Social enterprises in Romania – characteristics, legal frameworks and typologies
Social enterprise – definition & characteristics
The social economy represents a set of activities organized independently of the public sector, whose purpose is to serve the general interest, the interests of a community and / or the non-patrimonial personal interests, by increasing the employment rate of persons belonging to the vulnerable group and / or the production and supply of goods, the provision of goods, services and / or execution of works. (Law 219/2015, Art. 2)
According to the Law 219/2015, social enterprise represents a legally constituted organization whose activity is based on social economy principles (article 4):
- priority given to the individual and the social objectives rather than the profit growth;
- solidarity and collective responsibility;
- the convergence between the interests of the associate members and the general interest and / or the interests of a community;
- democratic control of the members, exercised over the activities carried out;
- voluntary and free character of the association in the forms of organization specific to the field of social economy;
- distinct legal personality, autonomy of management and independence from public authorities;
- the allocation of the largest part of the profit / financial surplus to achieve the objectives of general interest, of a community or in the personal non-patrimonial interest of the members.
In addition to these social economy principles, a social enterprise should also satisfy other three criteria (article 8 of Law 219/2015):
- allocates at least 90% of the profit/financial surplus realized for the social purpose and the asste lock;
- transmits the goods left after the liquidation to one or more social enterprises;
applies the principle of social equity to employees, ensuring equitable pay levels, between which there can be no differences that exceed the ratio of 1 to 8.
In Romania, Law 219/2015 on social economy represents the first initiative to define and regulate the field of social economy and introduce the concept of social enterprise. This law only creates the legal framework for all existing social economy entities which are regulated through pre-existing legal forms to be recognised as social enterprise regardless of legal status, if they meet the specific criteria mentioned above. It also regulates work integration social enterprise by introducing a new type of enterprise called social insertion enterprise.
According to Law 219/2015, social enterprises could be:
- 1st degree cooperatives, which operate under Law no. 1/2005 regarding the organization and functioning of the cooperation, republished (Art.3, Alin (1), par. A )
- credit cooperatives, which operate on the basis of the Government Emergency Ordinance no. 99/2006 on credit institutions and capital adequacy, approved with modifications and completions by Law no. 227/2007, as subsequently amended and supplemented (Art.3, Alin (1), par. B)
- associations and foundations, which operate on the basis of Government Ordinance no. 26/2000 regarding associations and foundations, approved with modifications and completions by Law no. 246/2005, as subsequently amended and supplemented (Art.3, Alin (1), par. C)
- the mutual aid associations of the employees, which operate on the basis of Law no. 122/1996 regarding the legal regime of the mutual aid houses of the employees and their unions, republished (Art.3, (1), par. d)
- the mutual aid associations of the retirees, which are set up and operate on the basis of Law no. 540/2002 regarding the mutual aid houses of the pensioners, with the subsequent modifications and completions (Art.3, Alin (1), par. E)
- agricultural companies, which operate on the basis of Law no. 36/1991 on agricultural societies and other forms of association in agriculture, as subsequently amended (Art.3, Alin (1), par. F)
- any other categories of legal entities that respect, according to the legal acts of establishment and organization, cumulatively, the definition and principles of the social economy provided in this law (Art.3, Alin (1), par. G)
Until the appearance of this law, the legal framework was fragmented, containing normative acts that regulated the activity of each entity in what we call social economy. Thus, there were normative acts regulating the activity of mutual aid houses, credit unions and credit unions or federations, as well as non-governmental organizations.
Cooperatives. Legal framework
The legal framework of cooperatives includes normative acts that regulate the activity of the following types of cooperatives: craft cooperatives, agricultural cooperatives, consumer cooperatives. Credit unions benefit from a special legal framework, in accordance with their economic activity, this fact being unable to affect the application of cooperative principles.
