Saeima establishes legal framework for activities of social enterprises

(13.10.2017.)

On Thursday, 12 October, the Saeima adopted in the final reading the Social Entrepreneurship Law, which aims to create a favourable environment for social entrepreneurship.

Aija Barča, Chair of the Saeima Social and Employment Matters Committee, which was in charge of drafting the law, previously stated that, "unlike many other countries, Latvia has not yet set up a legal framework for the activities of companies working for socially-oriented purposes. However, there is a demand for this kind of entrepreneurship to have special rules; therefore, the Committee took the initiative of drafting the bill. I hope we have succeeded in creating a modern and user-friendly legal framework, as we have taken into account both the experience of other countries and the proposals of local organisations."

The law was drafted by a working group headed by Committee Deputy Chairman Einars Cilinskis and in close cooperation with sectoral ministries, social enterprises and non-governmental organisations.

The aim of the new regulatory framework is to promote the quality of life of society and to foster the employability of people at risk of social exclusion. The law will ensure the legal framework by providing both the criteria for obtaining the status of a social enterprise and the procedure for state support for this type of entrepreneurship.

The status of a social enterprise will be available to limited liability companies that engage in creative economic activities with beneficial social impact, for example, provide social services, contribute to shaping more inclusive civil society, promote education, support science, work toward environmental protection and conservation, provide animal protection, or foster cultural diversity.

As a result of extensive drafting-related discussions, the legal framework also enables municipalities to participate in the creation and operation of a social enterprise. However, municipalities should not hold majority stakes in such companies, and such companies should aim at employing the target group. This provision will be in effect for three years after the law enters into force, but the legislature will be able to extend this deadline if too few social enterprises appear without the involvement of municipalities, explained representatives of the Social and Employment Matters Committee.

The draft law provides for a number of support measures for social enterprises. Companies that have acquired this status will be able to exclude a number of expenses from the corporate income tax base, such as the costs of rehabilitation and social inclusion measures for employees, the costs of integrating people into the labour market, the acquisition of assets that serve the objectives set out in the articles of incorporation, and donations to public benefit organisations.

The other part of support instruments are formulated as the right of the state and local authorities to grant certain relief and support, namely, the right to donate movable property, to grant real estate tax credits, and to provide social enterprises with their property to be used free of charge.

Social enterprises will be able to engage volunteers to perform tasks other than managerial duties, accounting, or the basic functions of the company.

The status of a social enterprise in Latvia can be obtained by a company meeting the criteria outlined in the law. The state will provide certain support to each social enterprise, which, in turn, will not be allowed to distribute profits between its owners. Rather, the profits are to be reinvested in attaining the objectives defined in the company’s articles of incorporation, that is, the creation of public good. The law also defines the activities in which social enterprises are not allowed to engage, such as the production of and trade in arms and ammunition, alcoholic beverages, tobacco, as well as gambling and betting, and financial and insurance services.

The Ministry of Welfare will be responsible for promoting and supporting social entrepreneurship. The Ministry will grant the status of a social enterprise based on an evaluation by a specially established social enterprise committee. The Ministry will maintain and publish on its website a register of social enterprises.

According to the authors of the draft law, about 60 organisations in Latvia meet the criteria of a social enterprise. It is estimated in the explanatory note to the draft law that, once this law is adopted, at least 200 social enterprises might be created in Latvia in the medium term.

In the 1990s, Europe witnessed the emergence of the concept of social entrepreneurship as an answer to various socially significant challenges with which the state could not cope, conventional businesses were reluctant to engage, and non-governmental organisations did not have enough influence to undertake.

Over the last 30 years, the concept of social entrepreneurship has evolved and matured worldwide. Social enterprises deal with a variety of socially significant issues, such as environment, culture, education; they provide support to socially disadvantaged people, as well as provide jobs for certain groups of people struggling to find employment. Social enterprises use business models to find viable and secure solutions to social challenges by purposefully investing resources in solving them.

The new legal framework is expected to come into force on 1 April 2018.

 

Saeima Press Service

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