A social enterprise is profit oriented but beyond profit making, the social

entrepreneur focuses more on community development.

In today’s newsletter, we will be looking at the ideal legal structure for a social enterprise.

Specifically, I will be answering the question

What is the best way to register a Social Enterprise?

There are only three categories of registrations in Nigeria.

1. Business Name Registration 

2. Company Registration.

3. Incorporated Trustee Registration.

Please note that Company Registration can either be limited by Shares or

limited by Guarantee.

Most lawyers and consultants are quick to advise their clients to register a social enterprise as a company limited by guarantee or as an incorporated Trustee.

Let’s see if the ideal structure for a social enterprise is actually a Ltd by Guarantee Company or an incorporated trustee.

Like the name suggests…

A Company limited by guarantee has no share capital and has no shareholders and directors instead they have guarantors who undertake to contribute a specified amount in the event of the winding up of the company.

A Company limited by guarantee is mostly used by companies that want to carry out some charitable activities and other non-profit organizations without registering it as an incorporated trustee.

By its very nature, a company limited by guarantee requires the approval of the Attorney general of the federation and it is not suitable for commercial enterprises which also include a social enterprises.

 An incorporated trustee is an ideal structure for not-for-profit organizations who want to take advantage of the corporate personality status that the law provides for them by virtue of registration.

Incorporated trustees have registered members who are called trustees. They are not a business organization so they have no share capital structure and do not engage in commercial activities.

They rely heavily on grants and donations from the government and other organizations to function.

The point I’m trying to make is this:

The ideal legal structure for a social enterprise is neither a company limited by guarantee nor an incorporated trustee.

A social enterprise is best registered as a Company Limited by shares.

The reason is that a social enterprise is an organization that makes use of commercial strategies to maximize profits.

One distinguishing factor of a social enterprise from other not-for-profit organizations is that it does not rely on grants loans and donations that’s why it uses business strategies to fund itself.

Equity financing is a major issue for social entrepreneurs.

He can afford to raise funds for his enterprise by issuing out shares in the company to investors in exchange for funds or selling his shares in exchange for money.

Aside from raising funds registering your social enterprise as a company limited by shares also gives you protection from being personally liable for the debts of the case of winding up of the company. Your personal property and assets are protected.

Because you utilize commercial strategies you are able to fully maximize profits and then channel a fraction or all of the profits into community development thereby achieving the aim of a social enterprise in the real sense.

I hope you have gained value from this.

What question do you have for me?

What would you like BL to help you with concerning the legal aspect of your business today? 

-Barinaada