What Is A Social Enterprise? What You Must Know About Setting Up A Social Enterprise And Details Of Government Funding Schemes?

What Is A Social Enterprise? 

There isn’t a standardised definition of what a social enterprise is¹. In Hong Kong, a social enterprise is characterised as a company that reinvests no less than 65% of its distributable profits back into the business, with the aim of achieving specific social objectives. These can include creating jobs, promoting fair trade, building inclusive communities, etc¹. For instance, some social enterprises hire staff from disadvantaged groups to manage restaurants and then reinvest the profits into maintaining the restaurant services to achieve self-sufficiency or employ even more staff from disadvantaged groups.  

What You Need To Know About Setting Up A Social Enterprise

Setting up a social enterprise is not easy - the effort, time and capital needed and the market competition that a social enterprise needs to face along the way can be challenging. Here are the five common questions to ask when you need to balance financial returns and social impacts while setting up a social enterprise: 

1.    What type of social enterprise  should I choose?
There are generally no restrictions - government-funded social enterprise projects widely range from catering, household service, logistics, retail and lifestyle products to environments, recycling and upcycling, etc². 

2.    Are social enterprises unlimited or limited companies under the law?
There are no specific legal regulations as to whether a social enterprise should operate as an unlimited or limited company although limited companies are the most common legal form for social enterprises³. Same as general commercial company, a social enterprise can be formed as a limited company which enjoys the status of a separate legal entity from its owner. It means that if the company were to liquidate, shareholders would not need to bear its debts in their personal capacity. However, a limited company is also subjected to certain legal requirements; for example, each limited company is required to have a company secretary³, etc. If a social enterprise wishes to apply for tax exemption, it will likely register as a company limited by guarantee³. 

3.    How much funding can a social enterprise apply for? 
Depending on the nature of the businesses and projects, a social enterprise can apply for various government funding schemes.  Based on the funding amount and allocation under the government funding schemes, each approved SE project can be granted a maximum of HK$3 million as initial capital expenditure and operation expenses for no more than 3 years⁴.

4.    Can the owners of the social enterprises share the profits? 
In Hong Kong, a social enterprise refers to a company that reinvests at least 65% of its distributable profits in its business to achieve specific social objectives. Owners and shareholders can share the profits as long as the social enterprise is not eligible for tax exemption³. 

5.    What do I need to prepare when setting up a social enterprise?
Managing a social enterprise requires skills such as market analysis, management and implementation of plans, financial analysis, corporate governance, etc. It also involves designing a business model, an understanding of market needs, establishing teams and an organisation structure for the social enterprise⁵. For these reasons, the social enterprise sector has organised a number of workshops for social  entrepreneurs to learn from their predecessors before determining what preparation and resources are needed to start a business⁵.

Details of Government Funding Schemes for Social Enterprises 

The government has set up 3 social enterprise funding schemes, including the Enhancing Self-Reliance Through District Partnership Programme (“ESR Programme”) of the Home Affairs Department, the "Enhancing Employment of People with Disabilities through Small Enterprise" Project of the Social Welfare Department, and the Social Innovation and Entrepreneurship Development Fund (“SIE Fund”)⁴. With reference to the Enhancing Employment of People with Disabilities through Small Enterprise Project, here are some of the basic application criteria: 

• The applicant has the status of a separate legal entity⁶; 
• The applicant is eligible for tax exemption⁶; 
• Priority is given to projects that assist socially disadvantaged groups in entering the open market⁶, 
• If not eligible for tax exemption, the applicant must have non-profit undertakings or experience running social enterprises for at least a year⁶. 
• The majority of the grant is used solely for initial capital expenditure and operation expenses for a maximum of 3 years⁴.

It is important to note that the operational model of a social enterprise should not be reliant on government or charity funding long-term but rather to achieve self-sufficiency by generating profits from delivering business values¹. 

DBS Fully Supports Social Enterprises And Their Development

The DBS Foundation has set up the Social Enterprise Grant Programme and offered grant to help businesses transform their operations with enhanced sustainability and inclusivity in mind. Additionally, DBS SME Banking offers business bank account services and tailor-made corporate financial solutions to meet your business needs⁷. Click here now to sign up for business banking services, or click here to browse more account features. 

The above information is only for your reference. For detailed information, please refer to the sources and seek professional advice if necessary. 

Article published on 19 March, 2024

¹Source: Home Home Affairs Department- What is SE? (https://www.dbs.com.hk/sme/disclaimer.page?url=https://www.sehk.gov.hk/en/concept.php)
²Source: Home Affairs Department - Find SEs (https://www.dbs.com.hk/sme/disclaimer.page?url=https://www.sehk.gov.hk/en/search.php)
³Source: Home Affairs Department - Set Up SEs - Reference Publications- SE Good Start - Choosing a Legal Form and Recommended Practices, P. 7-9, P.13 (https://www.dbs.com.hk/sme/disclaimer.page?url=https://www.sehk.gov.hk/upload/pdf/Annex_E_Choosing_a_Legal_Form_and_Recommended_Practices.pdf)
⁴Source: Home Affairs Department- Set Up SEs - Funding Schemes (https://www.dbs.com.hk/sme/disclaimer.page?url=https://www.sehk.gov.hk/en/gov_fund.php)
⁵Source: Home Affairs Department - Set Up SEs - Reference Publications- A Practical Guide of Setting Up a Social Enterprise  P.3, P.6, P.21, P.16 (https://www.dbs.com.hk/sme/disclaimer.page?url=https://www.sehk.gov.hk/tc/publication.php)
⁶Source: Home Affairs Department - ESR Eligibility  (https://www.dbs.com.hk/sme/disclaimer.page?url=https://www.esr.gov.hk/en/funding_application.html) 
⁷Source: DBS (HK) Social Good

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