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philosophical foundation of SEs, the article, discusses the similarities and differences of SEs with related
concepts. The advantage and disadvantages of SEs is also addressed. The article also tries to show a general
overview of the legal regime for SEs. Finally, the article provides a concluding remark.
2. What is Social Enterprises
Answering the question of what is SEs is fundamental in designing a legal and institutional framework for it.
When the government wants to create a legal and institutional framework for SEs, the first issue it faces is
should it seeks to define or characterize SE or leave it to academicians, practitioners, and other commentators.1
In describing SEs, defining and characterizing are two widely used approaches. Those who adopted the first
approach describe SEs with a general statement of its nature. In contrast, those who have adopted the second
approach set criteria used as a means of distinguishing SEs from conventional business or charity. The issue of
which approach is better remains controversial. Against this backdrop, the way SE was described under two
approaches is briefly examined as follows.
2.1. Definition
The SE is a much fluid and contentious issue lacking a universally accepted definition.2 Whilst the term SEs
has been rapidly gaining currency in recent years, there is still significant divergence on its meaning.3 There is
no single concept of SE in the world. The divergence in the definition of SEs has resulted in a great deal of
conceptual confusion. Despite this, when policymakers want to create a tailored legal framework, the first issue
it faces is should the government seeks to define SE or leave the definition to be filled by academicians,
practitioners, and other commentators.4 Regarding this issue, some states left the issue of defining SE for
academicians and practitioners, while others adopt the definition of SE either by law or the executive branch.5
Concerning this, the stand of Ethiopia is yet unknown as SE has not received government attention.
The framer of the concept of SE, Freer Spreckley described SEs as ‘an enterprise that is owned by those who
work in it and/or reside in a given locality, is governed by registered social as well as commercial aims and
objectives and run cooperatively.’ This definition and description is historic and brainstorming one to indicate
blended social and commercial objectives, but limited to SE owned by workers. The other celebrated definition
of SE is mounted by the Nobel Prize Winner, Muhammed Yunus. Professor Yunus described his SEs model-
“social business” as a non-loss, and non-dividend companies dedicated entirely to achieving a social goal.6This
model of SE is a selfless business whose purpose is to bring an end to multifaceted social problems. In this kind
of business, the company makes a profit but no one [shareholder/owner] takes the profit. The owner can take
back over a while only the amount invested. In doing so, Yunus’s type of SE is limited SEs to not-for-profit
SEs excluding for-profit SEs which distributes limited profit to shareholders, and non-profit SEs in which
member lack the right to take back their initial contribution. In social business, creating social impact is the sole
purpose of the business. In other words, it is not the aim of social business to promote the profit motive of
shareholders or owners of the business. In such a business, the owner owns only corps whiles the society or
community owns the soul of the business. Besides, Robert A. Katz and Antony Page have defined SE as an
organization or venture that achieves its primary social or environmental mission using business methods,
1Anna Triponel & Natalia Agapitova, Legal Framework For Social Enterprises Lesson From Comparative Study Of Italy, Malaysia,
South Korea, United Kingdom, And United States, 6 (World Bank Group Working Paper. No 114405, 2017). 2 Moga Tano Jilenga, Social Enterprises and Economic Growth: A Theoretical Approach and Policy Recommendations, 7:1 INT’L J.
ACAD. RES. IN ACCT. FIN. & MGMT. SCI.,41, 42 (2017); Andrew Rogerson, et al., Mixing business and social What is a Social
Enterprises and How Can We Recognize One?, 1(Shaping Policy for Dev. Odi.Org, Working Paper, 2013). 3 Jim Brown, Defining Social Enterprises, U. of Bristol, http://www.huckfield.com/wp-content/uploads/2014/05/02-Brown-Defining-
Social-Enterprise.pdf; Lanisia Rhoden, The Capacity of NGOs to Become Sustainable by Creating Social Enterprises, 2:2J. OF
SMALL BUS. & ENTRE. DEV. 1, 11 (2014); Jilenga, supra note 38, at 42; François Brouard & Sophie Larivet, Essay of
Clarifications and Definitions of the Related Concepts of Social Enterprise, Social Entrepreneur and Social Entrepreneurship, in
HANDBOOK OF RESEARCH ON SOCIAL ENTREPRENEURSHIP 29, 29(Alain Fayolle & Harry Matlay eds., 2010). 4Triponel & Agapitova, supra note 1 at 8. 5 Triponel & Agapitova, supra note 1 at 8, 9, and 38. 6 Triponel & Agapitova, supra note 1 at 16.
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typically by operating a revenue-generating business.7So defined, a SE may be organized as either a nonprofit
or for-profit entity. It can also be set up using an organizational form specifically designed for SEs that seeks to
“hybridize” or blend components of both nonprofit and for-profit endeavors. This definition is broad enough to
cover both non-profit and for-profit SEs. Here, non-profit SEs imply organization or venture that works only to
create social impact (attain social and environmental mission) whereas for-profit SEs have both profit and
social maximizing goals.
Besides academicians, some countries have tried to define SE by their law or executive organ. The best
examples are South Korea and the United Kingdom (UK). Under the South Korean Social Enterprises
Promotion Act, SE is defined as ‘an organization which is engaged in business activities of producing and
selling goods and services while pursuing a social purpose of enhancing the quality of local residents' life by
means of providing social services and creating jobs for the disadvantaged.8 The term “producing and selling”
show that SE may be an investor and/or trader who engage in the production and distribution stage of the
economy. In South Korea, SE is limited to certified organizations (non-profit or for-profit) that provide services
and create a job for disadvantaged. As a result, an organization without a certificate that engages in business
activities while pursuing social purpose are excluded from the ambit of SE. The concept of SE is broad enough
to include social services and employment opportunity suppliers for the disadvantaged who is unable to
compete in the market to get the services and/or jobs. In the UK (country seen as the birthplace of SEs), the
Government defines SEs as a business with primarily social objectives, whose surpluses are principally
reinvested for that purpose in the business or in the community, rather than being driven by the need to
maximize profit for shareholders and owners.9The word “principally” shows the primacy of social mission over
financial goals in its business. The UK Government clarified SEs’ social mission stating that ‘SEs tackles a
wide range of social and environmental issues and operate in all part of the economy. By using a business
solution to achieve public goods, the government believes that SEs have a distinct and valuable role to play in
helping to create a strong, sustainable, and socially inclusive economy.
In countries where the government is latent to define SE, civil society plays a big role. The best example here is
Canada and Ethiopia. In Canada, SE Council defined SEs as businesses owned by nonprofit organizations that
are directly involved in the production and/or selling of goods and services for the blended purpose of
generating income and achieving social, cultural, and/or environmental aims.10This definition limits SEs to non-
profit (commercial nonprofit) excluding for-profit SEs which may adopt the for-profit or hybrid legal form.
Ethiopia lacks both legal (law) and working (government) definition of SEs. Yet, SE has not get government
attention. As a result, the Association of Social Enterprise (SEE) has taken a big step in defining SE as a
business that has a social impact and economic profit to scale up the social impact.11The term “business”
differentiates SEs from a conventional charity. Besides, the SEs has a double-bottom line or purposes
(missions) i.e. creating social impact and generating economic benefits. The term “…economic profit to scale
up the social impact” indicate that economic gain is used to increase social impact. It is less clear as to the issue
of whether creating social impact is the primary or sole objective of SEs. The members of SEE and other firms
who declare themselves as SEs informal declare the primacy (at least) of social objective over the commercial
objective. However, this cannot prove the genuine primacy of social mission.
To conclude, SE is a business model to solve social problems, and not a legal form as it may be set in different
forms. The social missions must be exclusive, at least primary goals, and profits made by SEs must be chiefly
reinvested for a social purpose not distributed for the owner. It may engage in a different sector of the economy.
