Introduction

In 2007, the Voluntary Organisations Act, Chapter 492 of the Laws of Malta (hereinafter referred to as the "VOA"), formalised and legalised the concept of a voluntary organisation. This law created a system of accountability and transparency within a sector in Malta which has been active for decades, providing very important and valuable contributions to the community, but which was not formally regulated.

Voluntary organisations are subject to strict rules regarding trading and may only do so limitedly and strictly to achieve the purposes for which they are established. This was deemed to be too restrictive and a 'union' between the principles of company law and the principles of the voluntary sector was sought to provide a framework for organisations to address the social needs of the community in a holistic manner, whilst also rendering them viable and beneficial to the economy.

The Social Enterprise Organisation

The Social Enterprise Act (hereinafter referred to as the "SEA") regulates social enterprise organisations and their administration. This Act was published on the 22 February 2022 by means of Act No. IX of 2022 but it is NOT yet in force.

A social enterprise organisation is classified as such if it is set up for:

  1. the carrying out of any act of trade (the commercial aspect) or other activity which is principally aimed, through the activity itself, towards the fulfilment of a social purpose for the benefit of the community (the voluntary aspect). For such organisation to qualify as a social enterprise organisation, however, at least sixty per cent of its total income in any financial year must be acquired from such act of trade or other activity; or
  2. the carrying out of any act of trade (the commercial aspect) or other activity with the purpose of integrating into the labour market workers with a disability or disadvantaged workers (the voluntary aspect). In this case, for such an organisation to qualify as a social purpose organisation, not less than thirty per cent of the total number of workers engaged or employed by the organisation on a full-time basis, in any capacity, must be workers with a disability or disadvantaged workers. This minimum requirement of thirty per cent of full-time workers with a disability or disadvantaged workers may also be satisfied by a greater number of eligible persons working on a part-time basis but cumulatively working the equivalent hours to the required number of full-timers. This will help to promote inclusivity within the community.

Apart from the above, the social enterprise organisation is required to take the legal form of a company, a partnership or a co-operative and must not be controlled by the Government. It must also be registered with a new regulator, the Regulator of Social Enterprise Organisations.

The profits that are generated from the activities of a social enterprise organisation may be:

  1. used in any manner as may be determined by the administrators to achieve the purposes of the organisation;
  2. retained and transferred to a reserve account for future use;
  3. used to capitalise its profits; or
  4. used as may be prescribed and in a manner that is consistent with the achievement of the organisation's purposes.

Only twenty-five per cent of the profits that are generated by the social enterprise organisation over a rolling period of three years may be distributed and it shall not be permissible for any person, whether a private interest or a non-profit making organisation, to enjoy directly or indirectly more than twenty-five per cent of the profits through the holding of shares or other interests in such organisation, or in any other manner.

However, any person, including a shareholder within an organisation or any person having an interest therein, may receive income from a social enterprise organisation for his personal benefit in the cases listed hereunder:

  1. income under contracts of employment or engagement;
  2. income for the sale of goods or services;
  3. interests on loans granted to a social enterprise organisation to finance the development or operations of such organisation even when such income is payable on a bond or other financial instrument.

It is important to point out that such income or interest shall not be treated as participation in the profits of the organisation and shall not be considered to form part of the maximum of twenty-five per cent of the profits that are referred to above.

A social enterprise organisation enjoys a number of benefits subject, however, to the observance of applicable law. Such benefits may not be transferred or assigned by the social enterprise organisation to any person.

Concluding Remarks

The aim of the social enterprise organisation is to improve the economy and the social well-being of the community through the carrying out of acts of trade which are either principally aimed towards the fulfilment of a social purpose for the benefit of the community, or which are carried out in order to integrate workers with a disability or disadvantaged workers into the labour market. Moreover, social enterprise organisations may have the effect of reducing levels of unemployment, and consequently, reducing the strain on the Government to grant social benefits to unemployed individuals.

References

ACT No. IX of 2022 which is entitled the Social Enterprise Act, 2022 published on 22 February 2022

Social Enterprise Act, Chapter 630 of the Laws of Malta

Voluntary Organisations Act, Chapter 492 of the Laws of Malta

Originally published March 28, 2022

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.