If you are a successful entrepreneur or have a large fortune and would like to use your position to tackle social challenges, you can utilise various structuring options, for example in foundation law.
Social entrepreneurs with philanthropic endeavours can secure tax advantages for their entrepreneurial activities with the help of non-profit status.
Social entrepreneurship
The term social entrepreneurship was coined by Bill Drayton, founder of the oldest and internationally renowned organisation for and by social entrepreneurs, Ashoka. He travelled through India in the 1970s and witnessed how people came together to form organisations to tackle previously unsolved social problems.
Drayton noticed that the success of such organisations depended on a creative and innovative leader as a „driving force“ and decided that such people were worthy of support. Social entrepreneurs are known as people who use their entrepreneurial skills and creativity to tackle social challenges and promote innovation.
Social entrepreneurs can, for example, pursue philanthropic endeavours with the help of the structuring options for social enterprises in foundation law. The German legislator has also recognised the eligibility of people who take on social problems and grants them tax benefits when pursuing charitable purposes.
This is because social entrepreneurs are aware of the responsibility and obligations that come with generating and maintaining a large fortune and enable good and sustainable solutions to social challenges.
Philanthropic endeavours and non-profit status
Entrepreneurs and individuals who are social entrepreneurs often act on the basis of philanthropic and altruistic endeavours, because they want to drive social progress and implement projects that are close to their hearts. Foundation law, for example, can help to harmonise charitable interests and entrepreneurial thinking and create a concept that is tailored to the project in question.
The British philosopher Charles Webster Leadbeater described social entrepreneurs back in 1997 as „committed, ambitious leaders with great ability to communicate a mission and inspire employees, users and partners“. Even back then, social entrepreneurship was seen as a significant driver of innovation, as it utilises resources and knowledge to find new ways to tackle social challenges.
Specifically, a social enterprise is characterised by the fact that it is not primarily or exclusively geared towards maximising profits for shareholders or investors. Instead, social added value, the pursuit of charitable purposes and the solution of social challenges are seen as being of at least equal importance.
Through economic activities that at least attempt to solve social challenges in the interests of the common good, social entrepreneurs show that they are aware of their responsibility and obligation to society that comes with a large fortune. Social enterprises do this by offering their products or services in such a way that they are recognisably focused on the purpose of public benefit and directly on solving social challenges.
The European Commission defines this as „enterprises for which the social or societal not-for-profit objective is the purpose of their business activity, which often manifests itself in a high degree of social innovation, whose profits are largely reinvested to achieve this social objective and whose organisational structure or ownership structure reflects this objective, as they are based on principles of co-determination or employee participation or are geared towards social justice.“
Social entrepreneurship therefore stands for an entrepreneurial self-image that combines a spirit of innovation, philanthropy and social value creation and can pursue social and commercial goals.
Martin Höfeler, the founder of the successful fair fashion label Armedangels, who comes from a family of founders, agrees: „Why shouldn't it be possible to build a company that works profitably independently and also has a second pillar, a positive impact?“
Business endeavours
Although philanthropic motives take centre stage, setting up a social enterprise to pursue charitable purposes can also have economic benefits. This is particularly the case if these charitable purposes are successfully recognised under foundation law, for example, and result in tax benefits.
Social entrepreneurs also have other financing options due to the non-profit nature of their project, such as tax-privileged donations. In addition, the process of customer acquisition is often less time-consuming and costly, as customers or partners who see similar social problems and pursue projects that are close to their hearts are approached directly.
Social entrepreneurs should seek advice from lawyers with expertise in areas such as foundation law, charitable status and private charitable status in order to develop concepts on how they can sustainably secure their private or company assets and also promote the common good. This legal expertise should go hand in hand with an understanding of the philanthropic endeavours of the social entrepreneur and in-depth expert knowledge of foundation law and the recognition of charitable status.
Organisation options
German law does not explicitly provide for a legal form, for example in foundation law, for the establishment of a social enterprise and this opens up many structuring options. This means that the same legal forms are available for such an enterprise as are conceivable for the organisation of purely commercial enterprises.
