What is a social enterprise?
A social enterprise is a business that puts people and planet first. They trade like any other business but exist specifically to make the world a better place.
They primarily trade and they exist for a public or community purpose.
Social Enterprise Australia and all state and territory peak bodies in Australia endorse the global standards to define social enterprise. Social Enterprise Australia endorses them because they are collectively owned, clear, and align Australia with the global sector.
They outline that social enterprises do five things:
Purpose: Exist to solve a social or environmental problem
Operations: Prioritise people, planet and their purpose over profit in operational decisions
Revenue: Have a self-sustaining revenue model
Use of surplus: Reinvest most of any surplus in their purpose
Structure: Choose legal structures and financing that protect and lock-in purpose long term.
What does this look like in Australia?
Australian social enterprises have an Australian Business Number, and meet the following criteria on an annual basis:
-
To meet this standard: Your social and/or environmental purpose is publicly communicated online, and you have plans to update your governing documents to include the purpose.
Expected evidence: A link to a public online statement of your organisation’s social and/or environmental purpose, including how that purpose is clearly linked to and reflected in the organisation’s activities.
-
To meet this standard: You meet the minimum sector standards for your sector, and publicly communicate online about how people and planet are prioritised in your work.
Expected evidence: A link to a public statement, policy, or example demonstrating how your organisation prioritises social and/or environmental goals in its operations and decision-making, and how it meets the minimum standard relevant to your sector.
-
To meet this standard: Your financial records show earned income from goods, services, or results-based grant contracts that cover at least 50% of operating expenses, or represent at least 50% of operating revenue.
Expected evidence: Audited financial statements from the most recent financial year (dated within the last 12 months). Where audited financials are not available, the following may be accepted:
Reviewed or compiled financial statements prepared by a qualified accountant, dated within the last 12 months;
Management accounts covering the most recent full financial year, signed off by a director, treasurer, or equivalent officer; or
For organisations less than 12 months old, year-to-date management accounts together with a board-approved budget showing projected earned income against operating expenses.
All financial evidence must clearly distinguish earned income (as defined above) from other revenue sources such as donations, philanthropic grants, or sponsorships.
-
To meet this standard: You have a public commitment to reinvesting the majority of any surplus towards your social and/or environmental purpose. Where a surplus has been generated, your financial records show a greater than 50% reinvestment into purpose-related activities or purpose-related disbursement if surplus is available.
Expected evidence: The following are required, scaled to the size and structure of your organisation:
A public commitment to reinvesting surplus. This may take the form of:
A clause in your governing document; or
A published policy or annual report; or
For small organisations, a very clear statement on your website, social media bio, or business profile setting out how your surplus is used.
Financial records from the most recent financial year (dated within the last 12 months) showing how any surplus was applied. Acceptable formats include:
Audited or reviewed financial statements;
Management accounts or bookkeeping records signed off by a director, treasurer or equivalent; or
For small organisations, a simple statement of income, expenses and surplus use, or a signed declaration from the shareholders.
Where no surplus has been generated, or where you have been operating for a period of less than 12-months, a statement approved by the Board of Directors or Shareholders confirming how future surpluses will be applied.
-
To meet this standard: You have made a public commitment to protecting and locking-in purpose over time, and you have plans to update your governing documents or registration where needed. Your current financing and ownership arrangements don't prevent future purpose lock-in. On renewal, you will need to demonstrate clauses in your governing documents that protect purpose through periods of transition, including changes in management, ownership, and dissolution.
Expected evidence: The following are required, scaled to the size and structure of your organisation:
A public commitment to protecting purpose over time. This can take the form of:
A clause in your governing document (constitution or shareholders' agreement) locking in purpose, restricting profit distribution, or directing assets to a like-purpose entity on dissolution; or
A clear public statement (online, annual report, or business profile) setting out how purpose is protected; including, for small organisations, what would happen to the business or its assets if it were sold, transferred, or wound up.
A plan to strengthen protections where needed, such as adding an asset lock or purpose clause or transitioning to a more appropriate structure.
At renewal, organisations will need to show that planned protections are in place, with the level of formality scaled to size and structure. Social Enterprise Australia will take size, structure, and life stage into account when reviewing evidence, and is happy to talk through what's appropriate before you submit.
Frequently asked questions
-
It’s widely understood in Australia that social enterprises primarily trade - from the foundational Finding Australia's Social Enterprise Sector (FASES) research, to the definition of a social enterprise under Australia’s Classification of Social Sector Initiatives and Entities (CLASSIE). When we asked the sector their views on this, a key theme was that core to what makes a social enterprise is that they primarily trade.
But how this has been checked in different contexts varies. And what is meant by ‘trade’ is often misunderstood. This has created confusion and work.
‘Trade’ means the exchange of goods or services.
That sounds simple, but grants are not straight forward when it comes to trade. Some grants are gifts and donations, not trade. Others are used to buy goods or services, and are trade.
In Australia, GST is a useful guide:
If GST applies, the grant is for a good or service. It is trade.
Gifts and donations do not attract GST. They are not trade.
There are exceptions where GST may not apply to a grant that is for goods and services, including when:
It is for GST-free goods or services (such as most basic foods, some education courses and some medical, health and care products),
It is for an input-taxed activity (such as residential rent or certain financial services), or
The organisation receiving the payment is not registered for GST.
Where GST does not apply, the practical question is: would GST apply if these exceptions did not exist?
Questions? Contact us -
Grants are not always straightforward when it comes to trade. Some grants are gifts or donations and don’t count as trade. Others are payments for goods, services, or results, and do.
The simplest test is: is the grant consideration for something your organisation supplies, does, or delivers? If yes, it is trade. If it is a gift with no expected return, it is not.
In Australia, GST is a useful guide:
If GST applies, the grant is generally consideration for a supply. It is trade.
If GST does not apply, the grant is generally a gift or donation. It is not trade.
There are a few exceptions where GST does not apply even though the payment is for a supply:
The supply is for GST-free goods or services (e.g. most basic foods, some education courses, and some medical, health, and care services);
The supply is for an input-taxed activity (e.g. residential rent or certain financial services); or
The organisation receiving the payment is not registered for GST.
Where GST does not apply, the practical question is: would GST apply if these exceptions did not exist? If yes, it should generally be treated as trade.
-
Trade can be non-monetary or involve alternative currency transactions.
In Australia, the value of non-monetary and alternative currency transactions is recognised by converting the trade to its fair market value in Australian dollars at the time the transaction takes place.
Types of social enterprise
Meeting unmet consumer needs: Providing essential or culturally specific goods/services where government or market providers do not.
First Nations-led for First Nations justice: A First Nations-controlled social enterprise working to create economic, social, or cultural outcomes that advance First Nations justice, self-determination, and community-led solutions.
Advancing charitable or community purpose: Generating revenue to fund charitable activities or community development.
Creating opportunities for community participation: Enabling social connection, inclusion, and local engagement.
Work integration social enterprise (WISE): Providing employment or training pathways for people facing barriers to work.
Promoting ethical consumption and sustainable supply chains: Using ethical sourcing, fair trade, or sustainable production to address social or environmental injustices.
Social and environmental innovation: Pioneering new business models, technologies, or services that address emerging social and environmental challenges.
Strengthening the social economy: Providing services that support social enterprises and other impact-driven organisations.
Note: This classification draws on Barraket et al's 2017 paper, 'Classifying social enterprise models in Australia', published in the Social Enterprise Journal (Vol 13, No 4, pp 345–361); Social Enterprise Australia consulted the paper's lead author, Jo Barraket (Director, Melbourne Social Equity Institute), in developing the above approach.