In the Dutch landscape, various forms of social enterprises exist and emerge from different types of activities.
Emergence of Social Enterprise
Firstly, there are the non-profit organisations that expand their traditional models (based on grants and subsidies) to sustainable business models that also enable them to scale and accelerate their activities. Non-profit organisations are organised in Dutch foundations or associations, and are increasingly creating hybrid structures with direct ownership in corporations or cooperatives aligned with third-party impact investors.
At the other side of the spectrum, entrepreneurs are increasingly looking for structures that justify their mixed profit aim and social or environmental purposes. This results in structures where corporations are held by cooperatives or in joint ventures between foundations and corporates backed up with tailor-made contractual arrangements and innovations in the constitutional documents. Dutch law is extremely flexible where the constitutional arrangements of foundations, associations and cooperatives are concerned – the most important restriction is typically one’s own imagination!
In practice therefore, the Dutch landscape has a focus on tailor-made solutions inspired by the distinguished and long-term ambitions of the client rather than on a ‘one size fits all’ boiler-plate structure for social enterprises.
Where changes are being implemented in other jurisdictions in order to craft new possibilities for social enterprises, these possibilities typically already exist in the Netherlands. For example:
- There are no restrictions for foundations or associations to carry out entrepreneurial activities themselves. Even within the ambit of a charitable organisation for tax purposes (a qualifying ‘ANBI’), there are ample possibilities to perform commercial activities, whether these are for fundraising purposes or for serving primary public benefit purposes. The recent changes in this area are inspired by the fact that Luxembourg NGO’s are typically not allowed to carry on entrepreneurial activities; the creation of ‘impact shares’ has now made this possible within the same tax exempt status that was hitherto exclusively available to traditional charities.
- There are no restrictions for foundations or associations to receive financing from third parties. The typical structure to attract funding from third party investors for a foundation or association is to create a corporation that issues shares or attracts loans (or any other mezzanine type of financing) from investors, whilst maintaining control over the affairs of the corporation.
- There are no restrictions for foundations or associations to maintain control over the activities of a subsidiary, despite the fact that third parties also invest in shares of the subsidiary. It is standard practice in the Netherlands to maintain voting control over the shares of the subsidiary, and several techniques exist to realise this.
- Dutch law does not recognise a non-profit corporation, with capital divided into shares, as a separate legal form. However, we do have corporations that have included a social or environmental purpose in their constitutional documents. By way of example, the B Corps movement is very active in the Netherlands, creating B Corps according to Dutch law.
- In order to qualify as an ANBI, the Dutch ‘charity’ status that provides for tax relief, the legal form for a foundation or association is compulsory in the Netherlands. However, foreign non-profit organisations that take another legal form, such as a public benefit corporation or a company limited by guarantee, are able to be recognised as an ANBI according to Dutch tax laws, with the same tax relief if compared to domestic ANBIs.
- It is perfectly possible for other organisations or persons, for example, foreign non-profit organisations to create ultimate control over the operations of a Dutch social enterprise driven in the form of a foundation (through a Supervisory Board) or an association (through membership).
Where changes are being implemented in other jurisdictions in order to craft new possibilities for social enterprises, these possibilities typically already exist in the Netherlands
Choosing A Structure
The argument that a social enterprise should be labelled as such in order to be recognised by the public, for subsidies and other business considerations, has not been considered sufficient for the Dutch government to create an independent legal form specifically for social enterprise. A law reform to that extent was proposed in 2009, but was withdrawn by the Ministry of Justice in 2013 and it is highly unlikely that it will be on the agenda in the coming years.
Although it is possible for foundations to act as a social enterprise or to invest in social enterprises whilst retaining the ANBI status (presuming all conditions are met), in many cases the tax relief that is aligned with such a setup will be decisive for the favourable choice of structure; a social enterprise is not typically social in the sense that it would rather pay more taxes than the state itself would in respect of its public interest activities. This does not mean, however, that it would be exempt from corporate income tax by all means, since the non-competition doctrine induces a level playing field between non-profits, the state, social enterprises and the commercial sector.
This blog has also been published in the Newsletter Summer 2017 of ESELA (European Social Enterprise Law Association).
Ineke Koele is the Dutch Expert member of ESELA (http://esela.eu/experts).