7 Robert A. Katz & Antony Page, The Role of Social Enterprise, 35VERMONT L. REV, 59, 59(2010). 8The South Korea Social Enterprises Promotion Act. No. 8217, art.2 (2007). 9The United Kingdom Department of Trade and Industry, Social Enterprise: A Strategy for Success, 7 (2002); Rhoden, supra note 3,
at 12; Community Southwark, An Introduction to Social Enterprises, 1, (2016); Jacques Defourny, Concepts and Realities of Social
Enterprises: A European Perspective, in HANDBOOK OF RESEARCH ON SOCIAL ENTREPRENEURSHIP 57, 65 (Alain Fayolle
& Harry Matlay eds., 2010). 10 Moga Tano Jilenga, Social Enterprises and Economic Growth: A Theoretical Approach and Policy Recommendations, 7:1 INT’L J.
ACAD. RES. IN ACCT. FIN. & MGMT. SCI.,41, 43 (2017). 11 Memorandum of Association of Social Enterprise Ethiopia, Art. 4(g) (Unpublished Internal Document).
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2.2. Characterization
The use of the general statement in defining SEs is difficult to make it operational.12Besides, incorporating all
qualities of SEs within a single general statement is difficult and thereby makes the definition non-descriptive.
Following this, characterizing SEs has been seen as the best alternative to describe what social enterprise is.13
As of today, organizations including the European Commission and European Research Network on Social
Enterprises (EMES) have formulated their characterization of social enterprise.
As part of its Social Business Initiative (SBI) (2011-2014), the European Commission characterized SEs as: ‘an
operator in the social economy whose main objective is to have a social impact rather than make a profit for
their owners or shareholders. It operates by providing goods and services for the market in an entrepreneurial
and innovative fashion and uses its profits primarily to achieve social objectives. It is managed in an open and
responsible manner and, in particular, involves employees, consumers, and stakeholders affected by its
commercial activities.’14 Based on this, SE is a business: the social objective is the reason for the commercial
activity; profits are mainly reinvested for social objective; operate in entrepreneurial and innovative ways; the
method of organization or ownership system reflects its mission. In doing so, SE includes businesses providing
social services and/or goods and services to vulnerable persons; and/or businesses that create a job for
disadvantaged.
The EMES developed locating (not qualification) criteria that enable researchers to locate the position of
entities relative to others.15Those criteria of SE are: (a) a continuous activity producing goods and/or selling
services; (b) a significant level of economic risk; (c) a minimum amount of paid work; (d) an explicit aim to
benefit the community; (e) an initiative launched by a group of citizens or civil society organizations; (f) a
limited profit distribution; (g) a high degree of autonomy; (h) a decision-making power not based on capital
ownership; and (i) a participatory nature, which involves various parties affected by the activity’.16These
indicators were presented in three subsets: economic, social, and governance indicators.17 Accordingly, the first
three are classified under economic and entrepreneurial dimensions; the next three criteria indicate the social
dimensions whereas the last three criteria indicate the participatory governance model of SEs.
In Ethiopia, there is no formal characterization of SEs by the government. However, the British Council and
SEE have formulated their operational characterization. To study the state of SEs in Ethiopia, the British
Council developed SE inclusion criteria met by organizations or individuals to be identified as SEs.18The
inclusion criteria were classified into two-primary and secondary criteria. The first primary criteria of SEs are
the core mission of an organization (social and environmental mission). There is no business without a social
impact. What makes the social impact of SEs distinct is that it neither incidental nor secondary; instead, it is a
core objective which constitutes the purpose of establishment. There is no SEs without a social or
environmental mission. Hence, an organization with the core mission of only profit-making or profit first was
excluded from being considered as SEs. The social and environmental missions are the core mission of SEs
either independently or jointly with profit-making. The mission differentiates SEs from a traditional for-profit
business. The second primary criterion is the source of income-earned income contribution. To be considered
as SEs at least, 25% of the income of an organization should be generated from commercial activities.19A
minimum of 25% earned an income is low relative to foreign experiences (> 50% or 75%) as it not sufficient to
12Jacques Defourny, Concepts and Realities of Social Enterprises: A European Perspective, in HANDBOOK OF RESEARCH ON
SOCIAL ENTREPRENEURSHIP 57, 65 (Alain Fayolle & Harry Matlay eds., 2010). 13Defourny, supra note 12, 65. 14European Commission, Social Bussiness Initative, supra note 13; Defourny, supra note 12, 65. 15Defourny, supra note 12, 68; Jacques Defourny & Marthe Nyssens, The EMES Approach of Social Enterprises in a Comparative
Perspective, 12 (EMES WP no. 12/03, 2012). 16 Jacques Defourny, From Third Sector to Social Enterprises, 20 (2001); Jacques Defourny & Marthe Nyssens, The EMES Approach
of Social Enterprises in a Comparative Perspective, 8&9 (EMES WP no. 12/03, 2012). 17Jacques Defourny & Marthe Nyssens, The EMES Approach of Social Enterprises in a Comparative Perspective, 8 (EMES WP no.
12/03, 2012). 18 BRITISH COUNCIL, THE STATE OF SOCIAL ENTERPRISES IN ETHIOPIA 6&7 (2017). . 19In other word, organizations which collect 75% and above of its income from non-trade sources (grant, donation, government
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maintain the financial independence and sustainability of SEs. In Ethiopia, almost all CSO the generate
majority of their income from a source other than trade. Income from trade accounts for only a minimal portion
of their income. For example, the contribution of income from the trade of the Elilita Woman at Risk (Elilita
Product),20 and Jerusalem Children and Community Development Organization (JeCCDO) who consider
themselves as SEs are less than 10% of their total income.21 In contrast, founders (which are Private Limited
Company (PLC)) of SEE who declare themselves as SEs generate the majority of their income from trade. The
third but secondary criteria are the purpose for which an organization uses its profit or surplus. The
reinvestment of profits in social mission is a clear indicator that an organization is not set up primarily for
owner or shareholder value. The matter for which profit is used distinguishes SEs from ordinary business.
British Council excluded an organization that uses its profit for only profit-sharing from being SEs if its
mission is profit first. Based on criteria developed by the British Council, profit distribution alone does not
exclude the organization or individual unless its core mission is only profit maximization. An organization
whose core mission is only social or both social and profit mission may not be excluded because it uses the
profit only to distribute to the owner. This indicates the possibility for an organization to be considered as SEs
even in case it distributes the whole profit among owners. This is a fundamental flaw since it is difficult to
claim to have a social mission without principally reinvesting the profit for a social purpose. Organizations that
use the profit or surplus for growth and development activities, rewards to staff and beneficiaries, cross-
subsidizing, reserves, funding the third party social or environmental activities, and other activities may also be
considered as SEs pursuant of criteria adopted by the British Council.22
The second characterization of SEs is developed by SEE under its draft SEs Eligibility Guideline (SEEG). The
SEEG contains lists of redundant criteria used to assess membership applications.23The eligibility criteria can
broadly be classified into two: entrepreneurial and social criteria. The social criteria include (1) clear social
and/or environmental missions to address social needs and service gaps;(2) clear allocation of resource to fulfill
missions;(3) clear intention of management or founder to make social and/or environmental goals the core
objectives of the business;(4) reinvestment of majority of profits back into the SEs; and (5) majority of
[income] controlled in the interests of the social mission rather than shareholders. The entrepreneurial criteria
include a clear business plan to achieve financial sustainability and profitability; and generation of revenue
through trade.
As easily surmise from the above characterizations, the major features of SEs can be inferred from the terms
“social” and “enterprise” which constitute “Social Enterprises”. The term social indicates the social dimension
whereas the term enterprise indicates the enterprise dimension. Consequently, SEs is organizations that have
adopted an earned-income strategy to pursue and finance its social mission as its primary or sole goal. Afar,
participatory, and democratic is emerging as a governance model for SEs. It is businesses that do more than
make money.