Appropriate and sensitive utilisation of these structuring options is not only important from a business management perspective with regard to non-profit status and the associated tax benefits granted under foundation law, for example. The structure and concept of the philanthropic endeavour of the social entrepreneur should also be taken into account and there should be a sensitivity to the responsibility of the wealthy individual.
Social Entrepreneurship in Foundation Law
Foundations under foundation law with customised statutes can often be the means of choice for social entrepreneurship. This is because they can be set up to pursue a specific charitable purpose and thus fulfil the philanthropic and economic aspirations of the social entrepreneur (Amendements to the articles of association).
There are different types of foundations under foundation law, such as the foundation with independent legal capacity under civil law. After being recognised by the state, this foundation itself holds the donated assets and is represented by its board of directors or managing director. It is also possible to organise the foundation as a dependent trust foundation under foundation law, which is managed by another institution (see §§80 et seq. of the German Civil Code, BGB).
In contrast to other legal forms, foundation law can ensure a special guarantee of existence, as there are no general meetings or similar bodies where the purpose of the articles of association can be changed. The organisation as a foundation within the framework of foundation law is therefore particularly suitable if it is important to the social entrepreneur to ensure the continuation of the company after their death and to ensure the purpose of the non-profit status, which is aimed at solving social challenges.
It is also possible to organise the company as a hybrid foundation model under foundation law, which combines the two independent legal entities of a tax-privileged foundation and a family foundation. By means of this dual foundation, for example, which is provided for under foundation law, the purposes of charitable and private benefit can be combined by enabling philanthropic endeavours and the intergenerational preservation of assets with tax privileges.
Other legal forms
Other legal forms that can fulfil the criterion of non-profit status are, in addition to foundation law, an organisation as a registered association (§§21 et seq. BGB), as a non-profit company with limited liability (see §§1 et seq., §5 (1) of the Limited Liability Companies Act; GmbHG) or as a business company (§5a GmbHG) or as a registered cooperative (§4 of the Law on Commercial and Economic Cooperatives; GenG).
An organisation as a civil law partnership (§§70 et seq. BGB) is possible, but recognition as a non-profit organisation fails due to the criterion of being a corporation (see §51 (1) sentence 2 Abegabenordnung; AO).
It should be noted that it is also possible to change to a different legal form, for example to a foundation under foundation law, once the organisation has been established. Social enterprises can also be created if a spin-off from commercial companies takes place or if non-profit companies engage in commercial activities.
Non-profit status and tax benefits
In principle, social enterprises do not have to fulfil the criterion of charitable status in order to provide a social benefit. However, if they are committed to charitable purposes and pursue these directly through their activities and are organised as corporations, they can benefit from tax concessions (§§52 et seq. AO).
In particular, it should be noted that a social enterprise must pursue charitable purposes directly, exclusively and selflessly to promote the common good (§§57, 56, 55, 52 (1) sentence 1 AO). However, the corporation is not generally prohibited from pursuing its own economic purposes, provided that profits are reinvested for statutory purposes.
Specifically, the recognition of non-profit status results in tax benefits, such as exemption from income tax (corporation tax and trade tax), preferential treatment or exemption from VAT and the possibility of financing through tax-privileged donations.
When recognising and maintaining non-profit status, legal expertise in foundation law and non-profit law should be obtained in order to exploit the potential created in the long term. In particular, the purpose of the non-profit status should be clearly formulated and a sensitivity for the importance of success not only for the social entrepreneur but also for the general public should be at the forefront of the consultation.
Résumé
The concept of social entrepreneurship shows that a large fortune not only brings with it great responsibility, but also the opportunity to actively take on this responsibility and do good. Legal structuring options in foundation law and hybrid models enable social entrepreneurs to combine philanthropic and business endeavours.
„A large fortune means taking on responsibility and that in no way excludes social commitment. On the contrary, social entrepreneurship offers the opportunity to use wealth to develop and implement sustainable solutions to social challenges.“ Says dtb-partner and expert in foundation law and non-profit organisations Bertold Schmidt-Thomé.
Status 09.04.2025