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Research: Social Enterprise: Potential Impact on Nonprofit Growth and Sustainability

by Lisa MacDonald

Social Enterprise has the potential to dramatically change Canada’s nonprofit sector and its ability to grow and provide programs—especially based on its successes in the U.K. and elsewhere—but the current legislative structure is too confining.

Dr. Pauline O'Connor, recipient of the AFP Foundation for Philanthropy – Canada Research Award, is not a fundraiser. But she is a leading thinker in how Canada's legal and regulatory framework is developing in relation to the growth of social enterprise in this country.  Thanks to her work at the Centre for Voluntary Sector Studies at Ryerson University, with added support from AFP's research grants program, she has released a study on the impact that the new regulatory regime will have on social enterprise in Canada. The study will help all interested parties understand the impact, and will provide examples on how to continue to grow, despite the constraints of the new regime.  

Off To a Slow Start

Social enterprises are organizations that operate in the marketplace as businesses, but their revenues are used to advance social goals. There are currently thousands of examples of social enterprises that operate in Canada. The shoe company Toms is one well-known international company that is working for a social cause through sales of shoes and glasses.

While the idea of social enterprise is a good one, a key finding in this study is that existing legal forms (primarily tax-based) in Canada are inadequate and limit charitable social enterprises from trying to generate revenue. Legal forms that allow unrestricted business activity and profit-making prove to be more difficult in pursuing social ends (e.g. for profit companies). On the other hand, legal forms designed for organizations with social ends (e.g. nonprofits and charities) provide only limited opportunities to earn business income and raise financing.

Nevertheless, there has been some experimentation with social enterprise organizations on the provincial level. It remains to be seen whether B.C.'s new "Community Contribution Company (C3)" and Nova Scotia's "Community Interest Company (CIC)" will be more appealing than the traditional "nonprofit" legal form. But a comparison with the U.K.s' pioneering experience with the Community Contribution Company leads to an outlook that is cautious at best.

A forward vision

In speaking with Dr. O'Connor, it becomes apparent that the potential of social enterprise makes regulation of such activities a matter of interest for all members of the nonprofit community. She points to a few areas of future consideration:

  • If the tax rules governing Canadian nonprofits don't change, will the CIC start to look more appealing? The nonprofit brand is very established in Canada. If nonprofits are expected to be self-sustaining, how can they do this under current tax rules?
  • There may be broader issues about the potential of social enterprise in regards to the type of revenue that needs to be raised.
  • Canada's tax system doesn't make adaptation easy. There are already high levels of non-compliance in the nonprofit sector.

There is currently a call to develop an agenda for the social enterprise system in Canada. As Dr. O'Connor succinctly put it, this "requires a forward vision for the nonprofit sector." Without a doubt, research of this type will serve to galvanize sector professionals and help to move the conversation forward.

Dr. O'Connor's research titled, “The New Regulatory Regime for Social Enterprise in Canada: Potential Impacts on Nonprofit Growth and Sustainability” is provided on the AFP website in both its full form as well as an executive summary.

The AFP Foundation for Philanthropy – Canada would like to thank the Trico Charitable Foundation for their generous support of this research.

Lisa MacDonald is the Editor of AFP eWire Canada. A degree in Journalism and Communications from Carleton University, and more than twelve years experience working as a nonprofit communications professional lends to her passion and understanding of issues in this sector. Contact her at lisa@hilborn.com or connect on Twitter @lisalmacdonald.  



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