3. Genesis and Development of Social Enterprises
The concept of integrating social aims with profit-making has been an emerging trend in the world
today.24Social Enterprise is at the very core of this new movement to integrate social aims with profits. SEs
have a long history around the world, though under different names and with different characteristics.25Social
enterprises have been in existence for many centuries but only came into prominence in recent decades when
the name has been used to identify them. The SEs is relatively a recent phenomenon developed as a distinct
20 Business wing of Elilita Woman at Risk operate with business license under using sub-TIN. 21Interview with Chief Executive Officer, Elilita Woman at Risk, Elilita Product, in Addis Ababa(March 29, 2019); Interview with
Chief Executive Officer, Jerusalem Children and Community Development Organization, in Addis Ababa (2019). 22 BRITISH COUNCIL, supra note 18 at 7. 23The Association of Social Enterprises Ethiopia Bylaws Membership Term and Conditions, Social Enterprises Eligibility Guideline
(unpublished), (2018). 24Daryl Poon, The Emergence and Development of Social Enterprise Sectors, 8SOC. IMPACT RES. EXPERIENCE, 8 (2011). 25 Aiken, M., Taking the Long View: Conceptualizing the Challenges Facing UK Third Sector Organizations in the Social and
Cooperative”, “Limited Liability Social Co-operative.” Beyond Europe, the quest for special legal form for SE
has received positive feedback in every corner of the world.35 In the USA, different states have adopted
26Michelle Therese Hackett, The ‘Everyday’ Political Economy of Social Enterprises Lessons from Grameen Shakti in Bangladesh, 25
(July 2012) (PhD desertion, University of Adelaide). 27Poon, supra note 24, at 18 &19. 28Poon, supra note 24, at 19. 29Poon, supra note 24, at 15. 30Poon, supra note 24, at 16. 31David Littlewood & Diane Holt, Social Enterprises in South Africa, 4 (Intl Comp. Social Enterprises Model Working Papers No. 02,
2015). 32 Katz & Page, supra note 7, at 60. 33 Katz & Page, supra note 7, at 60. 34 Defourny, supra note 12, at 57. 35Defourny, supra note 12, at 57.
Liability Company”, and “B-Lab Certified Corporation”.36 In Asia, the SEs is a growing sector accompanied by
special law, legal forms, and status in countries such as South Korea, Japan, Taiwan, and Vietnam. In Africa,
SEs is a growing sector. However, as compared to the rest of the world the legal regime of SE is lagging. Up to
date, no single African countries created special legal form or status for SEs.
SEs is established and driven by a selfless (at least not selfish) person dedicated to solving social, economic,
and environmental problems that have long plagued humankind.37Serving the needy is the culture of Ethiopian
people. The notable example is Gursha. Though the exact time is unknown, SEs has a long history in Ethiopia,
most probably since the days of private business and charity. Besides, there is a claim that SEs has a long
history in Ethiopia in the form of traditional self-help associations (SHAs) such as Equb, Mahiber, Senbete, and
Iddir. However, this assertion lacks plausibility as they were member-centric and non-commercial.
Exceptionally, in recent years, some traditional SHAs have been operating as SEs to solve the pressing problem
of their community through earned income strategies. In this regard, JeCCDO is supporting traditional SHAs
engagement in commercial activities to promote integrated community-based development.
As a concept, SEs introduced to Ethiopia in the 2010s through Western-funded organizations such as the British
Council and Reach for Change. A social enterprise is not the result of a government initiative. Instead, it is the
result of a private initiative born in for-profit and non-profit sectors by entrepreneurs. In the for-profit sector,
SEs is developed by dedicated social-minded entrepreneurs who have a passion to solve social problems. SE
emerged in the nonprofit sector by business-minded entrepreneurs as a response to financial constraints to
improve society and the environment in financially sustainable ways. Even if SE is not expressly recognized,
the entitlement of NPOs to engage in business activities played a big role in the birth and development of non-
profit SEs in the third sector. The government allowed engagement of NPOs in business and investment
activities to ensure their financial and mission sustainability. In the for-profit sector, the non-prohibition of
FPOs to engage in creating positive social and the environment as their primary mission paved the way for the
birth of for-profit SEs in the private for-profit sector. As of 2017, based on inclusion criteria developed by the
British Council over fifty thousand SEs exist in Ethiopia. This shows SE is the growing sector in the absence of
formal recognition.38 Surprisingly, the term “Social Enterprises” has not been mentioned in any legal documents.
A social enterprise is alien to Ethiopia's legal system as a distinct legal form or business model.39 Because of
this, SEs are organized using legal forms designed for conventional for-profit and non-profit.40So far, no entity
is formally recognized or registered as SEs.41No special support, legal, and institutional framework is available
for SEs. As a result, they are subjected to the existing legal regime designed for for-profit and non-profit
organizations. Despite this, there are organizations in both for-profit and non-profit sectors who declare
themselves as SEs. Some of the firms that declare themselves as SEs are Tebita Ambulance Per Hospital
Emergency Medical Services PLC,42 Timert Lehiwot Ethiopia, 43Beautiful Mind Community Work PLC,44
Maisha ICT Technologies, Vitae Bite Nutrition PLC, Whiz Kids Workshop PLC45 Rehobot Home Nursing
Services, and Yenetta Code.46
36B-Lab is private-sector accreditation scheme which provides standards for “social enterprises” and that certifies businesses for
compliances with its standards. J. Haskell Murray, The Social Enterprises Law Market, 75:2:6 MARYLAND L. REV. 541, 543 &
544 (2016). 37MUHAMMAD YUNUS, BUILDING SOCIAL BUSINESS-THE NEW KIND OF CAPITALISM THAT SERVES HUMANITY’S
MOST PRESSING NEEDS 11 (2010). 38BRITISH COUNCIL, supra note 18, at 7 & 8. 39 Id. at 23. 40 BRITISH COUNCIL, supra note 18, at 12 & 23. 41BRITISH COUNCIL, supra note 18, at 12 & 23. 42TEBITA AMBULANCE PLC http://tebitaambulance.com/, (last visited on, Jan, 30, 2019). 43 TIMERT LEHIWOT ETHIOPIA, http://www.tlhethiopia.org/, (last visited on Jan. 30, 2019). 44BEAUTIFUL MIND ETHIOPIA, http://www.beautifulmindsethiopia.org/, (last visited on Jan. 30, 2019). 45WHIZ KIDS WORKSHOP, http://www.whizkidsworkshop.com/, (last visited Jan. 30, 2019). 46 Yenetta Code is a SEs founded by Nathan Damtew. Nathan develops simple and fun application to teach children the basic
semantics of programming. This help kids develop new ways of thinking and advance them in problem solving techniques.
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been increasing interest from the for-profit to contribute to social goals.54 This show SE is a blending sphere
blend social and environmental of non-profit with the economic value of for-profit within a single entity. SEs
take a variety of legal forms designed for-profit and non-profit; which makes the task of defining SE difficult.55
SEs are commonly visualized on a hybrid spectrum between traditional for-profit and nonprofit. As indicated
herein under SE share the social purpose of non-profit organizations and earned income strategies of a for-profit
organization. Hence, NPOs which carry on trade and investment to attain mission are non-profit SEs while
FPOs which have social mission are for-profit SEs. As today SEs is broadly defined to include non-profit and
for-profit private entities. Besides, the issue of whether the public sector such as public enterprise could fall
within the scope of SE left unanswered.
Figure 1: Location of social enterprises relative to other sectors
6. Distinguishing Social Enterprise from Related Concepts
Social enterprises have social and enterprise elements. As a result, there is a confusion of SEs with traditional
FPOs, NPOs, social business, social impact investing, corporate social responsibility, corporate charity, social
economy, third sector, and other related concepts. To avoid such confusion, there is a need to distinguish SE
from such related concepts. To this end, the similarities and differences between SEs and those related concepts
are examined as follows.56
6.1. Social Enterprises versus For-profit Organizations and Related Concepts
The common and broad definition of SE as organizations that combine profit and social missions is misleading.
