May 2018

The Spark | Ignite/Connect/Achieve www.thesparkng.com www.thesparkng.com The Spark | Ignite/Connect/Achieve
Set Up a Legal Structure
If you are really serious about getting involved in social entrepreneurship,
you must do it within a structure that is legal and can allow for perpetuity.
After all, I am sure you would be happy to see your legacies live after you.
In terms of structure, three options are open to you as explained below;
A. Carry out a great deal of Corporate Social Responsibility (CSR)
activities within your existing business structure:
Sometimes a hybrid approach can be adopted by a social entrepreneur
with a view to making meaningful contributions to the development
of society, by setting aside a portion of profits for CSR activities. Also
the entrepreneur could set up a for-profit business to provide a social
or ecological product or service. In this instance, profits are generated,
but the main aim is not to maximize financial returns for shareholders
but to grow the social venture and reach more people in need. Wealth
accumulation and dividend sharing is not a priority and profits are
reinvested in the enterprise to fund expansion. The entrepreneur of a
social business venture seeks investors who are interested in combining
financial and social returns to their investments.
B. On the other hand, the entrepreneur can set up a non-profit
organization to drive a cause that addresses a market cum
government failure or a societal imbalance.
In doing so, the entrepreneur engages a cross section of society, including
private and public organizations, to drive forward the innovation through
a multiplier effect. Assistance is also sought from external philanthropic
funders and donor agencies. With this style being adopted, the social
entrepreneur is expected to either;
a) Incorporate a Company Limited by Guarantee
b) Register Incorporated Trustees
Please do not run away, I am not speaking big grammar, guys. Nothing I
have said above is that complicated. Both registrations are carried out at
the Corporate Affairs Commission and they are established for economic,
religious, educational and social advancement objectives. Both entities
have their similarities and their differences.
For instance, the approval of the Attorney general of the Federation is
needed to set up a company Limited by Guarantee, but there is no
such requirement for incorporated trustees. This requirement often
discourages promoters from going through the bureaucratic nature of
applying for consent of the Attorney General who may in his absolute
discretion withhold consent.
Another distinguishing factor is that, once an association or organisation
is registered by the Commission as an incorporated trustee, the trustees
jointly become a body corporate with perpetual succession and have the
power to sue and be sued. It is pertinent to state that the registration of an
incorporated trustee confers the corporate status on the trustees rather
than on the organisation itself unlike a company limited by guarantee
which confers the status of a corporate body on the company itself. The
significance of this fact is that, where an organisation has incorporated
trustees registered under CAMA, the trustees on behalf of the organisation
are empowered to contract in the same form and manner as an individual.
This includes the power to hold, acquire and transfer any property on
behalf of the association.
Just in case you are wondering why you need to set up a legal structure,
remember that this structure is the legal identity of the organization and
the vehicle through which donations and grants will be received.
Look Out For Trustworthy Trustees/Advisers/Directors
As the brain behind a social enterprise, you are accountable to a wide
range of stakeholders, including the local community in which the
organization operates. In the same vein, all the trustees must accept
ultimate responsibility for directing the affairs and ensuring that it is
solvent, well-run and delivering the charitable outcomes for which it has
been set up. They are expected to act in accordance with the provisions of
the Constitution of the association. Trustees are expected to understand
the rules relating to money laundering and anti-terrorisms and must
ensure that the association is not used as a vehicle for perpetuating crime.
It is important to understand that the director, trustees and advisers of the
foundation are there to give credibility to the association. In the event
that the trustees act imprudently, or are otherwise in breach of the law or
the governing document, they may be personally responsible for liabilities
incurred by the foundation, or for making good any loss to the foundation.
Do Not Run away from the Tax Man
The good news is that generally, registered non-profit organisations are
exempt from tax. Did I hear you shout in excitement? The Companies
Income Tax Act (CITA) provides for tax exemption on the profits (so long as
such profits are not derived from a trade or business) of any statutory or
friendly society, co-operative society registered under any law, a company
engaged in ecclesiastical, charitable, or educational activities of a public
character, a company formed for the purpose of promoting sporting
activities of a public character and trade union.
Furthermore, the President may exempt by order or if applied for by any
company or organization to be exempted from all the provisions of CITA
and from all or any profits from any source.
The Federal Inland Revenue Service (FIRS) has issued a directive stating
that all non-profit organisations are required to register with the
nearest integrated tax office of the FIRS close to the place of operation
or registered office of the non-profit organisation. Upon registration, a
unique Tax Identification Number (TIN) is generated for tax purposes. It
is also mandatory for every non-profit organisation to file its tax returns
every year in the state where it was registered.
It is pertinent to note that non-profit organisations are required to pay
Value Added Tax (VAT) on goods and services consumed except those
purchased exclusively for its humanitarian projects or activities. VAT is
not assessed in respect of persons but on goods and services supplied.
However, VAT will not be assessed on the provision of certain goods and
services as listed in the VAT Act and schedule, as amended.
Tax benefits in form of allowable deductions are available to any company
which makes a donation to certain Nigerian funds and institutions specified
in the fifth schedule. The amount of deduction for any year of assessment
may not exceed 10% of the total profits for the company during that year.
Also, in Lagos State, for example, the Land Use Charge Law exempts
payment of land use charge on properties which are owned and occupied
by a religious body, registered institution or educational institute certified
by the commissioner for finance to be non-profit making.
Draw up Contracts with Suppliers,
Partners and Service Providers
The fact that an organization is established for purposes relating to
societal development does not preclude it from entering into financial
transactions and partnerships. Do not leave everything to trust in such
dealings. Documentation is key. Document as much as you can, because
non-profits thrive on accountability. When purchasing goods and
engaging the services of consultants for example; it is important to know
your legal duties. What could contract terms mean for your organisation?
On the flip-side, please get your lawyer to review any contract before you
sign it.
Conclusion
Some say social entrepreneurship is the new business model. I totally
agree with them. Because it is not only about posting the huge figures, it
is also about making a lasting impression on people’s lives. In conclusion
therefore, it is important to mention that social entrepreneurship thrives
on accountability. Donors and supporters of charitable causes want to
put their monies where their mouths are and always want to know what
their money is being used for. It is not a bad idea to make your accounts
accessible to the public. As a social entrepreneur, always bear in mind the
fact that society will hold you accountable for the good you do.
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