Social enterprises have been an underlying business that has not had much light shed

on for the past few years, and continue to be buried in the business society. This is due
to the fact that Social enterprises are not doing very well in Singapore. In this first world
country , it is considered on of the best countries to set up a business as it is the
economy with the most business friendly and secure environment (Dillinger, 2015) and
is thriving extremely well. It is expected for local businesses to thrive even more
however that is not the case. As social enterprises seek to solve social issues and bring
in revenue to support the economy, it should be supported and therefore should have a
separate legal framework governing social enterprises in Singapore.

A social enterprise is a business entity set up with clear social goals. It is a clear
management intent and resources are allocated to fulfil the social objectives. It is still
essentially an enterprise targeting profits , however, it commits to giving back and using
some of the profits to plow back into their social goal (Singapore secretary services,
2018). Regarding the Social enterprises in Singapore, Social enterprises are considered
a for-profit organization , and therefore are required to adopt a for-profit legal structure
for the enterprise and will therefore be considered as any other business operating for
profit. The legal structures in Singapore include Sole Proprietorship , Partnership,
limited liability partnership (LLP) , Limited partnership (LP) , company ( Private limited,
public limited ), Public Company limited by guarantee (CLG) and co-operative society.

In order for any business to flourish and prosper, the ideal is for high revenue and a low
expenditure. With that, profit for the business will increase and benefit the business.
However, social enterprises cannot start with much capital despite there being funds
and grants provided by Raise. The expenditure for a social enterprise is also generally
high as by devoting the business to helping communities costs money for things like
training. Annually, 31% of social enterprises make less than $50k a year, 43% make
$50k-$250k, 12% make $250k- $500k , and 14% make $500k and more. 69% of social
enterprises employ 1-5 employees. The top 3 challenges faced by social enterprises is
customer acquisition and market development, access to financial support, and lack of
public awareness (RAISE, 2017). Legal structure affects all of the challenges either
directly or indirectly. Social enterprises find it difficult to start up , and do not have the
capital or the finances to start. Every business in Singapore is required to register with
the Accounting and Corporate Regulatory Authority (ACRA) and pay a base fee of $315
(ACRA, 2019). After which , Social enterprises will be charged taxes for the profits that
they make (ACRA, 2019). By doing so , this adds on to the financial burden of social
enterprises. Due to this, social enterprises that start up , find it difficult to be sustainable
and earn enough revenue to do well. Indirectly , this affects customer acquisition and
public awareness as without sufficient funds and finances, there is not enough to cover
the expenditure cost for customer acquisition and public awareness.

In other countries, social enterprises are more prevalent as their societies have more
exposure to it. For example , in the UK, 9% of Small and medium sized enterprises
(SME) are social enterprises (Sharman, 2017) , which is a significant amount compared
to Singapore which social enterprises only consists of 0.22% of SMEs (UOB, 2017). In
the UK, 1.44 million are employed by social enterprises providing jobs and a livelihood
for the minority communities in the UK. It is said that social enterprise employers tend to
also be more sustainable compared to more dynamic businesses in certain aspects. For
example, almost all social enterprise employers generated profits in the last year
compared to three quarters of small and medium-sized enterprises employers
(Sharman, 2017). Social enterprise employers are also more likely than SME employers
to try and access information on day-to-day operations or strategic advice to help grow
the business. The report found that 35% of social enterprises did this compared to 21%
of SME employees (Sharman, 2017). This is due to the legal structure set aside for
social enterprises. Most of the Social enterprises in the UK fall under the legal structure
of Community interest companies (CICs). It is a limited company that seeks to benefit
the community rather than private shareholders. In order to set up a Social enterprise
under CIC, it requires a community interest statement, explaining what the business will
do. There will be an asset lock implemented as well, which is a legal promise stating
that the company’s assets will only be used for its social objectives, and setting limits to
the amount of money it is allowed to pay to shareholders. Further action will have to be
taken by the community interest company regulator by assessing the application form
that is sent it (Government, 2015). This results in selling shares to those that really care
about the social cause as there is a limit. By implementing a limit to how much can be
given to shareholders, shareholders that do buy shares knowing this sieves out the
intentions and the motivation of why the shareholder is buying shares. This encourages
employees to work hard for the cause and ensure they are not motivated just for the
money but for the social cause. As seen from above, this pushes employees in the
Social enterprise sector to work harder with initiative.

The first advantage of setting up a social enterprise under CIC is that the social
enterprise will be given access to certain forms of finance. Some donors will only give to
charities or community interest companies, because of the protections these vehicles
provide that funds will be used for stated purposes. Therefore, access can lead a social
enterprise to operate as a CIC rather than as a standard company. Secondly, it is a
limited company therefore offering protection. The advantage, as for other businesses
operating as a limited company, is limited liability. This provides an important element of
security for those who own and manage the business. At the same time, it provides
some protection for any assets related to the social enterprise, which would not
generally be available for an unincorporated entity. Third advantage is that it is quicker
to set up. A community interest company is quicker to form than a charity, with a single
consolidated application to form the company made to Companies House, which they
and the CIC Regulator separately review. Fourth, there is lesser government
requirements. There is also a lower level of ongoing governance for a community
interest company than a charity. While CICs are regulated by the CIC Regulator, this is
comparatively ‘light touch’, with the main requirement being the submission of the
annual Community Interest Report. The reporting requirements, in financial and other
areas, are more stringent for charities than CICs. This relative freedom from regulatory
restraints means that a CIC can focus intensively on its social aims, with fewer
restrictions on trading activities than a charity faces meaning they can also take a more
commercial approach to achieving their ends.

