The following is a guest post by Richard Bridge, Barrister & Solicitor from Nova Scotia, based on his presentation delivered at the Social Finance Forum in Toronto on November 18, 2008.

I have had the good fortune to look at the UK and US hybrid models in some detail through a project initiated by Stacey Corriveau of the Fraser Valley Centre for Social Enterprise with support from Coast Capital Savings Credit Union. This project has involved a group of bright folks experienced with social enterprise in various ways debating the relative merits of the UK and US structural approaches and possible lessons for Canada. It is a lively debate, but no consensus has emerged as to whether something similar would be helpful to social enterprise in Canada.

I am encouraged to see these legislative developments. I think they are innovative and timely. Canada sometimes follows legislative examples set in the UK and the US, which can be advantageous, for it allows time for some of the wrinkles to be ironed out through trial and error.

Canadian law has lagged behind:

1. Social enterprise” has no legal recognition or standing.   With the exception of co-op legislation, it is very thin legislative gruel. Even the co-op legislation is less than ideal. In Nova Scotia, for example, co-ops are not able to issue investment shares, an option available under more modern provincial and federal co-op legislation.
2. The Canada Corporations Act, which governs thousand of federally incorporated non-profit organizations and charities, has changed little sine 1917. It is sadly inadequate. Bill C-62, introduced in June 2008 to replace the Canada Corporations Act, is a lot like Bill C-21 from 2005. Both died when elections were called. Perhaps we will have a new, modern Act in time for the centennial celebration of the current version.
3. Provincial incorporation and governance legislation is a patch-work ranging in quality from poor to merely adequate. None of them were created with social enterprises in mind. Charity law is a dog’s breakfast. Some of its shortcomings are:
   1. divided constitutional jurisdiction;
   2. bits & pieces in the federal Income Tax Act;
   3. some provinces ignoring it completely;
   4. Ontario doing its own rather odd and complicated things;
   5. very sparse and poorly developed case law; and
   6. an understaffed Charities Directorate
4. Charities Act 2006 created a new, modern definition of charity, and created a comprehensive, rational administrative system for the regulation of charities.   Canada will likely never catch up to the UK in terms of charity legislation, for the Constitution Act, 1867 gives the provinces jurisdiction over charities, while the federal government in fact regulates them because of its taxation powers.  It is an accidental tangle, not envisioned in the 1860s, from which we will not escape. Social Entrepreneurs in Canada (and their lawyers) need to be like Red Green. Duct tape is an essential tool to hold ill-fitting things together.
5. I would like to see comprehensive legislative modernization for charities, non-profits and social enterprises. Is it essential?  No.  Would it be an improvement? I believe so.
6. I like the UK’s Community Interest Companies. The ability to issue shares to investors is very powerful.  They are a legislative stamp of approval. They increase the credibility and profile of social enterprise. The cap on returns, the asset lock and the community interest test are creative innovations.  Fine-tuning will inevitably be needed.  It may take a decade to become established.  I would like to see a similar new choice for social enterprise in Canada.
7. Social Enterprise could take the form of a: Co-op, for profit corporation, sole proprietorship, partnership, non-profit organization, charity engaging in related business, a new “Community Enterprise Corporation,” or a combination of the above. I believe an additional legal vehicle to choose from would be a step forward. I prefer the expression ‘community enterprise’ to ‘social enterprise.’ I believe ‘community’ captures the essense of this movement, and from a political perspective, resonates more broadly.
8. Preferential tax treatment would be helpful. This could take the form of a reduced rate of taxation, or exemption. A tax credit could be used to encourage investment. There are existing examples of this approach, including Labour-Sponsored Venture-Capital Tax Credits or Nova Scotia’s Community Economic Development Investment Funds.
9. I would also give charities more scope to use program related investments. They are currently restricted to investment in charities. That should be broadened, drawing on the the US experience.

For a more serious and comprehensive examination of these legal issues, I recommend Canadian Registered Charities: Business Activities and Social Enterprise – Thinking Outside the Box, a very impressive and scholarly paper recently completed by Canadian lawyers, Terrance Carter and Theresa Man for a conference in New York called ‘Structures at the Seam: The Architecture of Charities Commercial Activities’

Richard Bridge is a Barrister & Solicitor from Nova Scotia, Member of the Law Society of British Columbia and the Nova Scotia Barristers’ Society. He can be reached at phone: 902 825-0553, email, or online at LawyerForCharities.ca

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