Running a not-for-profit organisation in Nigeria can be quite daunting; keeping your donors happy, executing projects that align with the core vision of the organisation, keeping your administration running, while still trying to look pretty. This journey is especially more difficult for local not-for-profits that have no ties to international charities/donors either as parent organisations or strategic partners.

As a not-for-profit (in the strictest sense), your budget is entirely reliant on donor funding; which is to a large extent not guaranteed at every point in time; and even when donor funding is guaranteed you may be forced to execute projects that are not centric to your organisation’s goals or execute projects that are centric to your organisation’s goals but in a manner that differs from your values, in order to ensure that the doors remain open at all times and that there’s a semblance of activity.

In Nigeria, not-for-profits are either registered/structured under Part C of the Companies and Allied Matters Act Cap C20 LFN 2004 (“the Act”) as Incorporated Trustees (the preferred one) or in Part A of the Act as Companies Limited by Guarantee. Although choosing to establish your charity through the Incorporated Trustees or Company Limited by Guarantee vehicle comes with perks such as exemption from payment of ‘income’ tax and waiver of certain government requirements, it comes with the major pitfall of income/cash flow restriction as a result of the provisions of the law that bars these kinds of legal entities from distributing profits, leaving room for only philanthropic donations. Whilst some charities have found creative ways to deal with this i.e. by running businesses by the side that generate income to fund charitable projects, they still have issues related to access to capital for business expansion or to restart the business if it has previously failed. In order cases, the profits generated from these businesses are just not enough to fund their Projects. To be plain, most donors, especially the international ones do not want to hear the word which must not be spoken – ‘Profit’; it is for this reason that most charities avoid any semblance of doing business for profit. However, this model is not sustainable and will see the organisation, along with its ideologies crash faster and harder than it started-out.

If your organisation or (intended organisation) has a centric vision aimed at achieving maximum social impact and which you would like to outlive you, then you must as a necessity build a business model (yes, Business Model!) that will guarantee cash flow primarily generated by your organisation or a business affiliated to your organistation. There are two ways to achieve this within the ambit of Nigerian law:

1. establish a Social Enterprise; or
2. own a Social Enterprise.

Whilst this may sound strange to some Nigerian not-for-profit executives, those in the United Kingdom are quite familiar with these vehicles for creating social impact under the Communities Interest Companies Regulations 2005. These Regulations basically allow for organisations with a social impact focus to register as for-profit companies, thereby making them open to investment from private individuals who are concerned about social impact and some measure of returns on investment as well. As may be anticipated, these regulations come with their own set of restrictions to ensure that organisations labelled as Community Interest Companies are really for the interest of their target community. Unfortunately, we have no such legislative provision in Nigeria, however this does not mean we cannot improvise within the boundaries of existing law.

Establishing a Social Enterprise

There are two suitable legal vehicles that can be used to establish a social enterprise that will guarantee cash flow from private investors i.e. –

1. Private Company Limited by Shares; and
2. Public Company Limited by Shares.

These legal vehicles were created by the law strictly for-profit purposes; however, they can be modelled to suit a social enterprise organisation through the following means:

1. clearly state in your objects in your Memorandum of Association and ensure that the objects are clearly restricted to the social impact cause of your organisation. Leave no room for ambiguity or discretion to carry on any other kind of business;
2. restrict the membership of the Company to only persons who are primarily interested in the social objects of the Company;
3. restricts the transfer of shares to persons who must declare their commitment to the social enterprise objects of the entity;
4. create an asset lock effect in the Company by restricting the application of the assets of the Company to its social enterprise objects;
5. restrict the entity’s investment options to projects or other entities that have social impact objects;
6. restrict the amount to profit that can be declared as dividends to a certain percentage, leaving the remaining profit to be specifically reapplied to the objects of the entity;
7. mandate the appointment of Directors who are social enterprise experts;
8. include a ‘suicide’ clause in the Memorandum of Association/Shareholders’ Agreement (if any) that mandates the winding-up of the Company once it deviates from its social enterprise objects;
9. mandate the appointment of external auditors to monitor the activities of the entity; and
10. ensure the written commitment of all directors and management staff to the social enterprise objectives of the entity too ensure amongst other things, that the social enterprise outlook of the entity is put into consideration in remuneration and expenditure.

Given that the list is not exhaustive, intending social entrepreneurs are at liberty to include other legal tools/checks and balances in their governing documents that will ensure that the Company remains within its social enterprise track and ensure that its business model is sustainable both in a commercial and social impact sense.

Owning a Social Enterprise

If your organisation is already in existence and is operating as a Charity and you want to maintain your current funding from donors whilst still being open to other sources of income, then owning shares and control in a social enterprise is the way to go.

To achieve maximum results, you can establish a Social Enterprise using the measures highlighted in the list above and in addition include measures that will ensure that you remain in control of the Social Enterprise entity.

Operating this kind of model will ensure that your charity receives funding from Donors, private investors and ethical funds (i.e. from your share of the profits in the social enterprise) while multiplying your social impact through your charitable legal vehicle and your social enterprise legal vehicle.

In implementing any of the models, you must always keep in mind that social impact is important, but sustainability is equally as important, and this can be achieved through enterprise. By deploying the right legal tools in the appropriate manner these unlikely bedfellows can ride smoothly in the same vehicle for years, years and years ahead.