Charities face tight competition for scarce donations, foundation grants and government funding. A social enterprise (a business with a social or philanthropic mission in addition to or instead of profit) can expand your pool of supporters and tap into their spending budgets as well as their giving budgets.
First, do no harm
Free the Children co-founders Craig and Marc Kielburger stated in a February Globe & Mail column that social enterprises can be a great idea for charities, provided some tests are met right from the beginning.
"There are significant practical and legal issues to consider when deciding whether to start a social enterprise within an existing organizational structure, to create a separate for-profit corporation, or to forget the whole idea," they warned.
The first consideration recalls the Hippocratic oath: do no harm to the original organization's work. That means your business idea has to be related to your mission, and can not distract time and attention from its goals.
If your idea is terrific but doesn't meet that test, you can still launch it, they advise - but you should establish a separate corporation with its own structure, board and staff. "A separate, for-profit corporation," they explain, "will be more flexible in its ability to raise capital, take on debt and enter into long-term contracts that would be unacceptable risks to the budgetary health of the charity."
Charities can, nonprofits can't
Stacey Corriveau, executive director of the British Columbia Centre for Social Enterprise, told the Kielburgers that it's important to understand there are different rules for nonprofits, depending on whether they do or do not have charitable status.
Registered charities can operate "related businesses" as part of their existing structure, provided that they're "linked and subordinate" to their charitable objectives. Examples include -
Non-profits without charitable status are in the opposite position. They cannot run any intentionally profitable activity without losing their tax-exempt status.
Where to find help
You'll find great resources making sense of the legal and tax issues, and tailored advice on complying with Canada Revenue Agency guidelines online from the BC Centre for Social Enterprise. Qualified charity lawyers and the CRA will also supply guidance or a written opinion on your specific case.
Read the full article at http://www.theglobeandmail.com/life/giving/ask-the-kielburgers/should-your-non-profit-organization-start-a-business/article2343922/ Download "The fine print: Vital information for Canadian charities operating social enterprises" at http://www.centreforsocialenterprise.com/f/The_fine_print.pdf