The legal framework for social enterprises remains a puzzle in France.
It seems every week I receive emails from entrepreneurs that, even after consulting several lawyers, still ask me desperately: but you, how do you do it?
Thankfully, many legal professionals are taking the topic seriously:
Jérome Giusti, together with the association FEST, is preparing a report to present several “legal histories” from social enterprises in France (available soon). Alissa Pelatan has set up a legal consulting firm specialised in supporting social entrepreneurs in need (AMP-Avocat). Anne-Laure Brun Buisson, lawyer and mediator, has been one of the pioneers, with Sharelex, in working in law that fits social innovation. Or also accounting professionals, such as Christian Alibay and Younes Boujjat from Sofideec, who have been our “saviors” more than once.
Despite this growing expertise, there is no single truth or secret recipe on the topic. This is why it is valuable to share each story. And so, to not write and rewrite the same answer multiple times, I’ve decided to publish our own experience.
So here’s the legal history of makesense!
- Our legal history is still under construction! This is a continuous process and many current decisions will probably become mistakes to be corrected later.
- This article does not constitute legal advice. It is a simple testimonial of what Leila Hoballah, in charge of the legal structuring of the ecosystem from 2011 to 2015, and myself, from 2015 onwards, have chosen and experienced ourselves.
- The article doesn’t address certain parts of makesense’s history, as sometimes I chose to simplify the narrative for the sake of clarity — so there will be some imprecisions!
- As most of the questions I receive concern the French legal framework, I don’t include the history of makesense’s legal structures abroad
So here’s another story of a movement, from a legal perspective!
Legal structures are always evolving. In 9 years of existence, our ecosystem has passed through numerous legal changes motivated by strategic questions related to our identity, our mission, our governance, our management, our activities and our funding sources.
2010, the creation of the association makesense — and makesense came to be
Back from his world tour, Christian Vanizette and Leïla Hoballah decide to throw themselves full-time into makesense — defined at the time as a project for social entrepreneurs and citizens. makesense was thus created under the French term Association Loi 1901 (or “non-profit-making organisation”) — in this case, of the “non-taxable” type — the first legal form for all volunteer activities supporting social entrepreneurs. It became possible to :
- Register its brand
- Sign contracts
- Protect the developed methodologies
- Receive donations
- Make the first expenses (website development, office rental, operational expenses, etce)
- Take an insurance policy
In short, to turn makesense into a legal entity, it became a non-profit-making organisation or association.
2011: creation of CommonsSense SAS — how to protect the social mission?
After a year of existence, more and more private companies asked us to provide paid consulting services. A great opportunity to fund our activities, explore new ways of tackling our objectives and professionalise our know-how. At the same time, those opportunities added two potential risks: 1/ drifting from our mission and 2/ damaging the legitimacy for our other activities.
Taking that into account, the CommonsSense SAS (“société par actions simplifiée” or “limited liability company by shares”) is created. Its statutes specify that 20% of employees time can be freely attributed to makesense activities and that the SAS can, depending on its annual financial performance, make a donation to the makesense non-profit.
The brand stays within the association, as it is the name of our project that we want to protect from the all too common “mission drift”. The value of makesense is our community, the volunteers and the methodologies (created under the Creative Commons free license), thus they must remain within a legal structure separate from any other interests or shareholders.
- Which legal entity owns the brand (and thus the immaterial value created)?
- What is the overlap or alignment between our so-called ‘commercial activities’ and the purely non-profit actions?
- What flows should there be between the legal entities?
2012–2014: multiplication of legal entities — beginning of the “makesense galaxy”
As a community of citizens and social entrepreneurs, makesense became agile, allowing individuals to add their own piece to the structure as a whole. In this way, entrepreneurs like myself became a part of the adventure by building and adding new components to the ecosystem. The critical question was: how to allow prototyping, testing and growing makesense without putting the original project (the mother organisation) in danger in case of failure?
And so, between 2012 and 2015, with each new activity, entrepreneurs from the collective created their own legal structures to run activities on the ground and validate new models.
This is how the following projects came to life:
- Senseschool SAS for educational activities in partnership with schools, created by Marine Plossu et Caroline Delboy
- makesense Room association for activities related to media and festivals, created by Vincent Hejduk (later closed)
- Sensecube association for social entrepreneurship incubation and support activities, founded by Alizée Lozac’hmeur and Léa Zaslavsky
- Social Media Squad cooperative for activities specific to social media, created by Marie Leborgne, Louis-Maris Certaines, Habib Belarib, and Romain Chanut
Each of these entities is simultaneously:
- Independent in its operations, recruitment and team management.
- Closely linked to the makesense ecosystem through a licensing contract which stipulates that the entity is permitted to use the brand “makesense” (and, at the time, “sense”) on the condition that, each year, 8% of its revenue (SASs) or of its budget (associations) is reverted to the makesense “mother” association.
Again, the fact that the makesense association, as the core of the social impact project, retains the ownership of the brand, was an element particularly critical for ensuring cohesion between the different entities.
