The United Kingdom introduced Community Interest Companies in 2005, a flexible vehicle designed specifically for social enterprise.
In exchange for tax considerations, CICs (pronounced "kicks”) must prove a “community interest” to their work and place some of their funds under an “asset lock,” ensuring that they're used only for that purpose. They also allow share-selling to raise capital. A MaRS report last month, co-authored by prominent national law firm Ogilvy Renault, recommended Ontario (Free the Children's home base) adopt the British model, whereby profits are allowed but capped.
Overall, though, no country has quite cracked the case. “To date, no government has been able to tackle this one. You would not believe the pirouettes that innovative entrepreneurs with a social mission have to perform to undertake the legal mess,” says Pamela Hartigan, director of Oxford University's Skoll Centre for Social Entrepreneurship, in an e-mail.
“Entrepreneurship focused on social and environmental value creation, in addition to looking at how do they sustain themselves financially, is just way ahead of the legal framework,” she adds in an interview. “You find organizations that have nine different legal frameworks in order to allow them to do what to do … they're trying every single which way to find ways.”
Ms. Hartigan warns, however, that Canada be careful in adopting its new model. “I think Canada needs to take a very close look. The CICs have not been evaluated,” she says. “Nobody knows if it's a good system, or a bad system. Nobody knows.”
Ottawa has signalled that change is on the horizon. The recently tabled federal budget recommended dropping a regulation that charities must spend 80 per cent of their annual take immediately – a requirement considered by many to be a weight around the industry's neck.
And this month's federal speech from the throne also suggested Canada would be open to more social enterprise: “Too often, however, grassroots efforts are hobbled by red tape,” the speech said. “[Canada] will look to innovative charities and forward-thinking private sector companies to partner on new approaches to many social challenges.”
Canada Revenue Agency spokeswoman Caitlin Workman said the agency has “policy people working on it right now.” Asked for further detail, she'd only say that “both the charitable sector and the Canada Revenue Agency are actively interested in the concept of social enterprise.”
The attention of advocates of social enterprise was nonetheless piqued. “If that's the indication of the direction, then I'll take it,” Ms. Hewitt says.
If Canada were to adopt a system similar to Britain, it might allow charities such as Free the Children to roll their for-profit arm under a more long-term structure. The Kielburger brothers have sunk their own money and efforts into Me to We and its predecessor for years, and perhaps appropriately still retain ownership of the assets. But they say they've done it all, toiling with CRA regulations and setting up their separate company, to support Free the Children.
“We try to be as transparent and as clear as possible,” Marc says. “We recognize the need for clarity.”
The stakes are high. When donations dropped last year and most charities scaled back their programs, Free the Children didn't have to – because it got $380,000 from Me to We, Ms. Al-Waheidi says. “I have a whole office … for free, so that's where the benefit comes in,” she says. “It really has provided me ... with some financial flexibility.”
A new system would safeguard charitable assets – placing Me to We's real-estate profits, for example, under an “asset lock” system guaranteeing their use in funding Free the Children – and smooth the way for social enterprise in the charitable sector, as a way to cover administrative overhead and increase the percentage of donations that can be earmarked for actual charitable work.
“If we're asking these kind of charitable groups to be more sustainable, and not rely on government funding forever and ever and ever, we've got to create structures that allow them to be more entrepreneurial,” Ms. Hewitt says. “You can do it [in existing laws], if you're motivated and really keen. But why should you have to?”
