Towards a Tailor-Made Legal Structure for Social Enterprises in Sri Lanka

Abstract

Social enterprises provide effective solutions to social, economic, and environmental problems using business methods and the power of the marketplace. Social enterprises straddle the legal divide between for-profits and nonprofits, as they seek to generate wealth while making a strong social impact. Therefore, many countries around the globe have introduced specific legal forms for social entrepreneurs to house their entities and thereby enabling them to fully realise their aspiration of ‘do well by doing good’. This research tests whether there is sufficient demand and the appropriate contextual setting in Sri Lanka to justify the introduction of a tailor-made legal form for social enterprises. This research serves the twofold objective of identifying difficulties encountered by social enterprises when operating within the parameters prescribed by existing for-profit and non-profit legal structures and proposing methods to overcome these barriers to establish a thriving social enterprise sector. To that end, primary sources such as statutes and secondary sources such as Hansard reports, consultation papers on amendments to statutes, research papers and journal articles were used. To discover, from a pragmatic perspective, challenges faced by social enterprises in the current legal landscape and solutions to create a favourable legal environment, semi-structured interviews with social entrepreneurs, experts in the field of social entrepreneurship, corporate lawyers and relevant government officers/agencies were conducted based on purposive sampling. Research findings reveal that introduction of a specific legal format for social enterprises is the panacea for all barriers, in particular inability to manage unique governance needs, limited access to finance, lack of recognition, legitimacy and deprivation of identity etc. that hinder this sector from reaching new heights.