Even profit maximizing FPOs pursue social purposes and create social impact, albeit indirectly. Such a firm
may be maximizing its profits by making its products more attractive to customers. So, what makes SE
conceptually different from FPOs is a big question. The enterprise aspect of SEs enables it to share some
features of traditional FPOs. Like FPOs, SEs carry on commercial activities to generate income. However, the
way they handle the income and their point of focus is different. For-profit organizations focus on
maximization of profit or shareholder value, while SEs focuses on social maximization or improvement of the
society and environment. SEs use all or at least the majority of their profit to address social problems. In
contrast, FPOs use all or the majority of their profit to distribute among shareholders. The FPOs may have a
social impact like SEs. However, the difference is for FPOs, social impact is incidental, but for SEs creating
social impact are a commitment and its purpose of establishment. Even though, it is incidental the social impact
created by FPOs may be greater than or equal to the social impact created by SEs. SEs is different from FPOs,
which does not mean it does not operate as FPOs. Instead, FPOs may operate as SEs. Instead, SEs is entitled to
54 Hackett, supra note 26, at 27. 55 Hackett, supra note 26, at 30. 56 François Brouard & Sophie Larivet, Essay of Clarifications and Definitions of the Related Concepts of Social Enterprise, Social
Entrepreneur and Social Entrepreneurship, in HANDBOOK OF RESEARCH ON SOCIAL ENTREPRENEURSHIP 29,
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take legal form designed for-profit businesses including companies, partnerships, and cooperatives. Regarding
the difference between SEs and traditional FPOs Greyston said, SEs don't hire people to bake brownies, instead
[they] bake brownies to hire people. 57
It is not uncommon to see a confusion of SEs with Corporate Charity. Corporate charity is FPOs that donate a
portion of their profits to charity.58 Often such donations are made to NPOs. The major difference between
corporate charity and SEs is that the former lacks the commitment to transact with beneficiaries.59Social
enterprises commit to transact with beneficiaries, whereas corporate charity gives subsidy or support to
beneficiaries-disadvantaged groups.60 Social enterprise is also different from Social Responsible Investing
(SRI) which refers to investment strategies that consider both financial return and some social good.61The social
good issue which ranges from environmental efficiency, through human rights and diversity, to corporate
governance.62 SRI does not transact with their beneficiaries. The commitment is also weak. As a result, the
social mission may be expropriated or change at any time.63
It is not uncommon to see a confusion of SEs with FPOs who discharges its Corporate Social Responsibility
(CSR) properly. Both SEs and socially responsible businesses blend social responsible business and
environmental missions with profit-making objectives, but different.64The major difference between
organization discharging its CSR and SEs is that the former does not involve a commitment to transacting with
beneficiaries.65In most cases, CSR involves the transfer of a subsidy to an external beneficiary (not patron
beneficiaries).66As observed by Antony Page and Robert A. Katz CSR and the SE look like fruits of the same
tree, but not.67The SE is significantly more substantive than CSR.68Corporate social responsibility policies try
to encourage companies to consider external stakeholder’s interests when making decisions.69 The CSR rule
may serve the interest of external stakeholders through restricting governance to be representative and entitling
external stakeholders with the right of standing to sue.70The SEs do not subordinate mission to profits.71
Usually, discharging CSR or pursuing social missions is voluntary.72 SEs has a social purpose as its primary
purpose.73 The business discharging its CSR treats the contribution to the public good as incidental to the
profitmaking activity.74 Social enterprises run a business for social purpose whereas socially responsible
business carries on business in social and environmentally friendly ways. Usually, CSR rule imposes a negative
obligation not to harm society and environments. It may also impose a duty to create social value by addressing
social problems. The SEs commit to working on improving the society and environment. It also has a duty not
to harm the society and environment. The business undertaking its CSR did so based on the perception that in
the long run, the business will benefit from performing its CSR. The SEs undertakes activities to improve the
society and environment as its commitment or purpose of establishment. Social enterprises carry on improving
society and the environment mainly not to generate personal benefit, but to benefit society. CSR is a secondary
57Antonio Fici, Recognition and legal Forms of Social Enterprises in Europe: A Critical Analysis from a Comparative Law
Perspective, 3 (Euricse Working Paper No. 82, 2015); Greyston Bakery: Combatting Poverty by Making a Profit, 1 (the Apsen
Institute Business and Society Program, 2013). 58Ofer Eldar, The Role of Social Enterprise and Hybrid Organizations, 1:92 COLUM. BUS. L. 92, 121 (2017) 59Id. 60Eldar,supra note 58, at 122. 61Eldar,supra note 58, at 163. 62Eldar,supra note 58, at 163. 63Eldar,supra note 58, at 163. 64Karsten E. Sørensen & Mette Neville, Social Enterprises: How Should Company Law Balance Flexibility and Credibility?,
15EUROPEAN BUS. ORG. L. REV, 267, 271 (2014); Antony Page & Robert A. Katz, Is Social Enterprise the New Corporate Social
Responsibility? 34SEATTLE U. L. REV. 1355, 1388(2011). 65 Eldar, supra note 58, at 121. 66Eldar, supra note 58, at 121. 67 Page & Katz, supra note 64, at 1355 & 1357. 68 Page & Katz, supra note 64, at 1355 and 1380. 69 Page & Katz, supra note 64, at 1381. 70 Page & Katz, supra note 64, at 1381(2011). 71 Page & Katz, supra note 64, at 1382. 72Sørensen & Neville, supra note 64, at 271. 73Sørensen & Neville, supra note 64, at 271. 74 Aurélien Loric, Designing a Legal Vehicle for Social Enterprises: An Issue Spotting Exercise, 5COLUM. J. OF TAX L. 100, 102
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objective to the profit-making mission of a business. Contrary to this, profit-making is secondary to the social
mission of SEs. FPOs discharge their CSR based on the perception that it will make them profitable in the
future. Usually (not always) for-profit businesses practice CSR, not with a truly conscious of solving social
problems, but as a means of building a brand to their business.
Finally, it is worth noting the marked differences between the SE and ethical business. A SE centers itself on a
social mission and uses commerce as a tool to maximize sustainability and impact. An ethical business centers
itself on creating profit for its shareholders but takes an ethics-based approach to issues like the environment,
trade practices, and community development. The activities of an ethical business are almost the same.
6.2. Social Enterprises versus Non-Profit Organizations
There is a confusion of SEs as NPOs.75 Nowadays, NPOs are entitled to undertake commercial activities. This
led to the birth of the dichotomy of Non-Profit SEs (commercial nonprofit) and donative or traditional non-
profit.76 Non-profit SEs generate the majority of its income from trade i.e. selling of products and services.77
The SE may receive donations or grants. The critical point, however, is that the financial viability of SEs is
primarily dependent on earned income rather than donations.78 In contrast, traditional or donative nonprofits
receive all or the majority of their income from a source other than trade (grants or donations). Traditional
NPOs engaged primarily in allocating subsidies to “external” beneficiaries.79 In contrast, SEs require their
beneficiaries to provide a nontrivial consideration (e.g., return of a loan with interest).80The traditional NPOs
work on distribution, while SE focuses on the production of goods and services.81 In spite, such differences,
traditional NPOs, and non-profit SE shared features. Accordingly, both have a social mission at the center of
their activities. Besides, they are prohibited to directly distribute profit to members since they are subject to
non-distribution constraint.82
6.3. Social Enterprises versus Social Business
The term SEs and social business are usually confusing terms that are used interchangeably.83However, they are
different in their scope. Originally, the name “social business” is framed by Muhammed Yunus. He defined
social business as a non-loss; Non-dividend Company dedicated entirely to achieving a social goal or brings an
end to social problems.84 For it to sustain as a business it must generate enough income to cover its costs.85Part
of the economic surplus the social business creates is invested in expanding the business, and a part is kept in
reserve to cover uncertainties.86In a social business, an investor aims to help others without making any
financial gain.87The company makes a profit but no one takes the profit as it is dedicated entirely to the social
cause.88 The owner can take back over a while only the amount invested.89 Simply, social business is a non-loss
and non-dividend business in the sense that the investor receives only its initial investment or contribution, but
not a dividend. As a result, rather than being passed on to investors, the surplus generated by the social business
75 Defourny, supra note 12, at 66. 76Henry B. Hansmann, The Role of Nonprofit Enterprise, 89YALE L. J. 840, (1980). 77Eldar, supra note 58, at 118; Fici, supra note 10, at 3. 78Eldar, supra note 58, at 118. 79Eldar, supra note 58, at 119. 80Eldar, supra note 58, at 119. 81Fici, supra note 57, at 3. 82Eldar, supra note 58, at 118. 83European Commission, Social Business Initiative: Creating a Favourable Climate for Social Enterprises, Key Stakeholders in the
Social Economy and Innovation, see footnote ‘6’ (2011). 84Muhammad Yunus, Creating a World Without Poverty: Social Business and the Future of Capitalism, 4:2GLOBAL URB. DEV. 10
(2008). 85MUHAMMAD YUNUS, BUILDING SOCIAL BUSINESS-THE NEW KIND OF CAPITALISM THAT SERVES HUMANITY’S
MOST PRESSING NEEDS 16 (2010). 86Id. 87YUNUS, supra note 85, at 16. 88YUNUS, supra note 85, at 16 89YUNUS, supra note 85, at 16
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would be reinvested for a social purpose.90 Ultimately, it is passed on to the target group of beneficiaries in
such forms as lower prices, better service, and greater accessibility.91
Yunus introduced two kinds of social business: (1) Companies that focus on providing a social benefit rather
than on maximizing profit for the owners, and that are owned by investors who seek social benefits such as
poverty reduction, health care for the poor, social justice, global sustainability, and so on, seeking
psychological, emotional, and spiritual satisfaction rather than financial reward; and (2) Profit-maximizing
businesses that are owned by the poor or disadvantaged.92 In the second type, the social benefit is derived from
the fact that the dividends and equity growth produced by the profit-maximizing business will go to benefit the
poor, to reduce their poverty or even escape it altogether.93 The social business described by Yunus is similar to
not-for-profit SEs and SE for-profit of poor and disadvantaged groups. Social business does not include hybrid
SEs in which the investor receives a portion of profit in the form of a dividend. Besides, it does not include
non-profit SE in which the owner may not receive initial contribution or investment. In conclusion, SEs is a
broader concept that includes social business. As a result, social business is the sub-set of SEs.
