Reinvest, spend or share the wealth
A key element which puts the social into social enterprise is the way you spend your profits. Out with the idea that only shareholders or investors should benefit from the hard work of your company. Instead, it’s now time to invest in the wider community.
However as you navigate the literal world of social enterprise you will see a range of regulations or recommendations. Here we look at what exists in terms of asset locks, commitments and suggestions.
Legal structures, definition or certification
Community Interest Company (CiC), United Kingdom
Over in the UK, you can legally register as a social enterprise, locally known as a CiC. Once registered, the asset lock and dividend cap come into place. These ensure that the profit is either retained within the company or used to meet its social or environmental goals. This currently stands at 65%, meaning the rest can be paid out as dividends to the traditional shareholders or investors.
Social Traders definition, Australia
With no legal structure in Australia, things aren’t as clear cut as in the UK. Therefore many turn to the definition used by Social Traders in their FASES report, where it states that the majority of profit/surplus must be reinvested. Given that a majority can be 50.01%, any company that does this, either through reporting or constitutional locks can be classes as a social enterprise
Benefit Corporation, United States
Not to be confused with Certified BCorp, the Benefit Corporation is a legal structure with different rules on reporting per state. The main difference is that it gives the board the opportunity to make decisions based on both financial AND social reasons. This signifies a shift from the previous focus on a financial duty to shareholders. However there is nothing related to paying out dividends nor reinvesting profits.
What’s best for social business?
Three countries, three different set of rules. They do all protect the need for the triple bottom line, to ensure the organisation is able to make the social or environmental goal as important as the financial one. Which one goes far enough? There are arguments that dividend caps can share of investors, but this is why there is now a movement in the ‘impact investment world’.
Ultimately I would say, for trust purposes with both customers and stakeholders, having a legal requirement that a set percentage has to be committed, is better. You can build your business model around this, you can plan short, medium and long-term investment on it, and you can boast about it to the world.
What do you think is a reasonable percentage for reinvestment?
Originally published at https://medium.com/@michaelfreersplit/how-much-profit-should-go-towards-your-goal-167fe95a465a