Note : We put processes in place to promote the alignment and “ecosystem building” between the entities beyond the legal structure (e.g.: regular meetings / information exchanges / decision processes, etc). Here is simply the legal history without getting into organisational details.
Key questions at this stage:
- Who owns the global brand? What is the “price” associated with its usage?
- How to structure an organisation to allow for testing new activities without damaging the existing ones?
- How can we clarify each individual’s role in the organization? (Who is legally responsible for what? Who has which legal mandate?)
- How are the different entities independent? What are the legal links and agreements to put in place to create a sustainable ecosystem?
- What legal and financial implications (risks and opportunities) have the established legal links between the different entities?
2015: taxing the association — the cost of success
Mid-2015, under the expert eye of our accountant Fabien Cassam (Orgaco — whom I strongly recommend), we realise that the licensing revenues received by the main makesense association, the famous 8%, turned out to constitute commercial revenue for the nonprofit. As this revenue exceeded 60,000 euros in 2015 (which is the limit amount of commercial revenues a non profit can receive in France), we decided to submit the organisation to taxation and begin declaring the income for tax purposes (a “taxable association”). With our growth, evolution of the legal framework became necessary. A model is good for a certain time, within a certain context, and is not absolute.
At this point, we could have “partitioned” the association: separating activities and accounting between taxable and non-taxable. We decided against it, as this often becomes quite complex in terms of management to ensure proper separation. In the case of an audit, an organisation has to justify very precisely each and every expense as “taxable” or “non-taxable”…a nightmare.
With that said, this option is often recommended by lawyers (in theory, this form can solve all problems) while it is discouraged by accountants (as, again, in practice it could be an operational nightmare).
From 2016: simplification of the model into 4 complementary entities — the impact hybrid
The multiplication of legal entities since 2012 added a lot of complexity in terms of legal, fiscal and accounting management.. What was initially useful for prototyping new models quickly and efficiently became a constraint that slowed down the ecosystem’s legal operations and financial management. At the same time, certain activities spun off from the ecosystem or developed into other formats.
To simplify our legal structure, many legal experts were consulted. Finally, two auditors from Sofideec, Christian Alibay and Younès Boujjat, with an expertise on the topic from over 20 years of supporting thousands of associations and companies, brought us a pragmatic solution in line with our vision.
After many hours of discussion and meetings, we decided on the following organizational structure, comprising four complementary legal entities:
- The makesense association for all activities on creating and animating citizen communities (“makesense for citizens”) -still being the “mother” association
- An endowment fund to run philanthropic activities and receive donations (which President is the President of makesense association)
- The Sensecube association to run incubation and social entrepreneurship support activities (“makesense for entrepreneurs”),
- The CommonsSense SAS to run organisational transformation activities (“makesense for organisations”) whereby the capital is 100% owned and controlled by the makesense association.
The other structures leave the ecosystem, are liquidated or dissolved (for different reasons).
We wished to maintain a diversity of structures that allows us to continue to capture multiple sources of funding (services, sponsorships, donations, subsidies…). In addition, considering that partitioning activities as for-profit and non-profit within the same structure is often messy, we preferred to put in place a legal partitioning that separates the assets, resources and revenues by activity type (citizens, entrepreneurs, organisations, philanthropy, …).
However, we also put in place cash pooling agreements between the different entities to allow for transfers in case of need and ensuring robustness of each of them.
Zoom : Why an endowment fund?
Endowment funds are legal structures which allow organisations to receive donations under the condition that these are used to run and finance projects following the social mission of the fund. It’s a less restrictive legal structure and simpler to create than a foundation: it’s enough to hold over 15.000€ and set a relatively simple mission (as associations). In associations where impact is indirect as makesense, it is difficult to be recognised as “tax deductible” or public interest and thus benefit from non-taxation on direct donations to the associations. Thus this was our chosen alternative.
Key questions at this stage:
- How to make the best out of the specificities and complementarities of existing legal structure, especially when multiple funding sources?
- How to organise our ecosystem in order to manage its growth and financial stability?
- What are the power and financial dynamics between the different entities?
“makesense” as it is today.
Since then, we have been operating in France with these 4 entities.
In 2018, we decided to go even further in consolidating our ecosystem by agreeing upon one form of branding, still owned by makesense. The other structures keep their legal nomenclature, but no longer use them commercially.
We continue to ask ourselves thousands of questions regarding our model and continuously challenge it with legal experts, lawyers and accountants. Regardless, I hope our testimony will be useful for you!
To keep in mind?
As each organisation is different, it’s important to gather as much information and know how to ask the right questions at the right time in order to make responsible informed decisions. There is no “one-size-fits all” perfect solution, each case requiring different considerations.
Lawyers can make anything happen. Ask them the right questions and go see them with a checklist of what you are looking for!
- What’s the identity, mission, and values of our organization and how can we keep them aligned and coherent?
- How and for whom are we delivering impact?
- What are my sources of funding today and tomorrow? What legal constraints do they imply?
- What are the governance model / decision-making among my different activities ?
- Who decides what and on what topics?
If you are able to clearly answer these five questions, you’re on a good way to have a better idea of your needs, which will help you in determining the legal structures to put in place to run your activities.