Law no. 1/2015 defines the cooperative based on the principle of the unit of will, expressed by the agreement of the will of the members. The cooperative society is an autonomous association of individuals and / or legal persons, as the case may be, constituted on the basis of the free consent expressed by them, in order to promote economic, social and cultural interests of the cooperating members, being jointly owned and democratically controlled by its members, in accordance with the cooperative principles. (Law no. 1/2015, Article 7, par. 1)
The agricultural cooperative benefits from new legislation, in accordance with the social and technological progress of the 21st century, and with the needs that this entity satisfies. Law no 566/2004 defines the agricultural cooperative as an autonomous association with an unlimited number of members, with variable capital, which exercises an economic, technical and social activity to provide goods, services and jobs exclusively or mainly to its members (Art. 3). The agricultural cooperative is established and operates with a minimum number of 5 persons. The share capital consists of social shares of equal value; the nominal value is established by the constitutive act. The social partners can be in money and / or in kind; cash contribution is compulsory when setting up any agricultural cooperative (Art.5). Also, art. 7 stipulates that the agricultural cooperative carries out commercial activities, being producing goods and services in agriculture.
Mutual aid associations. Legal framework
Mutual aid associations include two types: employees’ mutual aid associations and retirees’ mutual aid associations.
Mutual aid associations of employees are organized and function under Law 122/1996, as amended and supplemented. According to the law, the mutual aid associations of the employees are societies without patrimonial purpose, organized on the basis of the free consent of the employees, in order to support and financially support their members. The members of a house of mutual assistance of the employees can only be natural persons employed. The mutual aid houses of the employees carry out their activity exclusively with their members. (Law 122/1996, Art. 1, par. 1)
The retirees’ mutual aid associations carry out their activity in accordance with the provisions of Law no 540/2002. The differences from the similar organizations of the employees are given first of all by purpose, as it is provided for in article 1. Thus, these entities are defined as civic organizations, private legal persons with non-patrimonial, non-governmental, apolitical character, for charity, mutual assistance and social assistance.
Associations and foundations that carry out economic activities. Legal framework
The associations and foundations are based on the Government Ordinance no 26/2000 with the subsequent modifications and completions. The associations and foundations are defined in OG 26/2000 as:
The association is the subject of law consisting of three or more persons who, based on a agreement, share and without right of refund the material contribution, their knowledge or contribution in work for carrying out activities in the general interest, of some communities or, as the case may be, in their personal non-patrimonial interest. (Article 4).
The foundation is the subject of law established by one or more persons who, based on an act legally between the living or the cause of death, constitutes an affected heritage, permanently and irrevocably, to achieve a purpose of general interest or, as the case may be, of some communities (Art.15)
According to the law, to address their social issues, associations and foundations can engage in economic activities either directly or by developing a separate commercial company.
Types of social enterprises
Cooperative = an autonomous association of persons, united voluntarily for the purpose of satisfying their economic, social and cultural needs and also their common dreams, by means of an enterprise owned in common and controlled in a democratic manner. Could be: workers cooperative, social cooperative, consumers cooperative, credit cooperative, agricultural cooperative, housing cooperatives, producers cooperative.
Mutual company = an autonomous association of persons (natural and legal persons), united voluntarily for the purpose of satisfying their common needs in terms of (life and non-life) insurance, providence, health and financial and banking sector, carrying out activities which are subject to competition. Mutual societies have the following features: absence of shares, freedom of membership, lack of pure profit-making objectives, solidarity, democracy, independence.
Limited liability company that fulfill social economy criteria = small and medium enterprises complying with the principle of social economy: priority to the individual and to the social goal instead of increasing the profit, freedom of membership and voluntary membership, equal voting rights for the members, autonomous decision-making process, limited distribution of profits, and independence from the public domain.
Non-Governmental Organizations with economic activities = private entities, formally organized, with an autonomous decision-making process and freedom of association, which provide non-taxable services for their beneficiaries, and whose surplus, if applicable, cannot be appropriated by those creating, controlling, or financing them. Eg: Association, foundation.
Work integration social enterprise = an economic agent of public or private law, with its own management, where 30% of the total number of employees hired under an individual labor contract, are people with disabilities or from vulnerable groups. In Romania there are two types of WISE – sheltered workshop (centred on people with disabilities) and social insertion enterprise (aims to integrate vulnerable people in the labour market, including people with disabilities).