Guidance note: Legal and Regulatory Framework

3.1. Social enterprises are recognised in the legislation.

We invite you to consider the extent to which social enterprises are legally recognised. Is it possible to adapt existing legal forms in a way that suits social enterprises? Alternatively, have suitable social enterprise legal statuses been developed in order to identify and support social enterprises using different legal forms?


Why is it important?

All social enterprises must adopt one or more legal forms in order to operate and enter into contractual relationships. As such, they operate within a broader legal and regulatory context.

For legislators, it is possible to adapt existing legal forms to make them tailor-made for social enterprises, helping them to prioritise their social mission above other interests. Alternatively (or in addition), it is possible to develop social enterprise legal statuses or registration systems to identify, and in turn support, social enterprises using different legal forms.

To facilitate the use of a wide variety of existing legal forms by social enterprises it is important to consider removing unnecessary barriers and restrictions set out in laws and regulations. In many countries, existing legal forms are subject to for instance blanket restrictions preventing certain legal forms from engaging in trading, establishing trading subsidiaries or paying their directors. Such restrictions make the choice of legal form difficult for social entrepreneurs. In other countries, a wide variety of legal forms are available and used by social enterprises who find them suitable for their needs.


In order to score high, in your context:

  • The legislation effectively recognises, differentiates, and supports social enterprises.

  • There is (are) specific legal form(s) dedicated to social enterprises.

  • Social enterprises can operate through a wide variety of legal forms.


Good practice example

The Law on the Social and Solidarity Economy (France)

The French law n. 2014-856 on the Social and Solidarity Economy (“SSE Law”) entered into force on 31 July 2014. The SSE law acknowledges and defines the value of social and solidarity economy entities regardless of their legal form. Thus, in addition to identifying traditional social economy organisations (co-operatives, foundations, associations and mutual organisations) as social and solidarity enterprises, it allows commercial companies to be considered as such, providing they fulfil the criteria set out in the law.

According to Article 1 of the SSE Law, a “Social and Solidarity Economy Enterprise” (“SSE Enterprise”) must have democratic governance, pursue a purpose other than sharing profits for personal enrichment, and must devote the majority of its profits to the objective of maintaining or developing the enterprise’s social mission.

In addition, the SSE Law also creates an accreditation for those SSE enterprises that satisfy two additional requirements: 1) the compensation for managers and employees must be capped at a prescribed level, and the salary for the highest paid employee or manager cannot exceed ten times the minimum wage; and 2) the social mission must significantly limit the profits of the company according to prescribed criteria by limiting dividend distributions and payment of interest. SSE enterprises that fulfil those additional criteria may thus apply for the accreditation for “social and solidarity-based enterprises” (Entreprise Solidaire d’Utilité Sociale, ESUS), benefitting from fiscal incentives for investors.

For further information, please see The Law on the Social and Solidarity Economy (France)

3.2. Legislation on social enterprises is pertinent and has been developed together with relevant stakeholders.

We invite you to examine the content of the legislation on social enterprises and the process through which it has been developed. Has the legislation been developed through a consultation process, designed to ensure that the views of different stakeholders are taken into serious consideration? Does the legislation clearly identify the key features of social enterprises? Finally, does it explain the activities that social enterprises can pursue without impeding their development and growth?


Why is it important?

Along with the contents of the legislation developed or adapted to suit social enterprises, the process for developing or revising it is important. To this end, governments can invite relevant stakeholders to participate in a consultation process to ensure that the proposed legislation (or revision) reflects the views of different stakeholders in an appropriately sensible, measured and proportionate way. Ultimately, an inclusive consultation process serves to inform and enhance the design and implementation of the law and/or regulation in the real world.

It is further important that the legislation provides a definition for “social enterprise” and the activities they can pursue. Without such a definition, it can be difficult for policy-makers and investors to distinguish social enterprises from other businesses and hence to develop suitable instruments and support.


In order to score high, in your context:

  • The legislation provides a definition and presents the key features of social enterprises.

  • The legislation sets out the activities that social enterprises can pursue.

  • The content of the legislation was developed through an inclusive consultation process.

3.3. Administrative procedures specific to social enterprises are accessible and clear.

We invite you to assess how easy it is to establish a social enterprise. Is the information regarding the administrative procedures and paperwork for establishing a social enterprise easy to access and to understand?


Why is it important?

Since every social enterprise (like any other business or formal organisation) must choose one or more legal forms through which to operate, they need information about which legal forms are available, and how different legal forms can be used to prioritise their social mission.

In addition, information regarding the procedures and paperwork required for establishing a social enterprise needs to be clearly signposted and easy to understand by prospective social entrepreneurs. Different countries have different ways for presenting and communicating such information. One way to help social enterprises to “get things right” from the beginning is to provide model documents that already take into account prioritising a social mission (e.g. a model company constitution), which social enterprises can use when starting up.


In order to score high, in your context:

  • Information for establishing a social enterprise is easy to access.
  • Information on administrative procedures is easy to understand.