Social Enterprises – The law, its application and registering as a social enterprise under Cyprus Law
Social enterprises are businesses that have as their main goal to serve and achieve a social purpose through their commercial activities. There are mainly two types of social enterprises. Firstly, there are social enterprises of general purposes which focus on cultural, social, and environmental issues, and, secondly, there are social enterprises which focus on being socially inclusive, such as hiring minorities, persons with disabilities and persons from society’s most vulnerable groups.
Social enterprises must not be confused with associations, clubs or not for profit companies. They are a distinct category of business and there are specific legal requirements to achieve such status. Profit is still important for social enterprises; however, their focus is not maximizing profit alone but to maximize profit in order to achieve their social objectives.
Cyprus law for social enterprises
Social enterprises were firstly developed in the United Kingdom since the late 1970s. However, in Cyprus, social enterprises have only just recently been regulated. The initiative to create a legal framework for social enterprises began in 2015.
The Social Enterprises Law 207(I)2020 (“the Law”) was passed by the parliament of Cyprus in 2020 and it sets specific requirements to allow social enterprises to be registered in a separate registry (Register of Social Enterprises in the Registrar of Cooperative Societies Services (“the Registry”)).
Article 2 of the Law defines social enterprises as follows:
“A business that fulfils the requirements prescribed in article 6 and it is registered in the Registry of Social Enterprises as a social enterprise for general purpose or as a social enterprise for social inclusion”.
Social Enterprises can be either:
- Private Limited Liability Companies with shares or by guarantee, or;
- Cooperative Companies in accordance with the Law on Cooperative Societies or in accordance with the provisions of the Law on Uniform Heterogeneous Cooperatives and Trade Names.
Article 2 refers to article 6 of the Law which reads the criteria that must be met for a social enterprise to be registered in the Registry. Article 6 of the Law distinguishes between social enterprises of general-purpose and social enterprises for social inclusion. It is important to distinguish between the two since the Law prescribes different requirements for each category. Hence, anyone who is interested in establishing a Social Enterprise under Cyprus law must take into consideration the requirements and guidelines set by article 6 of the Law.
The Memorandum and Articles of Association (“M&AA”) or any other legal document of a company that intends to be registered in the Registry as a Social Enterprise must clearly state whether it will be a general-purpose Social Enterprise or a Social Enterprise for social inclusion under the Law.
Regarding Social Enterprises for social inclusion, the Law prescribes that at least ten percent (10%) of the company’s personnel must be persons with disabilities and at least thirty percent (30%) of the company’s personnel must be persons who belong to a vulnerable group (specified in the Annex of the Law).
The Law prescribes that Social Enterprises of general purposes must invest at least eighty percent (80%) and Social Enterprises of social inclusion must invest at least forty percent (40%) of their profits after tax obligations, to support the social purpose prescribed in theirs M&AA.
An application for registration in the Registry must be submitted along with the documents prescribed in article 7 of the Law. Following the submission of the application, the Registry will pre-examine the application along with the documents submitted within twenty (20) working days from submission and if necessary, ask for further documentation. The Registry will provide an answer of whether the application to be registered in the Registry has been approved or declined within thirty (30) day from the day they have received the application with the all the necessary documentation.
The Law prescribes that the term “social enterprises” is reserved and can only be used by businesses that are registered in the Registry. Thus, if a company does not present sufficient evidence that the above-mentioned requirements are fulfilled, then it would not be able to be registered in the Registry as a Social Enterprise and consequently would not be able to use the term “social enterprise”. In case a company uses the term without being registered in the Registry, a fine may be imposed.