6.4. Social Enterprises versus Self-Help Associations
At glance, SEs seem self-help associations (SHAs) including cooperatives, Iddir, Mahiber, and other traditional
SHAs. As a result, some commentators confuse SEs with SHAs which is designed to solve problems of
members.94 Conventionally, the cooperative applies the market approach to solve the socio-economic problems
of the members. Likewise, traditional SHAs like Iddir and Mahiber are member-centered. Unlike cooperatives,
traditional SHAs use only members’ contributions. Traditional SHAs do not undertake commercial acts to
generate income. SHAs are member-oriented with little or no consideration for others. In contrast to SHAs
which focus on members, SEs mainly focus on the maximization of interest of the wider community. The social
business model formulated by Yunus i.e. SE for-profit of poor and disadvantaged groups is an exception.
Primarily, SEs is social-help and not self-help organizations. Despite this fact, in recent years, there is an
emergence of SEs within SHAs. In many countries, SEs by itself was the result of the cooperative movement
and adopted a special type of cooperative form for SEs.95 This indicates the emergence of SE in cooperative
and its development as such. In Ethiopia, SE is emerging in the cooperative sector. In recent years, the trend of
commercialization is also emerging in some traditional SHAs to solve problems of the wider community
beyond their self-serving interests. The best example is Medanalem Iddir in Bushofitu.
6.5. Social Enterprises versus Social Economy
It is not uncommon to see a confusion of SEs with the social economy.96In fact, they are different in their
scope. The issue of whether or not SEs is the constituent element of the social economy answered differently in
Europe and North America based on their notion of social economy.97 In Europe, the concept of social
economy is broader to cover all economic activities conducted by actors in third sectors such as SE,
cooperatives, associations, and mutual benefit societies.98 What constitutes a decisive criterion in defining
social economy is not the ban of the distribution on profits, but rather the fact that the material interest of
investors is subject to limits.99 François Brouard and Sophie Larivet defined the social economy as a fairly new
90 Yunus, supra note 84, at 10. 91Yunus, supra note 84, at 10. 92 Yunus, supra note 84, at 13. 93 Yunus, supra note 84, at 13. 94Jim Brown, supra note 3, at 5. 95Carlo Borzaga, et.al. Cooperatives: The Italian Experience, Euricse, 1-12; Antonio Thomas, The Rise of Social Cooperatives in
Italy, 15:3INT’L. J. OF VOLUNTARY & NONPROFIT ORG., 244-250 (2004). 96 Simon LI & Thomas Wong, Social Enterprises Policies of the United Kingdom, Spain and Hong Kong, 1 (2017). 97Sørensen & Neville, supra note 90, at 270; Jean-Louis Laville, What is the Third Sector? From the Non-Profit Sector to the Social
and Solidarity Economy Theoretical Debate and European Reality, 6&7 (EMES European Research Network, WP No. 11/01, 2011). 98 Laville, supra note 97, at 4. 99Jacques Defourny, From Third Sector to Social Enterprises, 1 (2001).
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label for a diverse and evolving combination that have common or public interests.100 Based on this, in Europe,
SEs is the sub-set of the social economy. In North America, the social economy includes only the “non-profit
sector” which is subject to non-distribution constraint. Here, the decisive criterion in defining the social
economy is a ban on the distribution of profits.101In so doing, the social economy is limited only to the non-
profit sector excluding cooperative, mutual societies, and SEs which distribute part of their profit to
shareholders. As a result, based on North American Approach, non-profit SEs is an element of the social
economy while for-profit SEs which is not subject to non-distribution constraint is out of the ambit of social
economy. As a result, in the USA, for-profit SEs is part of the fourth sector.102 In Ethiopia, the scope of the
social economy is less clear.
6.6. Social Enterprises versus Social Entrepreneurship
The SE, social entrepreneur, and social entrepreneurship are related concepts that are called “SE Flags”.103
They represent different meaning, but related notions.104 Social entrepreneurship is the process through which
social entrepreneurs created SEs.105 At the start-up stage, social entrepreneur engages in the social
entrepreneurship process to create SE. Then, SEs do not necessarily or permanently engage in a social
entrepreneurship process.106 Social entrepreneur is the initiator of SEs who is not necessarily the owners of the
enterprise.107 Social entrepreneurship is a very broad idea referring to any innovative initiative (for-profit or
non-profit) to help people.108Distributing free medicine to the sick, setting up a for-profit health-care center in a
village where no health facility exists, and launching a SE are social entrepreneurship. 109 Martin and Osberg
concluded that ‘social entrepreneurship has become so inclusive that it now has an immense tent into which all
manner of socially beneficial activities fit’.110 Hence, the SEs is a subset of social entrepreneurship.111
7. Social Enterprises: Third Sector or Fourth Sector?
In the free-market economic system, the for-profit private sector and public sector account for the “first” and
“second” sectors of the economy. The for-profit private sector is the main actor who provides goods and
services at the market price. The public sector (government) has minimum control over the private sector and
provides public goods and services which cannot be provided for-profit private sector. As indicated above, SEs
neither for-profit private sector nor the public sector. It is not the public sector as it is owned by private
organizations or individuals. SE does not fall within the conventional for-profit private sector as its primary
goal is social maximization. SE share market approach is a conventional for-profit private sector. Accordingly,
SE falls neither under the first sector nor under the second one. Now, the question is does SE falls under the
third sector or not? The third sector refers to the sector other than the for-profit private sector and public sector.
