New report finds existing legal structures inadequate for Social Enterprise businesses
The report,Structuring for Impact: Evolving Legal Structures for Businesses in New Zealand, explores whether legal structures are disadvantaging social enterprises. The report also identifies that structural barriers are preventing organisations more widely from prioritising positive social and environmental impact alongside profit. The report outlines an opportunity to create a fit for purpose legal structure to enable more impact-driven business, which would deliver significant positive change for New Zealand.
Impact-driven businesses are different from traditional profit-driven businesses in that they trade to deliver social or environmental impact. They generally reinvest their profits into their mission. New Zealand currently has no legal structure for businesses that exist to deliver positive impact in this way. Akina Foundation CEO, Louise Aitken, says this means many businesses are restricted by current structures.
“Our legal structures are built around very traditional ideas that you’re either a business like a limited liability company, or you’re a charity,” says Aitken. “Social enterprises are telling us that they’re caught in the middle. They exist to create maximum positive social or environmental impact, but our current business structures make it challenging for them to do this,” she says. “And more broadly, we’ve found there are multiple barriers preventing businesses from delivering impact, from innovating, scaling and accessing finance.”
Currently, impact-driven businesses face hurdles in accessing funding from banks, because they are unable to effectively convey their impact as part of their commercial viability.
Structuring for Impact is focussed on the challenges created by current legal structures, though it does pave the way for more work to be done on potential solutions. One such solution could be to explore the possibility of changes to the Companies Act 1993, to determine if legislative change could support impact-driven businesses, possibly through an optional ‘impact status’.
Read the full Research Report – “Structuring for Impact: Evolving Legal Structures for Business in New Zealand”
Read Akina Foundation web news item about the report – “NZ’s legal structures holding back impact-driven business”
The Law Foundation provided funding of $47,100 for this research project.