Nobel Peace Prize laureate Professor Muhammad Yunus stated that “social business” should seek to generate a modest profit to finance its own operations while addressing a social need. Profits should be used exclusively to expand the company’s reach, improve its product or service, or subsidize its social mission in other ways.

In Korea, the Social Enterprise Promotion Act (SEPA) became effective on July 1, 2007. The legal organization “social enterprise” is not limited to non-profit organizations. It ranges between “associations” under the Civil Code and “company” under the Commercial Code. The public interest corporation, non-profit private organization, social welfare corporation, and consumers’ cooperation can also be social enterprises.

The Minister of Employment and Labor (MOEL) can support social enterprises by providing professional consultation services for management, technique, taxation, labor affairs, accounting and can also provide other necessary information. State or local autonomous governments can support social enterprises by renting them state-owned or public land, and by reducing or exempting them from certain taxes.

Internationally, the Social Enterprise movement has led to the promulgation of laws establishing for-profit public purpose enterprises in several different countries. The UK, which introduced the concept of social enterprise earlier than the U.S., for example, established Community Interest Corporations (CIC’s) under its Company’s Act in 2005.

This movement has recently gained momentum in the U.S. with the passage of legislation in seven states specifically authorizing the creation of a new, separate form of corporate entity called a “Benefit Corporation” in which a for-profit corporation is permitted to pursue objectives primarily for the benefit of the public. “Flexible purpose corporations” are also able to incorporate starting January 1, 2012 and must articulate their special purpose, i.e. charitable and public purpose activities in addition to any other lawful purpose.

In Korea, criticism was raised about government certification and promotion of the social enterprise because social enterprises in the United States and Western Europe have appeared on the initiative of private organizations. It would be contradictory for the government to support those activities in fields where the government was not engaged.

When the period of government support expires, more than a few social entrepreneurs meet with difficulties in business operations, so that they are likely to close their businesses. It is also feared that the government would likely escape from its own responsibility for the social welfare of the disadvantaged, under the pretext that social enterprises have taken over support system with the support of the government.

Many people, in turn, would try to establish social enterprises even though they are not fully interested in the double or triple bottom line (DBL = economic and social value, TBL = economic, social and environmental value). In reality, they are mainly interested in having the government’s support.

With new legislation, the Basic Cooperative Act (BCA), which will be effective on December 1, 2012, efforts to give new legal identity to social enterprises encountered a new dimension. Regarding the fact that about 86% of certified social enterprises were categorized as a social enterprise with cooperative form, it remains to be seen whether the co-op is the most suitable form for a social enterprise. The discussion will be heated when people come to learn that the BCA regulates the “social cooperative” as a form of co-op.

Another issue includes the modification of the present certification system for direct support of the social enterprise into a registration system for indirect support. The exclusive usage of the term  “social enterprise” only for certified social enterprises shall be deleted from the SEPA.

Lee Kwang-Taek(Professor, School of Law)

sansayon@kookmin.ac.kr