2.7.4 Intermediate comparative conclusions: financial structure of social enterprises in the Belgian, Greek and UK social enterprise law

To conclude and compare the varying financial structures of social enterprises in Belgium, Greece and the UK, we note that the tailor-made laws for the legal forms of the social enterprise contain asset-lock schemes and distribution- limitation provisions (Table 2.4).1 The profit-distribution limitations represent a significant characteristic of social enterprises (addressed in the Commission’s definition for social enterprises), namely that a social enterprise’s profits exist primarily to achieve a social purpose rather than to satisfy its members. Indeed, the aim of such restrictions is to maintain the assets in the organisation, to impose constraints on the distribution of profits and assets to the owners of shares and members of the organisation, and/or to direct the distribution of profits and assets to the fulfilment of the social objectives. For example, the asset-lock schemes allow only for a limited distribution of profits and assets subject to regulated caps.

Each of the selected legal frameworks for social enterprises includes similar asset-lock provisions. Moreover, there is an element of commonality for the reason that each of the asset-lock schemes either prohibits the distribution entirely or allows for a limited distribution of profits and assets on the basis of distribution caps. The established caps vary (Table 2.4).

Belgian legislation lays down a dual asset-lock mechanism, which prohibits the distribution of profits in the form of dividends to the owners of shares and members but allows the limited distribution of profits subject to a regulated cap. The regulated cap is currently fixed at 6% and is related to the VSO’s total volume of assets rather than its estimated profits.

Similarly, Greek legislation provides for an asset-lock scheme that appears to be stricter and more targeted, but it is possible to circumvent it. In short, the Greek asset-lock scheme prohibits entirely any distribution of profits to Koinsep members. Unlike in the Belgian and UK legal frameworks, no possibility is brooked in the Greek legislation for any limited distribution of profits to owners of cooperative shares and members. The stipulated distribution caps in the Greek legal framework point to the allocation/distribution of the Koinsep’s profits to specific targets within the Koinsep organisation. However, based on the regulated caps, the profit distribution constraint does not apply to Koinsep members who are legitimately employed by the Koinsep and duly entitled to receive 35% of profits as remuneration.

Finally, similarly to the Belgian and the Greek legal frameworks, the UK framework contains restrictions on the distribution of assets in the form of regulated caps, and among others, i.e. an aggregate dividend cap, currently set at 35%. The dividend cap prevents the distribution of the accumulated, realised profits of the CIC beyond this prescribed level to its shareholders and members and to any organisations that do not pursue community objectives. Unlike the Belgian and the Greek legal frameworks, the UK framework introduces the concept of ‘exempt dividends’ that allow for the distribution of profits to any organisation that pursues community objectives and is subject to the approval of the Regulator. A similar concept was not identified in the Belgian and the Greek legislation, which are less sophisticated.

Asset-lock schemes have also been introduced by legislation to protect the distribution of assets during winding-up and liquidation (Table 2.4). Although the post-liquidation destination of the assets in the examined legal frameworks may vary, the provisions in each of the jurisdictions aim to protect the social enterprises’ assets by directing them to organisations with a social purpose. In Belgium, the legal framework requires the allocation of remaining assets to a purpose that approximates to the social purpose of the dissolved VSO. Similarly, the Greek legal framework contains provisions, which require the remaining assets from a dissolved Koinsep to be transferred after liquidation to the Social Economy Fund from which Koinseps in Greece are eligible to be funded. In the UK, on winding up, the legislation prescribes the distribution of any assets only to other asset-locked bodies either specified in the AoA and/or memorandum or approved by the CIC Regulator.

Finally, with respect to financial instruments supporting the financial structure of the examined legal forms, only the Greek legislation contains stipulated provisions regarding financial instruments and eligibility regarding external financial resources (Table 2.4). However, secondary legislation and the regulatory framework in the Greek legal system continue to develop. Similar provisions were not identified in the Belgian and UK legal frameworks. Accordingly, there is no reference to financial instruments in the Belgian legal framework regulating the VSO legal form, whereas in the UK the Regulator provides only limited guidance in this respect.