How social entrepreneurs make a profit

Social Entrepreneurship: Reasons for the Common Good

1. Definition: What is social entrepreneurship?

Under the term Social entrepreneurship (also known as social entrepreneurship) is an entrepreneurial activity that promotes positive change in society, for the common good, as well as solving social problems or for the environment. The companies are often organized on a non-profit basis, so that there is no intention to make a profit in social entrepreneurship. If social enterprises are organized in a commercial form such as a UG or GmbH, part of the profits are usually reinvested for good causes.

Social entrepreneurship has meanwhile become a "trend" around the world. The stronghold for social entrepreneurship in Germany is of course in Berlin.

What is social enterprise?

KfW has published a study on "Social Entrepreneurs in Germany: Getting Out of the Niche", which sheds light on some interesting aspects of social enterprises:

  • Passion:Social entrepreneurs do not start up as an emergency solution in order to finance their livelihood, but with their start-up they realize a project that is close to their hearts.
  • Team spirit: In contrast to profit-oriented businesses, social entrepreneurs set up a team more often.
  • Enthusiasm of the customers: Social enterprises tackle projects that are also close to the heart of the customer. That is why it is easier for social entrepreneurs to acquire customers than commercially-oriented companies.
  • Innovative spirit: According to the KfW study, every fourth social enterprise brings its own technical innovation to market maturity.

You can read how social entrepreneurs differ from "normal" entrepreneurs in our guide on the subject of entrepreneurs.

Facts and figures on social entrepreneurship in Germany

The Social Entrepreneurship Network Germany (SEND) regularly examines the social enterprise scene and summarizes developments and problems in the German Social Entrepreneurship Monitor (DSEM). The following facts are key points of the 2019 DSEM:

  1. At 46.7%, the proportion of women in social enterprises is much more balanced compared to for-profit companies.
  2. 81.6% of social entrepreneurs reinvest their own profits mostly or exclusively in the company's purpose.
  3. Financing is one of the biggest hurdles for social enterprises: start-up and follow-up financing are each a problem for over 50% of social entrepreneurs.
  4. The chosen legal forms of social enterprise are very heterogeneous; the lack of a suitable legal form is problematic for 51.4% of social entrepreneurs.
  5. The most frequently mentioned areas in which social enterprises want to make a positive impact are: “Quality education” (46.2%), “Sustainable consumption and production” (45.3%), “Health and well-being” (44 .3%) and “Decent Work and Economic Growth” (43.4%).

2. Examples of social entrepreneurs

Right now there are many initiatives that want to support social and commercial companies. Support your local business is next to Stay Home the motto of the corona crisis.

Social entrepreneursCompaniesaim
Stefan Buchholz, Timm Duffner, Christian SchmidtHEY HO!Muesli manufacturer who employs people who are no longer given a chance anywhere else.
Sairee ChahalSHEROESA global career network for women
Mallika DuttBreakthroughSpecial educational programs that take a stand against violence against women and girls
Raphael Fellmerfoodsharing.de, SirPlus, yunitySocial businesses against food waste
Dr. Peter HarfGerman Bone Marrow Donor Center (DKMS)Donation of stem cells to help blood cancer patients
Christian KrollecosiaSearch engine that plants a tree for every 50 searches
Heidi KuhnRoots of PeaceLandscapes damaged by war should be reforested and made usable
Jacqueline NovogratzACUMENInvesting in companies whose products and services improve the lives of poor people
Shiza ShahidMalala FundEducation of girls and young women
Muhammad YunusGrameen BankMicrocredit for the poor
Waldemar ZeilerunicornVegan and fairly produced contraceptives & hygiene products; uses 50% of its profits z. B. to pay the workers along the production chain above average

A portrait of social entrepreneurs

3. Legal forms & formation steps

Starting a social enterprise is basically not that different from starting a for-profit company. Nevertheless, future social entrepreneurs should find out which legal form is most suitable for their project before setting up a business. Different expressions of the social idea in the business purpose can be the basic building block for different legal forms.

However, the following applies here: Legal form and business model can be separated. In order to set up a social enterprise, it is by no means absolutely necessary to set up a non-profit legal form - a corresponding social business model can also be implemented with a "normal" corporation.

The establishment of a social enterprise can take place via different legal forms, which all differ slightly:

legal formWho is it for?What is to be considered?
e. V. (registered association)No profit orientation, social missionFormation only possible with at least seven members; a board of directors must be formed; each member of the association has one vote in decisions
gGmbH, gUG, gAGNo profit orientation, social missionFounding alone or in a team; Share capital must be provided; Liability is limited; The business purpose must be charitable, charitable or ecclesiastical (see below); Profits are not distributed
UG, GmbH, AGSocial or commercial mission, social mission with a commercial componentFounding alone or in a team; Share capital must be provided; Liability is limited

Like every form of company, the non-profit legal forms gUG, gGmbH and gAG have advantages and disadvantages.

  • Advantages of non-profit legal forms are, for example, tax privileges, the clear identifiability of the social business purpose and the possibility of collecting donations.
  • The disadvantage of non-profit legal forms is that the non-profit status has to be recognized by the tax office every three years. That means an additional effort.

Helpful for the foundation

Founding steps for social enterprise

The founding steps for social enterprises do not differ fundamentally from those for purely commercial enterprises (with the exception of the association). You can read up on how to set up a company in general in our guide to founding a company. The registration of the company is also identical to the traditional commercial company.

