The Social Enterprise Alliance (SEA), a 501(c)(3) membership organization devoted exclusively to building sustainable nonprofits through earned income strategies, defines social enterprise as:
an organization or venture that advances its social mission through entrepreneurial, earned income strategies.
San Francisco-based REDF, a 501(c)(3) organization formerly known as The Roberts Enterprise Development Fund, offers two reasons an organization might pursue a social enterprise:
1. As a strategy to further its social mission, for example to create transitional and permanent job creation to benefit a targeted population.
2. As a source of earned income as part of a strategy to diversify the revenue base.
A social enterprise may be formed by an organization as a subsidiary or otherwise affiliated organization. It may be formed as either a nonprofit or for-profit organization. And it may be formed as part of a joint venture with another entity, often as a partnership between a nonprofit and a for-profit. It should be recognized, however, that a social enterprise is no panacea for a nonprofit facing financial difficulties. This is complex territory requiring substantial research, planning, resources, patience and change. Fortunately, there are a few great resources on the web to help organizations considering the use of social enterprises …
REDF – FAQs covering the following issues among others:
- Isn’t it illegal for a nonprofit to run a for-profit business?
- What are the reasons for creating nonprofit enterprise?
- What are the reasons for not attempting to launch a nonprofit enterprise?
- How do I go about starting a nonprofit enterprise?
- How do we educate ourselves on these issues?
- How do we determine what kind of business to start?
- What will be the impact of this on our organization? Should I anticipate board and staff changes?
- How much will it cost?
- How do I convince my board?
- What are the most critical success factors?
Social Enterprise Alliance – Resources
IRS – Among the legal considerations is the issue of whether the social enterprise is generating unrelated business income subject to unrelated business income tax:
Publication 598, Tax on Unrelated Business Income of Exempt Organizations