In this sense, the term “third sector” refers to economic initiatives of a "third type” or “third way” of solving
social problems that belong neither to the for-profit private sector nor to the public sector. The scope and
conception or approach of the third sector differs in Europe- the “social economy” approach and the USA-“non-
profit sector” approach.112 As per the social economy approach, the third sector refers to all actors in the social
100 Brouard & Larivet, supra note 3 at 29 & 31. 101 Laville, supra note 97, at 6. 102 Laville, supra note 97, at 4. 103Jacques Defourny, supra note 12, at 57; Brouard & Larivet, supra note 3, at 29. 104Alain Fayolle & Harry Matlay, Social Entrepreneurship: A Multicultural and Multidimensional Perspective in HANDBOOK OF
RESEARCH ON SOCIAL ENTREPRENEURSHIP 4 (2010). 105 Defourny, J. & M. Nyssens, Social Enterprises in Europe: Recent Trends and Developments, 4 (EMES European Research
Network, WP no. 08/01 2008); Defourny, supra note 45, at 58. 106Brouard and Larivet, supra note 3, at 29 & 31. 107Defourny, supra note 12, at 61. 108Yunus, supra note 84, at 14. 109Yunus, supra note 84, at 14. 110 Martin, R.L. & S. Osberg, Social entrepreneurship: The case for Definition, STAN. SOC. INNOVATION REV., 29, 30(2007). 111Yunus, supra note 84, at 4; NICHOLLS, A. SOCIAL ENTREPRENEURSHIP: NEW MODELS OF SUSTAINABLE SOCIAL
CHANGE, 23 (2006); Alter, K., Social Enterprises Typology, (2006); Dees, G., The Meaning of Social Entrepreneurship, 5 (1998). 112 Defourny, supra note 16, at 1-5.
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economy i.e. all entities which do not fall under traditional for-profit and public sector. These include NPOs,
cooperatives, mutual organizations, and SEs which put a limit on the private appropriation of profits and the
power of investors.113 Based on this, it possible to conclude that SEs in Europe fall within the third sector. In
contrast, as per the “non-profit sector approach”, the third sector indicates only the non-profit sector which
cannot distribute profit to their members or shareholders.114 Based on this, non-profit SEs fall within the third
sector, while for-profit SEs cannot fall within the traditional for-profit private sector, non-profit and public
sector. Instead, for-profit SEs falls within the new “fourth sector” which covers Hybrid Organizations.
The existence of these two approaches in locating SEs raises the issue of which approach is suitable in
designing legal and institutional frameworks for SEs. Social enterprises is neither conventional for-profit nor
non-profit, but share the features of both. It an intermediate space in which the different poles (for-profit and
non-profit) can combine. SEs do not standalone concepts independent from for-profit and non-profit businesses.
However, for the purpose legal regime, it is better to design a special legal and institutional framework for SEs
as the fourth sector. Treatment of SE as the fourth sector is essential to avoid confusion of SE with conventional
business and charity. Besides, it helps to secure government and other stakeholder's attention.
8. Social Enterprises: Capitalist or Socialist Conception?
The for-profit private firms as the main actor in the free-market economy do many things extraordinarily
well.115 But not everyone is benefiting. The existence of severe social problems suffered by the majority of
people in the world tells the story.116 In this scenario, the government and non-profit sector is expected to solve
social problem fails to be solved by the market, but not effective.117The defect of the traditional for-profit
sector, public sector, and non-profit led to the birth of SEs as an alternative business model blending social and
business goals. The birth of SEs triggered the issue of whether SE is capitalist or socialist conception. 118 There
is no consensus among scholars in this regard. Scholars influenced by left-wing ideology argue that SEs is a
socialist conception rooted in left-wing socialist ideology. The term SEs migrated to Western charity from
socialist law.119 Social enterprises as a term associated with blended value did not originate from capitalism,
and its identification with commercial business & venture capital came rather late in the game.120 In socialist
jurisprudence, SEs was a term designed to replace the capitalist notion of businesses dedicated to the pursuit of
profit. The SEs making a profit was not the goal of a socialist business; rather, its fundamental purpose was to
serve collective benefit. Moreover, the SEs were owned & controlled not by private shareholders but by
workers for the greater social good. In contrast, Scholars in the right-wing including Muhammad Yunus, Jed
Emerson, and Bill Drayton who advocate for improved, sustainable, and socially conscious capitalism consider
SE as typical capitalism. Specifically, Muhammed Yunus argues SEs is a capitalist conception but transformed
one which considers social and environmental value. Hence, SE is a new form of capitalism that serves
humanity’s most pressing need through operation in the capitalist system.121 A social enterprise is a capitalist
conception but is different from the standard capitalist form of business. The existing capitalism which
misrepresents human being as one-dimensional selfish beings whose only mission is to maximize profit.122 In
other words, human beings do nothing in their economic lives besides pursuing selfish interests. Accordingly,
human being contributes to society and the world in the best possible manner if he just concentrates on getting
the most for himself.123 In contrast, SEs lies based on the assumption that a human being is an excitingly multi-
113Defourny, supra note 16, at 5 & 7; Laville, supra note 97, at 6. 114 Laville, supra note 97, at 6; Defourny, supra note 16, at 7. 115Yunus, supra note 84, at 1. 116Yunus, supra note 84, at 1. 117Yunus, supra note 84, at 1. 118YUNUS, supra note 85, at 35. 119Just means, Socialism and Social Enterprise, http://www.justmeans.com/blogs/socialism-and-social-enterprise, (last visited Jan., 30,
2019). 120Id. 121YUNUS, supra note 85, at 37. 122 Yunus, supra note 84, at 8; YUNUS, supra note 85, at, 15. 123 Yunus, supra note 84, at 115.
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government. Government failure mainly happens because of bureaucracy, budget deficit, and structural
incompetence.
The market and government failure to address social problems triggered the need for the third way that is called
the third sector or non-profit sector. In contrast to the traditional for-profit private sector and public enterprise,
the non-profit sector emphasis on solving social problems. NPOs did many things extraordinary in addressing
social problems. However, yet, many social problems left unresolved because of financial constraints. The
financial constraint mainly happens because of their dependence on aid and donation. The financial dependence
of NPOs on aid, donation, and grant has highly limited their social impact, mission sustainability, and
operational flexibility. This is the failure of the third sector. This triggered the need for NPOs that have
sustainable finance by getting involved in income generation activities to finance their social mission. To this
end, in recent years, NPOs were granted operational freedom to carry on commercial activity related or
unrelated to their social mission. This leads to the birth of non-profit SEs (commercial nonprofit). For example,
in Ethiopia, under the repealed charities and society’s law, NPOs are entitled to carry on IGA which is
incidental to the achievement of their purpose.128In contrast, under the new CSO law, CSO are entitled to carry
on any commercial or business or investment activity.129
In conclusion, the failure of all traditional three sectors: for-profit private sector; public sector; and non-profit
sector to address multifaceted social problems lead to the quest for the emergence of business which blends and
balances business against social and environmental value. The business which blends business and social
missions within a single entity is SEs.
10. Justifying Social Enterprises in Ethiopia
Globally, as indicated above, the birth and development of SE is necessitated by failures of traditional sectors
of the economy to address social problems. This triggers the issue of whether SE is justified in Ethiopia or not.
In Ethiopia, there is suspicion about the need and market of SEs as a separate business model. This is supported
by the low use and development of existing traditional for-profit and NPOs.130 Despite this fact, in the author's
view, four factors justify the need for SEs.
A. The Shortcoming of Traditional Sectors
The first is justification for SEs is the weakness of conventional for-profit, non-profit, and public sectors. In the
1990s, Ethiopia adopted a capitalist ideology with the presumption market to make everything good. The
adoption of a free-market economy has resulted in many social and economic improvements. Despite this fact,
the majority of Ethiopian lives under the yolk of poverty and costs thereof. This happens because of self-
centered neoliberalist conception which have influenced capitalist to trade only for their self-interests profit
maximization without or little consideration for the wider community and environment. This informally obliged
society to carry the negative costs of private business. The investment and land lease regime which expropriate
the property of the public for the benefit of a few self-centered capitalists exaggerated the problems. The public
sector which is expected to correct market failure is also inefficient because of financial constraints, structural
problems, and bureaucracy. For example, the Commercial Bank of Ethiopia which is one of the public
enterprises does not provide loan for the poor majority which lack (pledge and mortgage) like all other private
commercial banks. The same is true for the Development Bank of Ethiopia. As a result, the public enterprise in
Ethiopia operates in the same fashion with private business organizations as profit maximizers neglecting their
social missions. The third sector (non-profits sector) which is developed as the third way to address social
problems left unresolved by the private and public sector is also failed as it is suffered from financial
constraints to finance its blessed social and environmental mission.131This is because they are too dependent on
donations, grants, and government subsidies which are too competitive, bureaucratic, conditional, and non-
128Charities and Societies Proclamation No.621/2009, Art. 103. 129Organizations of Civil Societies Proclamation No.1113/2019, Art. 63& 64. 130 As of 2016 there are: 490,000 Micro and Small Enterprise; 75,000 cooperatives; 15,000 individual entrepreneurs; 3400 NGOs in.
