Article by Adepeju Jaiyeoba
If you are an aspiring social entrepreneur, existing social entrepreneur or seeking legal registration for your social enterprise, this is for you.
Today, let’s talk about the important issue of legal registration for social enterprises and the dilemma of a social entrepreneur.
Last Sunday, I taught a one day certificate course in nonprofit and social enterprise management, taking a critical look at the legal, regulatory and compliance issues in the sector. At the session, it became obvious that social entrepreneurs in the House did not fully understand the registration category best suited and advantageous to them.
This dilemma is further compounded by the fact that there is no social enterprise category under the laws regulating business registration in Nigeria i.e The Companies and Allied Matters Act. All you have is:
– Company Limited by Shares
– Company Limited by Guarantee
– Business Name
– Incorporated Trustees for NGOs
I am aware that many lawyers actually advice their clients seeking to register a social enterprise to go under a company Limited by Guarantee as it allows you do business reflecting your social duties while not keeping any profit. All that is required is for the promoters to guarantee it.
Registering a social enterprise under a company Limited by Guarantee in my view is excellent if you really have an absolute commitment to working with grants and donations only, no plans for expansion in your business requiring raising capitals from investors, and a zero desire to raise funds for growth and capacity in exchange for shares which many investors find attractive.
Let me put it in a better perspective:
There are equity financing issues you need to be aware of.
As a company Limited by Guarantee, you have no equity to give, no shares to sell to raise funds and no bargaining tool to enable growth. The very nature of your structure does not even allow it.
So take for instance you pitch to Mark Cuban of SharkTank and he’s willing to invest in your social enterprise, he’s likely to find it unattractive because he practically gets nothing back in return. No stake. No shares. Nothing.
Your opportunities are also limited as you are not likely to be pitching in a venture capital gathering or a pitching session like that of SharkTank.
I’m not by any means putting down the registration of a social enterprise under a company Limited by Guarantee, I just think that Social Entrepreneurs should have full information to enable them make the best decision for the growth and advantage of their business.
Have a great day everyone and Drop your Comments or Questions.