Social Enterprise and Equity – Sharing the Business

Nov 24, 2011 by Karen Anderson

Social Enterprise and Equity Sharing the Business

Shares are seen as a cornerstone of private business. Should social enterprises be dabbling in the world of equity, shares, dividends and talking to business angels?

In addition to new starts exploiting shares, a business acquisition can leverage external investment into the new social enterprise post-acquisition, and this investment could quite easily be in the form of shares. Shares can also be useful in joint venture and partnership models.

Alongside community share issues and co-operative models, the Community Interest Company limited by shares model exists as a simple way for social enterprises to issue shares alongside accessing support and funding. (More about CICs here). This blog is not to provide a legal structures comment but rather suggest some benefits for social enterprises in using shares: Marketing, Investment, Community and Employment.

The Marketing opportunity provided by promoting a share issue is a different message from asking for donations. It is saying support what we as an enterprise are doing by being part of it and getting something back (perhaps a dividend or perhaps a social return or perhaps just ownership). Once an organisation has shareholders, what a great excuse to communicate with them regularly! This communication should ideally provide them with a reason to use and promote your products or services.

Investment is the reason most ventures create shares, to provide a possible vehicle for financing enterprise and perhaps to facilitate a tax-effective return on the sweat-equity of founders. Apart from the business angels who responded positively to our survey, here are some links to interesting social investment organisations and deals we have noticed recently:

If seeking equity investment, be sure to investigate the Enterprise Investment Scheme.

Let’s not forget – community engagement and empowerment can be activated through shares.. One of our partner organisations, Development Trusts Association Scotland has a publication on this topic. And whilst Equity for Punks is not for a social enterprise it does show how online community fund raising could work.

And finally, Employee shares are probably the most relevant share class in a social enterprise because it is extending an organisation’s social aim to include shared ownership. Employees are offered share options in many listed companies and in start-up dotcom styles ventures too. Why should social enterprise employees not be offered “sweat equity” in start-ups and have a stake in the business?

DISCLAIMER

The views and opinions expressed in the blogs are independent and do not constitute endorsed advice or necessarily reflect the views or position of Social Firms Scotland or the Acquiring Business for Good Programme.