See BRITISH COUNCIL, supra note, 16 at 8. 131Gbenga Sesan, Social Enterprises in Africa: An Emerging Concept in an Emerging Economy, 1:1 INT’L NGO J. 5 & 6 (2006).
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sustainable. This is why many laudable projects of CSOs have gone the way of “pilot burials.”132Besides, NPOs
impart cultural of dependency to the generation, instead of independence and entrepreneurship. In conclusion,
the weakness of conventional for-profit, public, and non-profit sectors urge for the need for social and
environmental centered and financially sustainable and independent business model i.e. SEs to bring inclusive,
equitable, and sustainable development.
B. Existence of Severe Problems
The second reason is the existence of severe socio-economic, cultural, and environmental problems. As the
study conducted by World Bank in 2018 show Ethiopia is one of five countries in the world where great
numbers of world poor lives.133This is why Ethiopia has been considered as a symbol of poverty for a long
time. The severe social problems (high unemployment rate, poverty, harmful traditional practices, illiteracy,
and other) in Ethiopia need to be addressed by social entrepreneurs under the umbrella of SEs to make Ethiopia
suitable for everyone to live. Otherwise, the upward movement of few capitalists to control and manipulate the
resource of the nation and downward movement of the majority of people to live in poverty continue at
alarmingly speed. As the official Ethiopian Government implementation report on Growth and Transformation
Plan (GTP) I show, the poverty severity has increased during the period. This may cause a class struggle
between the poor majority and the capitalist in the future.
C. Positive Contribution to Development
The third reason justifying the need for SEs in Ethiopia is its positive contribution to ensure inclusive,
equitable, and sustainable development. Following the adoption of an ambitious plan called Sustainable
Development Goals (SDGs) to fulfill by the year 2030,134 Ethiopia have adopted the Plan for Accelerated and
Sustained Development to End Poverty (PASDEP)135 followed by the First Growth and Transformation Plan
(GTP I) (2010/11 to 2014/15), currently, the Second Growth and Transformation Plan (GTP II) is in its last year
of implementation.136 These plans have resulted in great improvements though many problems left unresolved.
Social enterprises have huge potential to solve problems left unresolved through job creation, support
underserved populations to access social protection, health, education, improving quality of life for the local
people, and provision of valuable social services.137 This can be easily inferred from objectives of SEs in
Ethiopia: creating employment opportunities; selling a good or a product; supporting vulnerable people;
improving health and well-being; protecting the environment; promoting education and literacy; improving a
particular community; supporting vulnerable children and young people; supporting other SEs; addressing
social exclusion; and/or addressing financial exclusion.138In so doing, SEs contribute to inclusive, equitable,
and sustainable development. In this regard, the UK is the best example, in 2018, over 100,000 SEs employ two
million employees and contribute £60 billion to GDP.139 The SEs sector is three times bigger than agriculture.
What a miracle it is!
132 Id. 133World Bank Blogs Half of the world’s Poor Live in just 5 Countries, https://blogs.worldbank.org/opendata/half-world-s-poor-live-
just-5-countries, (last visited on Aug. 26, 2019). The 5 countries with the highest number of extreme poor are (in descending order):
India, Nigeria, Democratic Republic of Congo, Ethiopia, and Bangladesh. 134 UN. G.A, Transforming Our World: The 2030 Agendas for Sustainable Development, A/Res/70/1 (),
f, 3-36 (last visited on August 26, 2019). 135 The Government of Ethiopia: Building on Progress A Plan for Accelerated and Sustained Development to End Poverty (2005/06-
2009/10),(2006). 136United Nation Development Program, Ethiopia’s Progress Towards Eradicating Poverty, Paper to be presented to the Inter-Agency
Group Meeting On the “Implementation of the Third United Nations Decade for the Eradication of Poverty (2018 – 2027)”
April 18 -20, 2018, Addis Ababa Ethiopia. 137 Jilenga, supra note 2, at 49. 138 BRITISH COUNCIL, supra note 16, at 24. 139 THE SOCIAL ENTERPRISE UK, HIDDEN REVOLUTION: SIZE AND SCALE OF SOCIAL ENTERPRISE IN 2018, 3 (2019),
https://www.socialenterprise.org.uk/wp-content/uploads/2019/05/The_Hidden_Revolution_-_FINAL-1.pdf, (last visited on August
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D. Market Need and Interest
The fourth reason is the presence of market needs and interests. There are pieces of evidence for this. First,
assessment and mapping of social entrepreneurship practices and social entrepreneurs in Ethiopia
commissioned by Reach for Change has revealed enormous social needs in Ethiopia and existing potential
entrepreneurs, geared towards the use of innovation and supporting social good.140 Consequently, Reach for
Change launched its operation in Ethiopia in 2015 as the first organization to promote socio-economic
development by empowering social entrepreneurs who are brave, smart, and passionate to solve pressing issues
facing children, youth, and women in the country.141 In 2015, 175 social entrepreneurs have applied for an
innovation competition. Second, the study conducted by the British Council in 2016 has estimated the existence
of over 55,000 SEs in Ethiopia in the absence of any formal recognition. Thirdly, the Ethiopian Investment
Commission has been receiving the applications of foreign investors requesting investment permits to make a
social investment as SEs. As Temesgen Tilahun said Dutch Company has requested permission and license to
invest in Ethiopia produce and distribute panels at a lower cost.142 Likewise, the MTI have been receiving many
applications (for license and registration) with MOA which included social mission as its main objective from
social-minded traders who want to attain different social missions as their core mission by undertaking
commercial activities. In addition, the huge flow of organization to be registered as a member of SEE indicate
the existence of market demand and interest. Finally, the Reach for Change and British Council, are receiving
hundreds of applications by social entrepreneurs and SEs in each announcement for competitions for the grant.
All these indicate the existence of need and interest social entrepreneurs and enterprises in Ethiopia and the
need thereof.
E. Constitutional Rights
The last reason justifying the need of SEs is the constitutional right of every person to form an association and
to engage freely in economic activity and to pursue a livelihood, occupation, and profession of his choice. In
Ethiopia, every person has the right to freedom of association for any cause or purpose.143Besides, every
Ethiopian has the right to engage freely in economic activity and to pursue a livelihood, occupation, and
profession of his choice anywhere within the national territory.144The cumulative reading of these two articles
shows the right and freedom of investors and entrepreneurs to organize themselves and operate as a SEs to trade
for a social purpose. In this regard, the government has to enforce the right of its citizen to work as SEs.
In conclusion, the need for SEs in Ethiopia is beyond question. This is why the late Minster of Ministry of
Trade said for Ethiopia “SEs is a matter of necessity and not a matter of choices.”
11. Social Enterprise: Pros and Cons
As indicated above, the emergence of SEs as alternative private business initiatives to address socio-economic
problems is justified.145 SE solves socio-economic and environmental problems including poverty,
unemployment, social exclusion, and environmental pollution.146In doing so, SE improves society by ensuring
socio-economic development.147The SEs has also environmental benefits as it works on solving the
environmental problem as its core mission.
140 REACH FOR CHANGE AFRICA 3 INITIAL YEARS BUSINESS CASE, 14 (2013). 141 REACH FOR CHANGE AFRICA, AFRICA SOCIAL IMPACT REPORT, 3 & 4 (2015). 142Interview with Temesgen Tilahun, Deputy Commissioner, Industrial Parks Division Ethiopia Investment Commission, in Addis
Ababa (March 29, 2019). 143FDRE. CONST. Art. 31. 144FDRE. CONST. Art. 41(1 &2). 145 Carlo Borzaga et.al, Social Enterprises: A New Model for Poverty Reduction and Employment Generation An Examination of the
Concept and Practice in Europe and the Commonwealth of Independent States, 4(European Research Network and United Nation
Development Program, 2008) 146 Id. at 6. 147 Id. at 5&6.
