Structuring and Implementing Social Entrepreneurship Ventures in Africa
By B. Ray Dinning, JD, LLM (taxation)
The need for proper legal structuring of social entrepreneurship ventures in our global economy has never been greater than today. The Grameen Bank, the Bill and Melinda Gates Foundation, Starbucks Fair Trade Coffee Program and others highlight the significant social entrepreneurship projects being established in recent years. With over four billion people living below the poverty line with household incomes of less than $2 per day, the world’s population is focused on day-to-day living and the necessities of life such as food, water, shelter and health care.
To combat these basic but daunting needs, social entrepreneurs must be creative to innovate new solutions, they must be organized and structured in their corporate culture and they must work in tandem with governmental, non-profit and for-profit organizations to achieve sustainable change to the world’s basic issues. This requires detailed professional legal and accounting structuring to ensure that such ventures are established properly and transparently. The legal and professional issues encompass significant issues in tax law, international law, corporate and nonprofit law, partnerships and joint venture structuring, international tax and banking law and more mundane topics such as employment law, international dispute resolution procedures, governmental regulations, public policy concerns and a myriad of other legal issues.
Having spent over 17 years in researching and structuring joint ventures and partnerships with nonprofit organizations and public private partnerships has afforded me the opportunity to work with dozens of international social entrepreneurship ventures around the world – with particular emphasis and experience on the continent of Africa. While the legal structuring is vital to the success of the social entrepreneurship project, building partnerships, relationships and alliances is equally important to the success of the venture.
Professor Jeffrey Sachs, economist and founder of Earth Institute at Columbia University argues that the world must begin “mobilizing global science and technology to address the crises of public health, agricultural productivity, environmental degradation and demographic stress confronting these countries. In part this will require that the wealthy governments enable the grossly underfinanced and under empowered United Nations institutions to become vibrant and active partners of human development.” See Center for International Development at Harvard University dated August 14, 1999 (Speech of Professor Jeffrey Sachs).
Thorough innovation and creative application of existing business models to the problems of the poor has led to major leaps in social entrepreneurship in recent years. “In many cases it is an individual-driven thing, where a passion for change leads to remarkable and sustainable results” (Bessant & Tidd, 2007, pp. 300). For example, Professor Mohammed Yunus, Founder of the Grameen Bank and Nobel Prize Winner used creativity and innovation to create a micro finance bank of the poor. His efforts have ignited the quest to encourage innovation to solve the world problems faced by four billion people. For example, Massachusetts Institute of Technology has instituted its IDEAS Competition to promote innovation to aid world issues. The year’s MIT Yunus Challenge “calls for innovative small-scale energy storage solutions to help alleviate poverty. Solutions must address the needs of people living on less than $2 per day.”
One of the greatest challenges to innovation and social entrepreneurship is that the profitmaking objective driving business and the implementation of capital to make money is not the primary motivation in social enterprise. As Bessant and Tidd note, “Social entrepreneurs are “concerned in some way with making the world a better place.” While social entrepreneurship is rapidly gaining momentum in universities and government sectors worldwide, mobilizing capital is obviously a challenge in social entrepreneurship as capital markets generally require a satisfactory return on investment. This requires the social entrepreneur to make their project attractive to capital markets mainly by showing the social impact and public relations benefits. To overcome these obstacles, the social entrepreneur must be more vigilant, structured and professional to attract necessary capital.
As the social entrepreneur, once seen as a dreamer or frugal missionary, becomes more business-like, professional and structured, capital providers will follow. For example, the Government of Scotland recently launched its “Social Entrepreneurs Fund is aimed at individuals who want to set-up and run a business with a social and/or environmental purpose. The fund will provide financial and business support to help get new enterprises off the ground.” Additionally, through innovative ideas, traditional capital models can be granted incentives to fund social ventures. For example, on July 1, 2009, South Africa enacted a provision which promotes the creation of social entrepreneurship venture capital funds for micro enterprise and small business funding. Provision 12J to the Income Tax Act allows for a 100% tax deduction to South Africa individuals and businesses which invest in new venture capital funds which promote social entrepreneurship. Here, a traditional funding source, private venture capital, was given creative incentives to pay for new social enterprise businesses. The incentive is that the individuals receive both the investment and a 100% tax deduction. Thus, innovation plays a significant role in the implementation of capital and funding sources into social entrepreneurship ventures.
Partnerships are another key factor in utilizing innovation in social entrepreneurship. In a 2002 Report entitled “Working for a Sustainable World”, President Bush and then Secretary of State Colin Powell noted that “Partnerships are Key” in addressing the world’s needs in a meaningful and sustainable manner. Working for a Sustainable World – US Government Initiatives to Promote Sustainable Development (August 2002). President Bush notes in his report that government must promote partnerships with nonprofits, universities, for-profit business and science and technology to achieve sustainable results. President Bush also emphasizes that the nonprofit sector provided over $4 billion into sustainable development and social entrepreneurship and that only through partnerships can these resources be harnessed into lasting change in tackling the world’s basic needs.
International Tax Partners is a professional group of legal counselors who ahve over a decade of experience in structuring social ventures around the world. With significant experience with structuring social entrepreneurship ventures in Africa, International Tax Partners assists non-profits, universities, for-profit businesses, investment funds, foundations and governmental organizations in the legal documentation and structuring of social enterprise ventures and partnerships.
B. Ray Dinning, JD, LLM (taxation) assisted Professor Michael I. Sanders with his foundational legal treatise entitled, Sanders, “Joint Ventures Involving Tax Exempt Organizations (Wiley & Sons 2004).” Mr. Dinning has taken over 70 trips to Africa assisting United States companies in negotiating, structuring and documenting social entrepreneurship ventures. Contact us at email@example.com.