What is a Social Enterprise? Conditions, Rights & Obligations

Currently, social enterprises (SEs) play an indispensable role in the economic and social development of Vietnam. If you want to conduct business using profits to serve society, benefit the community, or protect the environment, establishing an SE is something you should do right away. So, what are the rights and responsibilities associated with the establishment and development of a social enterprise? What conditions must be met to establish an SE? Let’s find the answers to these questions with 1Office in the following article!

1. What is a social enterprise?

A social enterprise is a business established in accordance with the Law on Enterprises, with the primary purpose of addressing social issues, serving public interests, and protecting the environment. The majority of the profits earned from its business activities are used to achieve social goals, protect the environment, and benefit the community.

An SE is considered a “hybrid” between a conventional business and a charitable organization. While traditional businesses operate with the main goal of maximizing financial profit, non-governmental organizations are established for the sole purpose of pursuing social benefits. Therefore, an SE harmoniously combines the form and substance of these two types of entities, with business as its main activity but not for the goal of maximizing profit, but rather to address specific social issues.

2. Criteria for identifying a social enterprise

According to the provisions of the 2020 Law on Enterprises in Clause 1, Article 10, the criteria that an SE must meet include:

• Complete the establishment registration procedures in accordance with the Law on Enterprises.
• The main objective of business activities is to address social issues, protect the environment, and serve community interests.
• At least 51% of the enterprise’s total annual after-tax profit must be used for reinvestment in its registered objectives.

3. Types of social enterprises

In general, SEs are divided into the following 3 types:

• Non-profit social enterprise
• For-profit social enterprise
• Hybrid social enterprise

Non-profit SEs include organizations, volunteer groups, centers, and associations that care for people with disabilities, people living with HIV/AIDS, and many other organizations.

For-profit SEs are businesses that operate to make money but are not focused on financial matters or controlled by profit motives. Instead, they concentrate on projects related to the environment, community, and society. The majority of their profits are used to support or reinvest in these activities.

Hybrid SEs are businesses established by individuals or organizations that combine economic and social objectives. These enterprises often operate as joint-stock companies or limited liability companies. The profits earned are primarily used for reinvestment or to expand social development.

4. Rights & obligations of a social enterprise

According to Clause 2, Article 10 of the 2020 Law on Enterprises, in addition to the rights and obligations of an enterprise as prescribed by law, an SE also has the following rights and obligations:

• The owner of an SE shall be considered, facilitated, and supported in the issuance of relevant licenses, certificates, and certifications in accordance with the law.
• An SE is permitted to mobilize and receive funding from individuals, businesses, non-governmental organizations, and other Vietnamese and foreign organizations to cover its management and operational costs.
• It must maintain the operational objectives and conditions specified in points b and c, Clause 1, Article 10 of the 2020 Law on Enterprises throughout its operation.
• Mobilized funds may only be used to cover management and operational costs to address the social and environmental issues the enterprise has registered for, and not for other purposes.
• In case of receiving incentives or support, the SE must annually report on its operational status to the competent authority.
• The State has policies to encourage, support, and promote the development of SEs.

Note: A Social Enterprise (SE) must notify the competent authority when it decides to cease pursuing its social and environmental objectives or to not use its profits for reinvestment, as stipulated in points b and c, Clause 1, Article 10 of the 2020 Law on Enterprises.

5. Procedures for Establishing a Social Enterprise

5.1 Step 1: Prepare Necessary Information

Before proceeding with the business registration procedures, the investor must prepare all relevant and important information. This information must comply with legal regulations and reflect the enterprise’s objectives, including the enterprise’s name, business lines, head office address, legal representative, and business type.

5.2 Step 2: Draft the SE Registration Application File

The next crucial step is to draft the necessary application file for business registration. The file must be complete, containing all the information and documents required to carry out the procedure validly. This is a key step that ensures the procedure is executed correctly and smoothly.

5.3 Step 3: Submit the SE Registration Application File

Once drafted, the application file is submitted to the Business Registration Office of the provincial Department of Planning and Investment where the SE’s head office is located. Within 3 to 6 working days, the enterprise will receive its business registration certificate if the file is complete and valid. If it is invalid, the enterprise will receive feedback from the authorities requesting corrections or additions.

5.4 Step 4: Carry Out Post-Establishment Procedures

After receiving the business license, the business owner must carry out the following procedures:

• Publish the SE’s information on the national business registration portal.
• Have a company seal made and announce the seal specimen.
• Register and hang the company sign at the head office address.
• Open a bank account for the enterprise and notify the Business Registration Office of the account number.
• Fulfill obligations to declare and pay corporate taxes.
• Carry out other tasks and procedures as required by regulations.

5.5 Step 5: Fulfill Other Related Conditions

Each business line has specific conditions that must be met. To operate legally, the SE must fulfill these conditions.

6. Documents to Prepare for Social Enterprise Registration

1. Application form for SE registration.
2. The SE’s charter.
3. A detailed list of the enterprise’s founding members or shareholders.
4. A written commitment to pursue social objectives, protect the environment, and serve community interests.
5. A decision signed by the enterprise approving the content of the commitment to pursue social objectives, protect the environment, and serve community interests.
6. A valid copy of the meeting minutes proving the enterprise’s approval of the commitment to pursue social objectives, protect the environment, and serve community interests (depending on the type of enterprise).
7. A power of attorney for the person submitting the application, if they are not the enterprise’s legal representative.
8. Valid copies of the personal identification documents of the owner, members or shareholders, the legal representative, and the authorized representative of the enterprise submitting the application.

7. Conclusion

In summary, social enterprises use a business approach to solve the social problems they have identified. Social issues act as the driving force for these enterprises to find and choose a suitable business model. We hope the information 1Office has shared in this article helps answer your questions and provides a clear understanding of social enterprises.