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Start, build, and grow a social enterprise: Grow your social enterprise

From: Innovation, Science and Economic Development Canada

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Why is scaling your business important? Footnote 1

Like most businesses, it is important for social enterprises to scale their operations to grow. Scaling your social enterprise may be the best way to increase your social impact.

Social impacts and profits are not incompatible. In fact, whether you are an enterprising not-for-profit or a for-profit social enterprise, revenues are important to retain talent, reach a wider customer base, and operate a sustainable business.

Some ingredients that can help your social enterprise grow are:

Social enterprise community

Social entrepreneurship is a growing industry and many provinces have social enterprise organizations that provide a network of social entrepreneurs, but also training for social entrepreneurs, and funding opportunities. Also, by connecting with these organizations you may find peers who can provide guidance or mentorship for the road ahead.

Below is a list of some social enterprise organizations and resources across Canada:

If you are interested in starting a co-operative, there are many provincial co-operative associations that can help you. You can find a list of these organizations on the following site.

Marketing, promotion and certification

Marketing your social enterprise is essential to find the right customers for your business and to retain a customer base. There are a number of resources available to help you understand the basics of marketing, marketing strategies, and promoting and advertising your business. The Business Development Bank of Canada also offers a marketing plan template to help you organize your marketing strategies.

Interested in social procurement? Check out A guide to Social Procurement to learn more.

You may also consider certification to promote your social and/or environmental objective. Certification is a recognition by a third-party that your social enterprise has a special competence. Certification can provide your social enterprise's service or product with extra visibility and credibility.

Becoming a B-Corp

B Corps are for-profit companies certified by the nonprofit B Lab that meet rigorous standards of social and environmental performance, accountability, and transparency. If you are interested in the B-Corp approach, there are three steps you can take to become one. The short 30-minute assessment will provide you with a better idea of how B-Corp could benefit your business.

Buy Social

Buy Social Canada is a Community Contribution Company that offers a third party certification program that can recognize your organization as a verified social enterprise, and enhances your marketing potential as a business that actively prioritizes community benefits and social impact over private profit and shareholder returns

Being Fair Trade

Fair trade is a social movement whose stated goal is to help producers in developing countries achieve better trading conditions and to promote sustainable farming.

What about other sustainability certifications?

The Business Development Bank of Canada offers further details regarding certifications that may help your business achieve greater environmental sustainability.

Funding platforms and business support

Few businesses are self-financed, and social enterprises cannot rely purely on loans and grants for their business to stay afloat. Done right, you can tap into financing opportunities to grow your idea beyond the start-up and early growth stage, and turn your social enterprise into a sustainable and successful company.

The Government of Canada's business grants and financing platform offers funding opportunities through loans and capital investment, public, and private sector funding.  In particular, Innovation Canada can link your enterprise to government funding tailored to your needs and situation.

While you do not need a business background to be a social entrepreneur, it is important to receive some kind of business training and be surrounded by people with some business acumen. Many of the social enterprise platforms listed above provide webinars, classes, and training for social entrepreneurs.

In addition, the BDC's entrepreneur's toolkit, the Futurpreneur platform (targeting socially minded business owners aged 18 to 39), and the Government of Canada provide various tools and tips on how to grow your business.

Subsidiaries and trusts

Creating a subsidiary can help your social enterprise grow and circumvent some of the limitations of its corporate structure. This is particularly the case for "non-profit" and charitable organizations who want to explore commercial opportunities, or "for-profit" entities who want to focus their social impact through a designated entity.

For-profit entities like business corporations, not-for-profit, or co-operatives can create a subsidiary to conduct their social goal. For-profit entities can reduce their taxable income through charitable giving to their own social enterprise. You can visit the CRA website to learn more about claiming tax credits and charitable giving. In addition, you could set-up a "charitable trust", although trusts are very complicated instruments and require special attention.

Non-profit organizations and charities can create a for-profit corporation to maximize their social mission. However, creating a subsidiary business may affect the organization's non-profit or charitable status under the Income Tax Act. The CRA makes the determination of whether a subsidiary is sufficiently distinct from the non-profit's or charity's parent company to benefit from tax exemptions. It is important to consult tax or legal expert when setting up such subsidiaries to prevent a situation that could jeopardize your tax-exempt status.

Setting up a for-profit subsidiary has multiple advantages. First, it protects the non-profit or charitable status of the parent corporation, especially if the parent corporation has discovered a commercial opportunity not related to the social mission. Second, it enables the subsidiary to issue equity ownership to outside investors, enabling the business to grow in scope and attract outside talent. Third, the subsidiary can generate revenue, without constraints, that can flow back into the social enterprise. For instance, where the parent corporation is a charity, the for-profit subsidiary can make charitable donations back to the parent company for up to 75% of its annual income in exchange for tax credits.

Social enterprise success stories

Financing

Did you know that you might be eligible for government financing programs? Learn about the different programs available to your social enterprise.

