How to establish a social enterprise
If you are starting a social enterprise from scratch, here are the steps that most people follow. Note: we recommend getting legal and/or financial advice to make sure you’re doing the right thing for you. Many law firms and accountants will offer pro bono or low bono advice for social enterprises so try reaching out to one.
Quick tips:
A social enterprise can have any legal structure (there isn’t a specific one for social enterprises in Australia)
A social enterprise must be purpose-driven, put people and planet first (i.e. ahead of profits) in its operations, get most of its revenue from trade (i.e. not from donations), reinvest at least half of its surplus in its purpose, and have purpose locked in through its governing documents (see People and Planet First for more information about the global standards for social enterprises)
Step 1: Make sure that what you’re creating is definitely a social enterprise
Head to People and Planet First and check that you meet the criteria for the five standards:
Purpose: Exists to solve a social or environmental problem
Operations: Prioritises purpose, people, and planet over profit in operational decisions
Revenue: Has a self-sustaining revenue model
Use of surplus: Reinvests the majority of any surplus towards its purpose
Structure: Chooses legal structures and financing that protect and lock-in purpose long term
Step 2: Decide on the best legal structure for your social enterprise
For-profit
Sole Trader: This legal structure is quick and easy and works for people who are happy to take the legal and financial risk on personally.
Proprietary limited: This structure is fairly quick and easy to set up and provides some separation between someone’s personal legal and financial situation and the company’s.
Important notes: With both of these legal structures, you’ll need to be clear on where your surplus will go and be ready to create a Constitution to lock in your purpose.
Not-for-profit
Incorporated association: If you’re operating in one state or territory only
Company limited by guarantee: If you plan to operate nationally
Important notes:
You’ll need at least three people willing to be directors to establish a not-for-profit. For both of these models, you can use the ACNC’s governing documents as a starting point.
If you want tax-deductibility so that people can get tax benefits from donating to you, you’ll need to register as a not-for-profit, then as a charity, then apply for Deductible Gift Recipient status.
Cooperative
A cooperative can be set up as either distributing, so that members share the profits, or non-distributing, if you want a not-for-profit option.
You can use some of these government’s templates.
You’ll need at least five members to start a cooperative.
See business.gov.au for more information on different legal structures and decide which one is best for you.
Step 3: Name your organisation.
You can search ASIC to see whether someone has already registered the business name you want.
Step 4: Register your business
Get an ABN, a business name and/or an ACN. See business.gov.au for more information as what you need differs based on your legal structure.
Step 5: Get verified as a social enterprise
We recommend getting People and Planet First verification because it shows that you meet the global standards as a social enterprise.
You’ll first need to set up a Good Market profile. This is free and can be done anytime.
To meet the Revenue standard for People and Planet First, you will need to show some trade revenue, so we recommend applying after you have made your first sale.
Additional resources
NSW Government: Starting a business
Australian Government: Guide to starting a business
Australian Tax Office: Starting a not-for-profit
Australian Tax Office: Legal structures for not-for-profits
ASIC: Starting a business
SECNA exists to champion, connect and advocate for social enterprises. These resources have been gathered by members for members. If you see something that needs to be improved, please contact us at hello@secna.org.au. If you’re not already a member, join SECNA to be part of the network of businesses putting people and planet first, and to get advice from other social entrepreneurs.
