll be a lot easier to hit the ground running. 

What Is A Charity?

Charities are defined under the Charities Act 2013. A charity is an organisation that works for a social cause and does not earn a profit. Namely, a charity must meet the following requirements:

  • The purpose of a charity must follow the government guidelines on what constitutes a ‘public benefit’. Generally, most social and religious causes are considered to be for a public benefit.
  • They must not be for profit. A charity cannot earn an income by selling a service or product.  
  • Charities cannot have a disqualifying purpose. This means that a charitable organisation cannot promote activities which are unlawful or support particular political parties.

The Australian Charities and Not-for-profits Commission (ACNC) regulates charities and other not-for-profits in Australia, so it’s a good idea to read through their website if you want to set up a charity.                                                                                                                        

What Is A Social Enterprise?

Social enterprises are businesses with a philanthropic cause. Organisations that identify as a social enterprise engage in trade and have an income. Their business model will have one or more elements to it that will put their mission values into practice.

Example
Let’s say a small grocery store has opened to help decrease unemployment in their community. To do this, they only hire workers from vulnerable backgrounds. This way, they are considered a social enterprise. This is because they are still making a profit, while achieving social good. 

A business that sells jewellery donating a portion of their profits every month to an environmental movement can also be categorised as a social enterprise. 

What Is The Difference Between A Charity And A Social Enterprise?

There are stark differences between charities and social enterprises. Both types of organisations are committed to engaging in social change. However, the way they commit to their mission is different. 

Charities work with no profitable goals. Social enterprises utilise their business structure for a compassionate purpose, but still make a profit. 

Mission

The guidelines for a mission differ for a social enterprise and a charity. As mentioned above, a charity must follow the guidelines set in the Charities Act 2013. Their organisation must be solely dedicated to their mission.  

A social enterprise, however, is not limited by guidelines. An organisation functioning under the label of a social enterprise is not responsible for ensuring its mission meets the requirements of being considered a ‘public good’. As a result, the mission for a social enterprise can be any social, political, economic or cultural cause.

Registration

A charity can be registered in one of three ways:

  1. As a public company
  2. As an incorporated organisation
  3. As a registered Australian body

Each one of these has their own requirements and benefits, so it’s up to the individual organisation to decide which one suits them best.

A social enterprise is essentially a business and will need to be registered as one. If you’re in this position, it’s important to consider the nature of your business activities as this will help you choose the best structure. 

How Do They Get Funding?

Generally, charities get funding through donations and social enterprises earn profits. Grants are also available for both organisations, depending on each business. For the most part though, donations for charities and profits for social enterprises are what keeps these organisations functioning financially.

Organisational Structure

The organisational structure for both will differ. If a charity registers as a public business, they will need multiple people to fill out certain roles (for example, a secretary). A social enterprise will generally appear as a regular business engaging in the selling of products or services, and their mission may be targeted through the structure of their business.

Types Of Charities

WIRES Wildlife Rescue is an example of a charitable organisation. They are fully committed to the rescue of wild animals in Australia, their organisation is for public benefit and they rely on public donations to do the work they do.

Another example is the National Breast Cancer Foundation. They are committed to raising awareness about their cause and all funds go towards people in need of research, which comes from public donations.

Types Of Social Enterprises

There are a number of ways in which a social enterprise can use their business to promote a philanthropic cause.

For example, Trade Mutt is a business which sells T-shirts to start conversations about men’s mental health. In this case, their business is selling t-shirts however, their overarching purpose is to raise awareness and release the stigma surrounding men’s health. 

Magpie Goose sells dresses with Aboriginal print and textures to empower the first nations community. Their business prides themselves on creating employment opportunities for aboriginal people in rural communities.  

Tax Concessions

Tax concessions allow businesses or organisations to pay no or less tax. Charities are able to apply for an income tax exemption and do not have to pay any taxes. Social enterprises can also have tax concessions of their particular business qualifications.

Is A Charity A Social Enterprise?

No, a charity cannot be considered a social enterprise. By definition, social enterprises engage in trade in order to gain profits. For an organisation to qualify as a charitable, they cannot earn an income from any goods or services they might provide.

Which Classification Is Right For My Organisation?

Knowing the source of income, organisation structure and purpose is key in deciding which classification is right for your organisation. If you’re a social enterprise, thinking about how the business will inform the mission is essential. A social enterprise may or may not engage multiple ideas into their company structure.

A charity must adhere to the guidelines provided by the legislation. As a result, different questions such as the funding, donations, grants, community support are all valid questions when deciding how to classify your organisation. 

Can These Organisations Be Considered Ethical Businesses?

A social enterprise or a charity is not to be confused with an ethical business. The former two use their respective organisation to promote their mission, an ethical business engaged in business practices that aim to reduce their harm on the world. 

For example, a clothing brand only makes products from recycled materials.

Next Steps

There are multiple factors to consider when deciding whether to categorise your organisation as a charity or a social enterprise. The income, registration, grants and structure of the organisation are wholly dependent on what you decide to call it. Each one has their own relevant process. 

If you would like a consultation on your options going forward, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.

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