Due to the type and the nature of the social enterprises in Singapore which is mostly
SMEs, I have decided to focus on similar types of enterprises in Europe to compare to
make it an even fairer ground for comparison. In Spain , there is a restaurant, Le bistro
Valladolid that has been highlighted as one of the Social enterprises that is trending in
Europe (Perdomo, 2019). They invest 5 cents from every coffee cup served in a chosen
social cause. That way, they are providing a daily contribution instead of one related to
the presence of a single campaign. However their social cause does not stop there.
They go above and beyond to include other communities to tackle more than one social
problem. They are part of Project Pietá, a social business that enables social and
employment rehabilitation for inmates from Peruvian prisons through garment making.
That way, Le Bistró’s uniforms get a social meaning (Perdomo, 2019). This restaurant
flourishes and have the luxury of having enough finances to set up the restaurant with a
homely yet highly sophisticated atmosphere. They also have the finances to hire chefs
and waiters, serve high quality food and make a name for itself. Another start up is
Ecoalf that also originated from Spain. Its founder worked in the fashion business and
was fed up with the huge waste of natural resources and the amount of waste
generated by the industry. Now, it is one of the world’s most important companies in this
area. It has managed to make high-quality clothing from recycled materials, mostly PET
plastics and fish nets. Clothes are very high-quality and with amazing design. The final
product is so attractive that they have even gathered attention from celebrities such as
Will I am or Gwyneth Paltrow, who have even sponsored them. They even work with
partners from all over the world, from Mexico to Taiwan, Korea or Portugal. Their model
is based on integration and ongoing research of technology capable of transforming
new waste materials into fashion. However, similar to every startup , cashflow was a
problem. “It takes approximately 7 months between the moment we collect the waste
and selling a jacket,” explains founder Javier. To solve this problem, Ecoalf secured an
EU-guaranteed loan made possible by the EIF under the EU’s Investment Plan for
Europe, which enabled the company to continue with its activities and, ultimately, create
7 jobs and generate 80% growth. EIF stands for European investment fund and under
the EIF, there is the Employment and social innovation (EaSI) guarantee instrument. It
is specifically dedicated to microfinance and social entrepreneurship. One of its key
objectives is to increase the availability of and access to finance for vulnerable groups
wishing to launch their own enterprises, micro-enterprises and social enterprises, both
in their start-up and development phases. The EaSI Guarantee Instrument builds on the
success of the European Progress Microfinance Facility (Progress Microfinance) an EU
initiative launched in 2010 and managed by EIF, that has so far mobilised more than
EUR 440m spread across more than 50 000 micro-borrowers (EIF, 2019). With these
grants and benefits provided by the government , it is proven that Social enterprise can
flourish if it is set apart from other businesses.

In South Korea, it is the only East Asia country that defines what a social enterprise is.
There are 5 types of social enterprises that Korea identifies with. The first is Job
creation type with the main purpose of providing jobs to the vulnerable social groups.
The second social service provision type that is meant for providing social services for
vulnerable social groups. The third is called the mixed type where it does both job
creation and provides social service. The fourth type is called other types. A social
enterprise of which realization of social purposes is difficult to judge on the basis of the
ratio of employment or provision of social service. The fifth type is the local community
contribution type, An enterprise which contribute to the improvement in the quality of life
of the local community (Neetal ,2015). The government defines a social enterprise as “a
company or organization which performs business activities while putting priority on the
pursuit of social purposes.” A Social enterprise must go through 7 steps before being
certified as one. The first step is Prior consultation on the satisfaction of formal
requirement with the support organization in the region followed by application and
acceptance by Korea Social Enterprises promotion Agency (KoSEA). An inspection of
the organization will be conducted by KoSEA and the support organization in the region.
A recommendation by central departments and local governments is also required. Prior
review by certification sub committee by department of Employment and labour followed
by Deliberation by professional committee for promotion of social enterprises. Lastly ,
Certification by minister of employment and labour. After all these steps, an organization
can be qualified as a social enterprise (KoSEA, 2019). Once certified, a social
enterprise can have preferential access to various kinds of support such as expert
support in human resource management, tax affairs, and accounting. Loans for renting
land and facilities, public procurement bidding, tax benefits and subsidies for social
security premiums and subsidies for personnel and operational expenses. However,
some criticize that the certification system is damaging social enterprises’ sustainability
by directly subsidizing their personnel expenses. Indeed, some social enterprises face
difficulties in continuing their businesses after they graduate from the three-year payroll
subsidy program. Consequently, the government has shifted its focus to support social
enterprises in being less dependent on government subsidies, more financially
sustainable, and more competitive with private corporations. For instance, the
government now promotes business partnerships between social enterprises and
private corporations, capacity-building of intermediaries that support social enterprises,
social investments in social enterprises; and social entrepreneur development programs
in academic institutions (Watanabe & Sugeno). Despite there being backlash of the
government’s efforts, South Korea is doing well by providing jobs and solving the high
unemployment rate in Korea. To create new jobs and help kickstart the slowing
economy, South Korea is turning to social enterprises as a potential growth engine.
Approximately 27,923 people are employed within social ventures, with 15,815 coming
from vulnerable or disadvantaged groups (Won, 2016).

A seperate Legal structure I feel that should be implemented should be one that best
benefits social enterprises in Singapore to encourage startups, and even help Social
enterprises do well. By having a separate legal structure, Social enterprises can have
the guidance and support needed to build a strong foundation for social enterprise to
grow. As social enterprise is a relatively new concept, there is very little exposure of it to
the general public. By giving social enterprises assistance and more attention with a
separate legal structure, as time progresses, social enterprises would become a
concept that is established and in future, the government would not need to spend
much resources aiding an already established legal structure.
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