What is the difference between an association, a company and a social impact company?

You have an idea in your head that will have a positive impact, but you don’t know which status to choose: start an association, a company or a social impact company (SIC)? It’s a hard choice, especially in cases where projects border on a commercial and associative activity.

Some industries are naturally more favourable to associations (humanitarian, sporting, cultural, etc.). Keep in mind that there is no legal obligation to choose a status based on that criteria! In other words, you can start any activity as an association, company or SIC, as long as it follows the legal framework. The first and most important factor is your vision. Focus on your project goals. What is your priority: making a profit or having a positive impact? Or do you sit somewhere in between the two? Your relationship with money is very important. We often meet project holders who have such a social approach that they have a problem with the idea of earning money. What about your project’s economic model? Does your model target people in need, and thus, you can’t see how your project could possibly make money? Or do you have a fairly straightforward model that could make you money?

In this article, we will present the main differences between associations, companies and SICs.

The entity’s social object or purpose

Unlike companies and SICs, an association’s social object can not serve its own interests. This means that the actions you will undertake must be free or cost a symbolic price. For example, an association’s object could be to “introduce others to local cuisine", but not “catering activity” or “provide paid cooking classes” which tend to be more social objects for companies.

On the contrary, the last two activities’ goal is mainly to make money. Their activity can also have a positive impact on society and/or the environment in a broader sense. In this case, we can speak of “impactful companies”, but no legal status exists for them. It is a declaration of intent, proof of their corporate values and economic model. This makes it difficult to know how many companies consider themselves to be impactful. Let’s take a closer look at Food4All, a local company that is combatting food waste. Their concept is simple: they gather food that is about to go out of date and place them in a specific aisle in their partner supermarkets to be sold at a reduced price.

Most of these companies go one step further by becoming certified (for example, BCorp, ecolabel, etc.) or by getting SIC accreditation as a social company. This type of company aims to use an economic activity to fulfil a precise social and/or environmental need. Their priority is to maximise their impact. Nyki is an example of a social company that wants to make tutoring available to all. They provide different price ranges to make lessons affordable for low-income families: a normal rate and a reduced rate thanks to reinvested profits. The SIC is first and foremost a company: if they decide to put an end to their social activity tomorrow, they must remain viable. So unlike associations, SICs need to aim for financial independence through their economic activity. They have clients like traditional customers and the notion of benefactors and donors can be present like for associations. However, in most cases, benefactors don’t receive a free service or product, and donors can’t be the activity’s lifeline.

Creation procedures

Compared to an association or a SIC, creating a company can be trickier administratively speaking. The company’s choice of legal form, the writing up of statuses, the fiscal and social aspects require more thought. However, unlike associations where multiple people are needed, you can start a company alone, whether it be an individual company or a capital company.

Let us remind you that a SIC is not a legal form, but accreditation that you need to ask for when creating your company or later on. Most capital companies are eligible for accreditation: public limited companies, limited liability companies, simplified limited liability companies and cooperatives.

Furthermore, associations will provide you with an ideal legal framework to start your project with a more accessible constitution compared to creating a company, as well as being free from social capital, having the possibility to work with volunteers and simplified taxes and accounting.

Organisation methods

Managing an association is rather straightforward, but you will have to follow certain rules such as the holding of general meetings, the creation of a board of directors, and the choosing of administrators… We must add here that the president of the association can not also be an employee. Associations also open the door to volunteer work: the notion of a collective is ever-present. Calling on volunteers is an undeniable advantage, especially for associations that can’t afford to hire workers. Depending on their commitment to the cause, volunteers can help you accomplish some of your missions. They can even lend a hand with the running of the association and play an active part in decision-making.

When it comes to companies, their organisation methods vary greatly depending on the legal form and especially if associates or shareholders helped with the capital.

The notion of dividends and profit

As the manager of a company, you can receive part of the profit made. This is known as dividends. When a company has associates, they also receive dividends in exchange for their investment in the company.

However, if an association has a positive turnover, you can’t distribute profits to employees and/or members. All the profits go towards developing the association’s future activities.

For SICs, you need to make the distinction between impact shares and profit shares. The social capital of a SIC must be made up of at least 50% of impact shares. Profit shares enable you to hand out dividends to shareholders like for companies, whereas impact shares are in place to fulfil your social object, the social mission that you have chosen (for example, setting up a new service, etc.).

Financing methods

Starting an association is time-consuming when it comes to finding funding and handling files. Despite its non-profit ideology, an association needs funds to work: to hire employees, cover costs, etc. So finding funding is not only necessary, but quite the warpath. Luckily, there are many different ways to fund an association: member subscriptions, grants, sponsoring, bank funding, crowdfunding… which is why you need to put in place a solid funding strategy. Know that funding nowadays goes less and less towards structures and more and more towards projects. So structure your actions into projects. Often projects need to be cofinanced, so it’s important that you aim for diversity for your financial resources. If you want to have more autonomy in the running of your association and don’t want to depend on public funding, we recommend choosing a company or SIC status.

Things are a little easier for companies because they are financed by their own economic activity and the profit they generate. The founder and associates’ initial contribution to the social capital to create the company are another source of funding. A company can also ask for financial aid to launch their business, try crowdfunding, ask for a loan, etc.

Last but not least, the benefit of a SIC (especially if you opt for a 100% impact shares model) is that it allows you to multiply your financial resources (public help & contributions thanks to your own economic model). It mainly provides access to public funding, just like for associations, and some tax benefits: tax-deductible donations, tax exemptions on company revenue, wealth and commercial tax.

As you can see, associations, companies and SICs have major differences in their approach, state of mind, and goals they want to reach.

We hope this article helped you see clearly. Feel free to reach out to CLAE (link in French) or l’Agence du Bénévolat if you want to start an association, the Social Business Incubator (link in French) if you want to start a SIC, or the House of Entrepreneurship for all administrative procedures to start a company. And for those who are still hesitant, click here to find out more concrete and adaptable information about entrepreneurship.