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Your profit distribution

profit distribution social enterprise

A key element which puts the social into social enterprise is the way you spend your profit. 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. So what is your profit distribution model?

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.

Profit distribution rules: 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%, and therefore the rest can be paid out as dividends to the traditional shareholders or investors.

Profit distribution rules: Social Traders definition

With no legal structure in Australia, things aren’t as clear cut, for example, as in the UK. Therefore many turn to the definition used by Social Traders in their FASES report. For example, it states that the majority of profit/surplus must be reinvested. Given that a majority can be 50.01%, any company that does this can be classed as a social enterprise

Profit distribution rules: Benefit Corporation

Not to be confused with Certified BCorp, this is a US legal structure with different state rules. The main difference is that the board has the opportunity to make decisions based on both financial AND social reasons. This therefore 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.

Different models, similar themes

Three countries, three different set of rules. They all protect the need for the triple bottom line. As a result, this ensures the ability to make social goals as important as financial ones. Which one goes far enough? There are arguments that dividend caps can scare off investors. However, 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. For example, you can build your social enterprise 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 profit distribution?

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