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SE has also an advantage for social entrepreneurs. The benefits of SEs to entrepreneurs can be broadly
classified into two: economic benefit and non-economic benefit. The major benefit of SEs is not the financial
benefit in the form dividend, but the social impact it creates, and the non-economic or non-financial benefit it
gets from serving humanity. In SE, everything is mainly/only for the benefit of others and nothing (less) is for
the owners except, the pleasure of serving humanity.148 In addition to non-economic benefits, SEs has economic
benefits such as social branding, financial sustainability and independence, mission sustainability, and non-
financial benefits for social entrepreneurs and SEs.
The social purpose of business or socially and environmentally beneficial activities undertaken by the
organizations creates social branding. Social branding is the major benefit of SEs. The social brands of SE’s
products and services have various benefits concerning the attraction of wider customer, investor, qualified
employees, and donors. As the study shows, usually, the customers prefer socially responsible and
environmentally sustainable products and services of SEs relative to products and services of a traditional for-
profit business.149 The preference of customers for SEs has a positive impact on increasing the products and
services to be produced and sold. The increase of customer of SEs products and services produced and sold in
return increase social impact and economic benefit to the owner. Utilization of the benefit of social branding
requires creating public awareness about the products and services of SEs. Nowadays, the “Buy Social”
campaign is a common trend by SEs throughout the world. In Ethiopia, even it is not yet operative, the SEE
have adopted “Buy Social” as a logo for products and services its members.150 The social mission of SEs
attracts not only the customer but also qualified employees with fair salaries or voluntary. SEs is the number
one choice for experts who have the dedication to serve society while at the same time benefiting their
employer. Accesses to a qualified employee at a fair salary have a great contribution to the financial and
mission sustainability of SEs. The “social brand” SEs have also the effect of attracting investors who have
dedication and passion for social problems while trading and investing. The restriction on profit distribution by
a shareholder may discourage self-interested investors and traders. However, for those who want to be part of a
solution for the problem of community, the social brand of SEs is enough incentives. The branding of SE’s
products and services has also the benefit of attracting donors who are interested to support social entrepreneurs
and social entrepreneurship. In recent years, donors are highly interested in financing SEs as compared to
NPOs. This is because of the sustainability benefits SEs have. For example, in Ethiopia, Reach for Change and
the British Council is much interested to support SEs than NPOs. This mainly true because of the financial and
mission sustainability of SEs as compared to NPOs. The social brand has not only benefits but also risks. It may
incentivize greedy investors who want to use social missions of SEs as window dressing or marketing. Besides,
it has also the risk of acquisitions by other buyers. As Professor Alicia E. Plerhoples said, the social brand may
make the SEs face with a sale or a change in control transaction precisely because company earnings are not its
only bottom line.151 The financial success of SEs may more likely to make SEs targeted by bidders or buyers,
friendly or hostile.152 This is because it might just be cheaper to buy than build a social brand.
The other advantages of SEs are financial and mission sustainability. A social enterprise is carrying on
commercial activity to generate income to finance its social missions. The generation of sufficient income from
business activity makes SEs financially sustainable. Financial sustainability is necessary but not sufficient
condition for the sustainability of missions.153 Even, in case the business is unfortunate, the SEs has an
alternative source of finance from donors. The availability of sustainable and alternative finance helps to ensure
or maintain the continuity of missions of SEs. The sustainable finance secured by the profitability of SEs has
not only benefit but also risk mission drift.
148YUNUS, supra note 85, at 16. 149Alicia E. Plerhoples, Can an Old Dog Learn New Tricks? Applying Traditional Corporate Law Principles to New Social
Enterprises Legislation, 13 TENN. J. BUS. L.221, 235 (2012). 150The Association of Social Enterprises Ethiopia Bylaws Membership Term and Conditions, Social Enterprises Eligibility Guideline
(unpublished),(2018). 151Plerhoples, supra note 149, at 234. 152Id. at 235-236. 153 Rhoden, supra note 3, at 28.
IJRAR19L2028 International Journal of Research and Analytical Reviews (IJRAR) www.ijrar.org 154
SE has not only advantages but also disadvantages.154 One of the fundamental disadvantages of SEs is the
missions drift. Mission drift occurs when for-profit SEs give primacy for profit or seeks profit at the expense of
social missions. In doing so, mission drift reduces social impact or social and environmental benefits. The risk
of the mission’s drifts arises in two scenarios. First, when SEs transact neglecting poor (destitute)
beneficiaries.155 Second, when for-profit SE to exploit its beneficiaries by offering them unfavorable terms.156
The second disadvantage of SEs is difficulties in attracting capital.157This is mainly true for non-profit SEs.
Although for-profit SEs is better at attracting capital, they face difficulties in attracting equity capital. In
particular, SEs controlled by nonprofits and social investors have difficulty tapping equity capital markets since
dispersed profit-seeking investors may fear that the firm will forego profits to pursue a social mission. There is
a situation in which SEs are better able to attract capital primarily in two situations. First, where the support for
beneficiaries is relatively small.158 The second is where consumers, donors, or the government, rather than the
investors, pay the subsidies.159 The third disadvantage is the lack of public exposure and recognition. Many
people don’t have a clue about SEs. In this situation is difficult to expect them to support SEs. Whether it’s
online or offline, very little can be found about SEs, and hence the unexposed public when coming across SEs
may misunderstand it. Moreover, people don’t trust what they don’t know, and that causes misconceptions. The
fourth disadvantage is the lack of support structure and funding. At least, at the start-up stage, support is
essential to ensure the development of SEs. Unluckily, due to a lack of regulations and recognition for SEs, the
support and funding scheme is not available. Hence, the absence of a special support scheme is one
disadvantage of SEs.
12. Social Enterprise and Its Relationship with Stakeholders
The difficult question the author encountered to answer is “what social enterprise is?” Ethiopia lacks the
definition of SEs stipulated by the legal instruments. To fill the gap, the author define SE is as (a) a private
enterprise taking a wide variety of legal forms i.e. for-profit or non-profit; (b) carry on commercial activities
and generate a substantial part of the income thereof; (c) use majority or all of the income to create social
benefits or impacts by solving social problems through the transaction with its beneficiaries; (d) have a clear
social mission as its core; (d) financially autonomous and sustainable; and (e) make no or limited distribution of
profit to owners. As indicated hereunder in the graphs, SE is a commercial enterprise (trader) that takes various
forms with a commitment to transact with beneficiaries. The SEs may receive support or subsidy from donors,
government, investors, or customers. A one-sided arrow is used to denote a subsidy. A two-sided arrow is used
to denote a transactional relationship with a patron. Accordingly, the SEs transact with a customer (buyer at
market or premium price), employee or manager, investor or owner, and beneficiaries. Beneficiaries are
different from the customer. Beneficiaries are direct users of the social mission of the firms. Based on the legal
form it has adopted, SEs in Ethiopia is broadly classified into two: for-profit SE and non-profit SEs. For-profit
SE refers to the social business which operates using legal forms designed for conventional business.160 It may
distribute a limited amount of profit for the owner. Thus, the enterprise’s founders, controllers, and investors
may lawfully appropriate its surpluses for their private benefit. It is owned by equity investors. Non-profit SEs
(commercial nonprofit) refers to SE which operates using non-profit form i.e. CSOs and receives substantial
parts of its income from the price of the selling products or services.161They do not distribute profit to the
owner. As a result, those who control the organization have limited incentives to compromise the mission of the
organization. Both for-profit and non-profit SEs is commercial enterprises in the sense that they receive a
significant portion of their income from prices charged for its products or services so that its viability or
sustainability is dependent on such income. However, they may also receive some form of subsidy from the
154Eldar, supra note 58, at 170. 155Eldar, supra note 58, at 170. 156Eldar, supra note 58, at 171. 157Eldar, supra note 58, at 172. 158Eldar, supra note 58, at 172. 159Eldar, supra note 58, at 173. 160Katz & Page, supra note 7, at 62. 161Eldar, supra note 58, at 117.