Social Enterprises in Asia

Social enterprises are on the rise worldwide. A recent survey of 1,030 social enterprises found that they generated more than €6.06 billion in revenue, impacted more than 871 million beneficiaries, employed more than half a million people, and benefitted about 5.5 million people. Asia, being no exception, has witnessed a significant increase in such businesses. Combining the pursuits of social mission and profit, social enterprises in Asia have been regarded as innovative and vital solutions to the pressing problem of socio-economic inequality, while playing important roles in delivering public goods and services.  More broadly, social enterprises have been deemed important tools for public welfare, particularly for the disadvantaged and vulnerable. Social enterprises in Asia include affordable and essential goods and services providers, microfinanciers, and organisations employing and training the disadvantaged and disabled. However, nearly all Asian jurisdictions lack separate legal forms for social enterprises—unlike the UK, US and Europe. Social enterprises in most Asian jurisdictions use existing legal forms—most commonly, the private company limited by shares. 

In a forthcoming article in the American Journal of Comparative Law, I argue there should be a new legal form for social enterprises in Asia, using four leading common law jurisdictions (Singapore, Hong Kong, India and Malaysia) as a case study. The new legal form should account for the distinctive social, economic and political contexts in each Asian jurisdiction, while responding to evolving needs of social enterprises and the community.  I first challenge the dominant assumption that existing legal forms in Asia—particularly the limited liability company, but also the partnership (including the limited liability partnership) and the sole proprietorship—adequately and appropriately address conflicts of interest hampering social enterprises in Asia. 

Next and importantly, I advance a critical framework for understanding and evaluating social enterprise law, comprising five criteria: (1) corporate purpose; (2) directors’ duties; (3) decision-making powers; (4) reporting and certification; and (5) distribution of dividends, assets, and tax benefits. By using the framework to critique the existing legal forms for UK and US social enterprises, namely the UK’s community interest company and the US’s benefit corporation (including public benefit corporation and social purpose corporation), I demonstrate why and how the new legal form for social enterprises in Asia should differ from those of the UK and US.

Thus, the framework is not only a valuable analytic tool to critically appraise the UK and US social enterprises, but it also provides a basis for designing the characteristics of the new legal form for social enterprises in Asia as well as other jurisdictions that do not have a separate legal form for social enterprises. The legal form’s precise characteristics should be tailored to different types of social enterprises, bearing in mind the integrity and competence of the political and legal institutions implementing, monitoring and enforcing laws.

Ernest Lim is Associate Professor at the Faculty of Law, National University of Singapore.