Social Enterprise Vs Nonprofit: The Real Differences

Social Enterprise Vs Nonprofit: How Are They Different? How Are They Similar?

Although both social enterprises and nonprofits seek to remedy social and environmental issues, they go about it differently within their organizational models and funding sources.  

What Is a Social Enterprise?

A social enterprise is a mission-driven company, startup, or co-operative founded by a social entrepreneur that exists to help alleviate a social issue while making a profit and functioning as a business. These responsible businesses may be Certified B Corporations, which demonstrate a high commitment to environmental and social good. However, many social enterprises don’t hold any certifications and still yield incredible results for their mission. 

Examples of Social Enterprises

The structures and practices of social enterprises are ever-evolving but generally fall into one of three main categories, according to the Social Enterprise Alliance. 

Opportunity Employment

We love Nisolo, a Nashville-based sustainable shoe company and Certified B Corporation. Nisolo owns its own factory in Trujillo, Peru where 70% of its production takes place. As an employer, Nisolo provides stable well-paying jobs and a financial literacy program for its employees. After three years of working for Nisolo, employees have experienced a 152% increase in earnings.

When Nisolo does partner with factories in Mexico or Kenya, those partners must agree to their Code of Conduct, which includes living wages, healthcare benefits, and healthy workplace conditions. As a for-profit business, Nisolo uses its profits from selling goods to enhance the wellbeing of its factory workers, offset its carbon emissions, and fuel its mission of pushing the fashion industry in a more sustainable direction, alleviating many of the most common social problems that stem from shoe production. 

Transformative Products or Services

Little Sun is a Berlin-based social venture and B-Corporation that makes solar lamps and chargers in order to expand access to clean, renewable light. These thoughtfully designed products by the Icelandic-Danish artist, Olafur Eliasson, expand entrepreneurial opportunities in rural African communities. For each Little Sun sold retail, another is sold at a very low price in Sub-Saharan Africa. On the ground, Little Sun trains local entrepreneurs and helps them set up their own businesses to sell Little Sun products to the populations most in need of a sustainable light source. 

Little Sun is a social enterprise that falls into both the opportunity employment and transformative product categories. Accessibility to clean light has proven to be absolutely essential for health, climate change prevention, and gender equality, and the added bonus of training new business owners on the ground ensures the sustainability of the program and local economic health. 

Donate Back

Grounds & Hounds is an ethical coffee company with a big heart for animal welfare. After the founder rescued his own pup, he realized how broken the system can be for shelter animals. He started Grounds & Hounds to make organic, eco-friendly coffee more available and to support animal rescue organizations. Grounds & Hounds donates a whopping 20% of their profits to rescue organizations!

Because of this unique business model, more than 2,750 dogs have been saved from kill shelters and 2.1 million meals have been provided for rescue dogs. This is a social enterprise that fuels the work of nonprofit organizations while creating great products for consumers. 

What Is a Nonprofit?

A nonprofit organization or non-governmental organization (NGO) allocates funds on behalf of donors to achieve a specific vision. They’re typically run by an executive director who executes their mission for the common good. The nonprofit sector is wide-reaching–many religious and political organizations are nonprofits, as are many colleges and museums. 

To be a nonprofit, the org must be registered as such with the IRS and follow a certain legal structure. To learn more about the parameters of a nonprofit, be sure to check out our post on how to start a nonprofit

Examples of Nonprofits

You’ll likely recognize some of Forbes’ highly ranked charities, like Planned Parenthood, Feeding America, and the United Way. But many small nonprofits are taking action and making long-lasting changes in their local communities as well. 

What School Could Be

Led by author, producer, and public speaker Ted Dintersmith, What School Could Be is a platform for educators to learn how to innovate within their classrooms. They believe that the future of schools is dependent on students learning how to apply their skills to real-life challenges. That’s why What School Could Be supports teachers interested in transforming their classrooms into innovative and collaborative learning hubs through digital resources and training. 

B Lab

As a nonprofit organization, B Lab assesses and certifies B-Corporations. They accept donations to help fuel this process and to date, they’ve certified 3,500 benefit corporations in 70 countries and 150 industries. This nonprofit is kind of a double whammy, since their work as a nonprofit benefits social enterprises. In practice though, they’re a 501(c)(3) dedicated to social impact and conscious capitalism

Corporate Accountability Lab

Founded by Charity Ryerson, an expert in corporate accountability, CAL uses donor dollars to unearth the most creative interpretations of the law in an effort to protect people and the planet from corporate abuse. They have done work to address injustices such as child labor and unfair working conditions and compensation. CAL doesn’t accept any corporate donations for obvious reasons but does operate as a 501(c)(3) to advance ethical corporate practices. 

Differences Between a Social Enterprise and a Nonprofit

Although both social enterprises and nonprofits are tasked with pursuing a social cause, the way they go about it is different. 

Where capital comes from is a key difference in the social enterprise vs nonprofit comparison. In for profit entities, profit is the fuel to accelerate social impact. In a nonprofit, the fuel to achieve a social mission is procured through fundraising and donor engagement. Nonprofits have tax-exempt status as defined by the IRS as well, whereas social enterprises and social businesses pay income tax on their financial returns. 

Nonprofits are held to a high standard of transparency due to their tax-exempt status and public accountability. They’re required to publish their 990s and many choose to publish Annual Reports that convey to the public exactly how their money was raised and spent to achieve their goals. As businesses, social enterprises aren’t legally bound to that level of transparency, but more often than not, they use it as a framework to create and share impact reports that show their progress as a business and an agent of change.