Get started with smart tools

The business idea is ready, but the next steps are not yet clear? Our smart tools will help you with the start-up.

4. Prove non-profit status

If you want to start a social business, you should note that the legal forms gGmbH and gUG do not only involve the formalities and registration steps of a "conventional" start-up. This is because another step has to be taken to ensure the company's social purpose: the recognition of the non-profit status by the tax office.

The non-profit status is always provisionally awarded by the tax office for a period of three years. The articles of association are checked at the time of formation; in the later course of business based on the business purpose and the tax return.

Non-profit criteria

In order for a company to be officially non-profit, it must meet various requirements, which are regulated in the Tax Code (AO) in § 52 ff.:

  1. Selflessness: The company must be selfless and not profit-oriented. It must therefore pursue a charitable, charitable or church purpose. For example, no profits may be paid out to the shareholders.
  2. Immediacy: The company must pursue the purpose set out in the articles of association. The profits must be used for this purpose.
  3. Promotion of the general public: Neither individuals, families or professional groups may be funded; the group of people funded may not be limited.
  4. Beneficiary: When founding a not-for-profit company, a beneficiary must be identified who will inherit the company's assets in the event of liquidation. This can be another company or an association; The only requirement is that the beneficiary is also pursuing a charitable purpose.

What can non-profit companies promote?

In the tax code not only the guidelines for the award of the non-profit status are stored, but also the areas that can be promoted by a non-profit company, including z. B. the promotion of

  • Sports
  • Science and Research
  • religion
  • Healthcare
  • Youth and elderly care
  • Arts and Culture
  • natural reserve
  • Help for politically or religiously persecuted people, refugees or the disabled
  • Animal welfare
  • equal rights

5. Reading tips on social enterprise

A social entrepreneur has the ability to inspire others and discover potential for optimization in society. We therefore recommend the following books for the right mindset:
 

6. Funding for social enterprise

Social entrepreneurship must also be financed. Since the business purpose of social enterprises is usually neither purely economic nor purely charitable, social entrepreneurs can find it difficult to get out of the start-up phase at all. Because numerous subsidies are sharply divided into charitable and economic purposes. In addition, social enterprises have lower return expectations and a higher risk in the less developed markets, which on the other hand also makes them unattractive for investors.

On the flip side, however, other sources of funding open up for social businesses that purely economic companies are denied, such as donations or public funds.

However, the start-up and development phase of social enterprises in particular is often so cost-intensive and low in turnover that neither donations (due to a lack of awareness) nor grants from the state are sufficient. But thanks to the increasing public interest, new funding for social enterprises has emerged in recent years and opens up new opportunities for growth for social entrepreneurs: networks for social entrepreneurs, social investors, foundations and also crowdfunding.

Funding & capital providers for social enterprises

Social entrepreneurs can receive funding from various agencies:

  • Federal and state funding programs
  • Banks
  • Foundations: Schwab Foundation for Social Entrepreneurs, Vodafone Foundation Germany
  • Investors & Funds: Good Profits, BonVenture, ANANDA, FASE, RESET, Tengelmann Social Ventures
  • Business Angels: Social Business Angels Program

In addition, social enterprises are increasingly relying on crowdfunding, in which many small sponsors support the company whose mission suits them, often from private pockets. Betterplace.org, bettervest, onleplanetcrowd, Startnext and indiegogo are often used.

Commercial social enterprises that intend to make a profit with an economic operation can be supported with loans from KfW. Here founders have the choice between different offers:

7. Support offers and networks

  • Ashoka: Global network for social entrepreneurs
  • Social Impact Lab: Opens up the possibilities of social entrepreneurship for young people at various locations.
  • Social Entrepreneurship Network Germany (SEND): Network and contact point for prospective or already successful social entrepreneurs
  • Auxiliary yard: The auxiliary shipyard imparts entrepreneurial knowledge as start-up support for social entrepreneurs and supports those interested in starting a business from the idea to implementation.
  • Social Entrepreneurship Academy (SEA): Central contact point for everyone who wants to start a social enterprise. Budding social entrepreneurs as well as already successful social entrepreneurs are supported.
  • Social Entrepreneurship BW (SocEntBW): Network with regular events for (prospective) social enterprises in Baden-Württemberg

Social enterprise events

  • SensAbility: Large WHU event for social enterprises since 2009 with lectures, discussions and workshops.
  • StartSocial: The competition awards grants for particularly innovative social projects and ideas.

  • Social Entrepreneurship Camps: Three-day events organized by the auxiliary shipyard at universities and colleges

  • Social Entrepreneurship Meetup: Regular opportunity to exchange ideas and network among (prospective) social entrepreneurs

Further support offers, events and networks for social entrepreneurs can be found on the Tomorrow's card.

8. Conclusion

Even if social entrepreneurs have to overcome some hurdles before they can even get started, social entrepreneurship is clearly on the rise. The success proves them right and the fact that the financing options are evolving shows that social enterprises are becoming more and more relevant.

Whether you set up your social business with a non-profit company form such as the gUG or the gGmbH or opt for a "conventional" legal form is up to you and depends solely on the business purpose.

Do you have a social business idea and would like to start your own business as a social entrepreneur? KfW supports social enterprises in their mission.

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