1. Why a Manual on Designing legal frameworks for social enterprises?

There is growing legal recognition of social enterprises across the globe. Over the past two decades, 16 EU countries (e.g. France, Denmark, Italy, Luxembourg, and Spain) have adopted some form of legislation on social enterprises to identify them as such. Although the other 11 EU countries have not done so they have designed explicit policies or strategies to boost their expansion (European Commission, 2020[1]).

Social enterprises are active in a broad range of sectors, offering innovative solutions to pressing challenges. For example social enterprises help to address: demographic changes linked to ageing populations (e.g. Italy, Luxembourg); climate change; regional development, and revitalisation of remote communities (e.g. Slovakia, Spain); care activities, education, community development, environment and energy, social housing (e.g. France), migrant integration (e.g. France, Spain). They are also active in work integration activities, (WISEs, work integration social enterprises) (European Commission, 2020[1]). The ongoing recovery from the COVID-19 pandemic provides an opportunity to leverage on the potential of the social economy, including in collaboration with public and private partners, to further local economic development and support more sustainable and inclusive economies and societies (OECD, 2020[2]).

Legal frameworks have a significant impact on the visibility, recognition, identity and organisation of social enterprises and act as important enablers of their development. The primary and most common justification for designing legal frameworks specific to social enterprises is the inadequacy of most existing legal frameworks to grasp the specific features of business models that they use which in turn, can act as a barrier to their development. Business models used by social enterprises can be generally characterised by i) the priority pursuit of community or general interest, ii) a continuous economic activity and an entrepreneurial dimension, iii) asset locks that ensure assets, including profits generated by the activities, are partly retained within the organisation and not fully distributed to capital owners, and iv) inclusive governance models.

However, existing legislation on other legal entities captured in the broader notion of the social economy are not always well equipped to reflect these models. For example, legislation regulating cooperatives can prohibit them from addressing the needs of non-members, i.e. pursuing a general interest. Legislation on associations often prevents them from engaging in market activities. Legislation regulating limited liability companies may prevent them from explicitly pursuing a social purpose and limiting the distribution of profits. Likewise, existing legal statuses in some countries suitable for certain categories of social enterprises, e.g. WISEs, may be too restrictive regarding the social needs that these organisations are meant to pursue.

In practice, social enterprises use various legal forms and legal statuses that reflect their diverse entrepreneurial approaches. Some of these legal forms and statuses have been designed specifically to recognise social enterprises and support their development (e.g. France, Luxembourg or Slovenia). Social enterprises can also take legal forms and statuses which have not been designed specifically for them, such as WISEs’ legal statuses or legal forms such as associations or cooperatives.

Legislation which specifically recognises and regulates social enterprises (Box 1.1) gives them a clear, distinct and protected legal identity, which might have positive impacts (Fici, 2017[3]; Fici, 2015[4]; OECD/EUCLID, 2020[5]) namely: i) clearer boundaries with other entities or more general concepts (e.g. SME’s and traditional entities or enterprises of the social economy; corporate social responsibility); ii) legal identification and recognition that could facilitate the collection of more reliable official statistics and data ; iii) the improvement of the conditions in which they operate through targeted public support schemes and specific public policies, such as tax incentives, public procurement and financial and non-financial assistance and benefits.