The primary focus of this series to this point has been on issues created from the conflict of social enterprise (SE) and registered charities, the main ones being:

• inequitable distribution of government and foundation funding
• an increase in competition for fundraising dollars through activities operated outside the scope of CRA’s Fundraising Guidance  
• the use of social capital (funding, donations, and volunteerism) to fund business ventures and cover business expenses

The inclusion of non-charitable entities (NCEs) as deliverers of social impact and recipients of social capital adds to these concerns and is amplified given these entities do not have external social purpose-based accountability mechanisms in place and private benefit has no hard stop. 

According to SE narrative, the full scope of legal entities including NPOs, co-operatives, and   for-profit entities including hybrid organizations can deliver social impact.  As they are free of the purportedly restrictive environment and approach in which charities operate, they are viewed by promoters of SE as more sustainable and efficient.    

This can affect the charity sector on three fronts:

1. Charitable assets being transferred to NCEs
2. Social capital being afforded directly to NCEs
3. Charities frozen out of accessing social capital

This opens the door to for-profit activity with potentially compromised social impact.  This should cause consternation to charity sector stakeholders as social capital is not being used to its full effectiveness, possibly ending up in the hands of private interests.  As should the possibility of government social capital being directed to NCEs instead of charities, private charitable foundations directing their assets exclusively to for-profit entities, and the replacement of traditional government funding with the availability of investment capital for SEs.

The emergence and promotion of hybrid organizations as an evolution of charity reflecting modern trends also needs attention in this discussion as, despite best intentions, potentially diverted social capital is not suitably safeguarded.   

Charitable Assets transferred to NCEs

Aside from proposed CRA policy changes put forth by SE promoters to allow charities to transfer assets, most notably those of private foundations, to non-qualified donees, there are a number of other avenues in which assets could be, or appear to already have been, transferred to NCEs:

• registered charities operating SE grant programs that include NPOs as eligible recipients
• funding of separate taxable corporations by charities who self-identify as SEs
• registered charities making investments in for-profit companies exclusively under the guise of impact or mission related investing in SE

Social capital afforded directly to NCE’s

There are few scenarios where social capital can be, or likely has been, given directly to a NCE:

• NPOs with public benefit missions who fundraise outside of the scope CRA’s fundraising guidance or operate a self-described SE and receive government funding which, depending on how SE is interpreted, can put social capital at risk
• a government SE grant program offered to charities but also includes NPOs and co-operatives
• a government-backed SE loans program for organizations with public benefit missions that includes for-profit companies and NPOs but excludes charities
•  a corporation’s social impact grants program offered to for-profit companies exclusively

 Hybrid Entities

Hybrid entities are emerging as the potential answer to the perception of a restrictive regulatory environment for charities and inequitable distribution of traditional business profit to private shareholders.  The term hybrid is commonly used as the concept of charity and for-profit activity are seemingly fused together.  For some, a hybrid is the progression of traditional charity and consequently should be viewed with the same reverence. 

There does not seem to be an indication in SE resources of the practical application of a hybrid beyond a symbolic differentiation between it and traditional business.  Where registered charities have regulated mechanisms in place to steward social capital, hybrids do not; an appropriate level of external accountability is not accomplished by the requirement for a hybrid to report annually on their community contribution.  For this reason, I would not differentiate a hybrid from a traditional business when determining the optimum strategy for the provision of essential goods or increasing the employability of the marginalized.   

Oyler Consulting works with registered charities and non-profit organizations to increase their effectiveness and capacity to deliver their programs and services.  Services include practical guidance on Canada Revenue Agency policy for registered charities, helping organizations build successful fundraising programs, program and service development, and social enterprise. Visitwww.oylerconsulting.ca; contact David Oyler by email.