A recent Law Foundation-backed report could be the catalyst for a revamp of the law governing social enterprises – organisations that trade to deliver a social or environmental impact.

The report, Structuring for Impact: Evolving Legal Structures for Businesses in New Zealand, finds that current law is preventing social enterprises from reaching their full potential. It includes examples of social enterprise businesses that struggle to deliver impact, innovate and access finance.

There are more than 3,700 social enterprises in New Zealand, contributing $1 billion to the economy. Legally, they sit between charities and private enterprises, using business structures to solve social, environmental and economic problems.

Structuring for Impact, released in April, was prepared as part of the Social Enterprise Sector Development Programme, a partnership between the Department of Internal Affairs and the Ākina Foundation.

The report was commissioned following a request from Economic Development Minister David Parker for examples of social enterprises that have been held back by the Companies Act.

While Mr Parker agreed that not-for-profit status did not suit social enterprises, he did not find sufficient evidence in a 2017 discussion document prepared by Ākina that social enterprises had been hindered or disadvantaged by the Companies Act.

Some 25 organisations were interviewed for the latest report, including social enterprises like Trade Aid, Kilmarnock, Eat My Lunch, and Māori enterprises Te Rūnanga-ā-Iwi O Ngā Phui and Hikurangi Enterprises.

These organisations provided evidence of difficulties they faced in accessing equity funding and in conveying the importance of their impact and commerciality to traditional lenders.

Hawke’s Bay health and fitness business Patu Aotearoa is one example of a social enterprise that claims to be disadvantaged by current law. Its founder, Levi Armstrong, says its company structure had prevented it from accepting charitable grants that would have allowed it to grow faster. To get around this, Patu had to set up a charitable trust, creating extra administrative and compliance cost by being required to operate two entities.

Excellent feedback

Ākina Chief Executive Louise Aitken says there has been “fantastic” feedback on the report from the business, philanthropic and social enterprise communities. While there had been no formal official response at the time of publishing, she expected to engage with the Government soon on next steps, which would involve working in partnership with the Department of Internal Affairs and several ministers.

“This is a great opportunity to explore how legislation like the Companies Act could be used to enable the Government’s Living Standards Framework to be an important part of the economy,” she says.

“We hope to achieve a conversation within government about the value and impact of social enterprises. Big business globally is starting to recognise this role, and customers and employees are demanding it.”

Ākina is working in partnership with 14 ministries, led by DIA, to establish a social enterprise sector in New Zealand over three-and-a-half years.

The Law Foundation contributed $47,100 to enable qualitative research for the Structuring for Impact report. A full copy of the report can be found under Legal Research Reports on the Law Foundation website.

Lynda Hagen lynda@lawfoundation.org.nz is Executive Director of the New Zealand Law Foundation.