Annex 1

The chart below compares the differences in corporate structure, at the federal level, of for-profit corporations, not-for-profit corporations, and co-operatives. This chart will enable you to understand how an incorporated social enterprise might be run, and may guide you towards making an informed decision.

Federal corporations fact sheet

Ownership

Cooperative Corporations under the Canada Cooperatives Act For-Profit Corporations with share capital under the Canada Business Corporations Act Not-for-Profit Corporations under the Canada Not-for-profit Corporations Act
  • Cooperatives may issue shares in the member's name.
  • In general, a membership share may not increase in value. It can usually only be redeemed by the coop at its par value. Some legislation allows for investment shares (non-par value) to members and/or non-members.
  • A member's ownership is limited to the amount of the membership shares he or she holds.
  • Shares must be issued in the name of the person who is registering the share.
  • A common share may increase in value. A shareholder may sell his or her shares to another person at an agreed upon price.
  • A shareholder's ownership is limited to the value of the shares he or she holds.
  • Not-profits do not issue shares.
  • Generally, anyone can be a member on payment of a fee and in accordance with the requirements of the articles and by-laws.
  • Members do not have ownership in the not-for-profit organization.

Source: Information Guide on Co-operatives

Directors

Cooperative Corporations under the Canada Cooperatives Act For-Profit Corporations with share capital under the Canada Business Corporations Act Not-for-Profit Corporations under the Canada Not-for-profit Corporations Act
  • A cooperative must have at least three directors or any greater minimum number that is set out in the articles.
  • Directors are elected by members. The articles of the cooperative may permit investment shareholders to elect directors by reason of a condition that has been fulfilled; or a fixed number or a percentage of the directors.
  • Directors in exercising their powers and discharging their duties shall act honestly and in good faith with a view to the best interests of the cooperative; and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
  • A corporation shall have one or more directors. Corporations that report to a securities commission shall have not fewer than three directors, at least two of whom are not officers or employees of the corporation or its affiliates.
  • Directors are elected by shareholders as prescribed by the type of share that they hold.
  • Director in exercising their powers and discharging their duties shall act honestly and in good faith with a view to the best interests of the corporation; and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
  • A not-for-profit corporation shall have one or more directors, but a soliciting corporation shall not have fewer than three directors, at least two of whom are not officers or employees of the corporation or its affiliates.
  • Directors are elected by members.
  • Directors in exercising their powers and discharging their duties shall act honestly and in good faith with a view to the best interests of the corporation; and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

Source: Information Guide on Co-operatives

Voting

Cooperative Corporations under the Canada Cooperatives Act For-Profit Corporations with share capital under the Canada Business Corporations Act Not-for-Profit Corporations under the Canada Not-for-profit Corporations Act
  • A member is entitled to only one vote at a general meeting, regardless of the number of shares he or she holds.
  • Some cooperatives with a large and dispersed membership have a delegate structure for representing members (e.g., one delegate represents multiple members from a geographic district).
  • No proxy voting allowed.
  • Holders of investment shares have restricted voting rights.
  • A shareholder is entitled to the number of votes based on the type of share he or she holds in the company.
  • Legislation does not permit delegates.
  • A shareholder may be permitted to vote by proxy for other shareholders. Shareholders have voting rights in accordance with the terms of the shares they hold.
  • Generally, a member is entitled to one vote.
  • Legislation does not permit delegates.
  • Absentee voting for example through proxy is permitted.
  • Members have the right to vote at any meeting of the members.

Source: Information Guide on Co-operatives

Sharing in the surplus

Cooperative Corporations under the Canada Cooperatives Act For-Profit Corporations with share capital under the Canada Business Corporations Act Not-for-Profit Corporations under the Canada Not-for-profit Corporations Act
  • Cooperative legislation may limit or prohibit the payment of interest on share capital.
  • Surpluses may be paid into the reserve and/or to members in the form of patronage returns proportional to the business done by each member with the cooperative.
  • Dividends on any membership share are limited to the maximum percentage fixed in the articles.
  • Some cooperatives, such as housing, health and day-care cooperatives are structured as non-profit entities. Surpluses are not distributed to members.
  • Some provincial legislation may stipulate that a cooperative's general reserve is indivisible, or divisible in whole or in part.
  • There is no limit on share dividend.
  • Profits may be distributed in the form of dividends according to the provisions for each class of shares, or reinvested in the company. The value of shares reflects the net value of the corporation.
  • Shareholders may dispose of all of the assets of the business in accordance with certain legislative provisions.
  • Not-for-profit corporations cannot issue dividends or payments of capital to members.
  • Surpluses do not belong to individual members but to the organization. They may, therefore, not be redistributed among the members but must be returned in full to the indivisible general reserve of the organization.
  • Legislation and the articles of incorporation may specify how assets are to be disposed upon dissolution.

Source: Information Guide on Co-operatives

The information provided is to assist you in understanding more about social enterprises. It is not intended to replace legal advice. Consider consulting a lawyer or another professional advisor to ensure that the specific needs of your corporation are met.

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