Both charities and social enterprises are purpose-driven organisations seeking some kind of social benefit, be it through advocacy, aid, fundraising or innovation. There are, however, some key differences, which we set out below.
|Is there a legal definition?||Yep, under the Charities Act, charities are entities that: (a) are not-for-profit; (b) do not have a disqualifying purpose (eg you can’t engage in activities that are contrary to public policy or promote or oppose a political party); and (c) are not an individual, a political party or a government entity.||No legal definition, but they are generally businesses that trade in the market with a goal to fulfil social aims.|
|Common legal structure||Most commonly charities will incorporate as a company limited by guarantee. The main benefits of this structure include that it is a national registration (some other structures require State based registration) and director’s liability is limited.||Often social enterprises set up a hybrid structure with a proprietary company operating its profit-making side of the business and a company limited by guarantee (or other appropriate structure) to operate its charity arm (if that is part its social aim). Social enterprises may also consider applying for certification from or membership of a recognised social enterprise body, such as B-Corp or Social Traders.|
|Purpose||Charities must only have charitable purposes that are for the public’s benefit. There are 12 recognised charitable purposes, which can be found here.||Unlike charities, there is no real restriction on the type of social gain a social enterprise may provide.|
|Profit||Charities registered with the ACNC must operate on a not-for-profit basis.||A social enterprise can be set up to make a profit.|
|Benefits||A charity can access tax concessions, deductible gift recipient status and government grants.||Whereas charities typically rely on donations and grants from government, social enterprises can develop a self-sustaining business with its own income stream.|
|Registration and reporting||A charity must register with the Australian Charities and Not-for-profits Commission. As per our last update, all ACNC-registered charities must submit an Annual Information Statement, and in some cases a financial report.||The reporting requirements will vary depending on what legal structure is adopted. For example, if the social enterprise is structured as a proprietary company, you must comply with a number of reporting obligations set out in the Corporations Act, including notifying ASIC of any changes to the company structure and other specified matters and, if the company meets certain size thresholds, preparing an annual report.|