Some social enterprises are not run for profit, such as non-governmental organizations (NGOs) and charities. However, even these non-profit organizations must earn a surplus from their business in order to continue operating. The difference is that the surplus is reinvested back in the social enterprise and/or the community.

Recall that social enterprises generate revenue like any business organization, but hold community objectives for the wellbeing of others in society, rather than primarily aiming to earn profit for their owners. Non-profit social enterprises operate in a commercial-like way but they do not distribute any profits to their owners or shareholders. Instead, the surplus they may earn is completely reinvested in the organization in order to pursue their vision and/or mission.

Examples of non-profit social enterprises include the following organizations:

• Doctors Without Borders

• Human Rights Campaign

• Friends of the Earth International

• World Wildlife Fund

Advantages of non-profit social enterprises

The advantages of establishing a business as a non-profit social enterprise include the following points (which apply to both NGOs and charities):

• Non-profit social enterprises exist for the benefit of local communities and societies. Examples include fundraising events and donations to meet social aims of a community.

• Non-profit organizations, including non-profit social enterprises, are exempt from paying corporate and profits taxes.

• Many NPOs also qualify for government assistance in the form of grants and/or subsidies, thereby reducing their costs of production.

• There can be a positive impact on employees and donors who feel that the non-profit enterprise is pursuing a socially meaningful ambition.

Disadvantages of non-profit social enterprises

However, there are potential disadvantages of establishing businesses as non-profit social enterprises. These include the following points (which apply to both NGOs and charities):

• There are strict guidelines and restrictions that non-profit social enterprises must follow; not all trading activities are permitted. This is to ensure the general public is protected against fraudulent activities by dishonest charities or non-governmental organizations.

• NPOs depend on the goodwill of the general public and donors to fund their operations. As a result, business survival is often difficult for many smaller, less-known non-profit social enterprises.

• There is a lack of financial and cost control because, unlike in a for-profit organization, managers at NPOs are not expected to earn a profit for their owners or shareholders.

• As a non-profit organization, the wages and remuneration of workers are often lower than in commercial, for-profit organizations. Whilst it might be socially acceptable that the managers at a bank or private law firm is paid an annual bonus, gets to travel on business class and is offered a company car, the equivalent benefits for a person working for a charity might be deemed to be rather unethical.

Company cars are a common perk for senior managers working in for-profit organizations

A non-governmental organization (NGO) is a type of non-profit social enterprise that operates in the private sector of the economy. Therefore, it is not part of a government organization. Instead, it is operated a voluntary group to promote a social cause, such as the protection of human and animal rights, protection of the environment, and development aid. They operate at a local, national, or international level and put pressure on governments to adopt policies in support of their social cause.

They are usually funded by a combination of sources:

• Government grants or donations

• International organizations

• Charitable organizations

• Commercial businesses, as part of their corporate social responsibilities (CSR), and

• Private donors and philanthropists.

Examples of non-governmental organizations include: Oxfam, the Wikimedia Foundation, Amnesty International, Doctors Without Borders, the World Wildlife Fund, and World Vision International.

• Amnesty International

• Doctors Without Borders

• The International Organization for Standardization (ISO)

• Oxfam

• Wikimedia Foundation

• World Vision International

• World Wildlife Fund

Charities are another type of not-for-profit social enterprise. They operate to serve a humanitarian purpose, rather than to pursue a financial return for their owners. Charities exist to help a large range of causes, such as the pursuit of poverty eradication, human rights, child protection, and safeguarding the welfare of animals. Unlike commercial businesses, charities do not necessarily sell any goods, but promote and a socially desired cause. Like other types of social enterprises, charities generally operate in the private sector.

To qualify and be registered as a charity, the activities of the organization must be deemed charitable by the laws of the country. It must only have charitable purposes for the benefit of the general public. This also means that charities have to produce annual reports to show how they are meeting their charitable objectives.

Examples of charities include the following:

• UNICEF

• Ronald McDonald House Charities

• Bill & Melinda Gates Foundation

However, as charities do not earn a financial return for their investors, they usually struggle with a rather limited range of sources of finance. These sources include:

• Donations

• Sponsorship funds

• Fund-raising

• Selling merchandise products

Donations are a key source of finance for charities

Watch this short video clip from the The Australian Charities and Not-for-profits Commission, which outlines the definition of charities and their purpose: