A social enterprise in Ontario can be structured in many different ways. We think form should follow function, so recommend you decide what you want to do before choosing a structure (for instance, do you want employees to share ownership in the business, or do you want to the profits to flow back to the your organization?). We strongly recommend you consult your organization's lawyer before you launch your enterprise, to ensure you are meeting the necessary legal requirements, and that the structure you have chosen is the right one for you. The information presented below is general in nature, and is intended to inform you of your options.
Chapter 7 of the Canadian Guide for Social Enterprise contains a clear description of the different types of organizational structures available for social enterprise. Here is a quick list:
- in-house program
- for-profit subsidiary
- separate non-profit organization
- co-operative, either non-profit or for-profit
- joint ventures or partnerships.
The Legal Debate
You should be aware that the Income Tax Act states that nonprofit organizations can be formed for any purpose other than making a profit, and that charities can lose their registration if they carry on an unrelated business. This does not mean that your nonprofit or charity can't operate a social enterprise, but it does mean that, if you are a charity, you have to consider whether your social enterprise is a related business, or is considered a charitable activity (see below). If not, or you are a nonprofit without charitable staus, you will need to work with your lawyer on a structure that meets your goals.
The Canada Revenue Agency (CRA) has published guidelines for charities about what types of social enterprises are considered charitable activities:
Several lawyers and organizations have written papers on their interpretation of what the Income Tax Act and the CRA guidelines allow. Some of these are listed below.
Canadian Registered Charities: Business Activities And Social Enterprise – Thinking Outside The Box, Terrance S. Carter and Theresa L.M. Man
Canadian Charities and Business Activities, Mark Blumberg
Social Enterprise in Canada: Structural Options, Susan M. Manwaring and Andrew Valentine, Miller Thomson for SiG@MaRS