The new legal framework on social enterprises in Cyprus and how it can support Cyprus economy
Author: Ioanna Athinodorou, Synthesis Center for Research and Education Ltd (Cyprus)
Published on: 2021/11/22
Social enterprises are developing and gaining importance in the EU. However, there is no unified framework for social enterprises and social businesses, and due to their diversity in terms of legal structures and frameworks, activities, financing etc., their advancement remains a challenge. Social entrepreneurship is based on the promotion of social cohesion through a social mission.
Social enterprises are governed by three main features: the social dimension, the entrepreneurial dimension and the participatory way of management through a management model that is characterized as transparent, participatory and democratic.
Initiatives to promote the social economy have been taken by several Member States at EU level, which gives momentum to the development and further strengthening of the sector, with the adoption of relevant legislation and complementary regulatory mechanisms. Facilitating entrepreneurship aims at improving the competitiveness of the economy and the business environment as well as the creation of jobs.
Social entrepreneurship and social enterprises are relatively new terms in Cyprus as well. Until recently, there was no legal framework, nor formal national definition of social entrepreneurship/ social enterprises. Therefore, social enterprises were formed under already existing legal forms.
In 2018, Cyprus developed the Action Plan for the Development of the Social Enterprise Ecosystem (National Action Plan – NAP) which includes measures and incentives for activating or expanding social enterprises in Cyprus, based on best practices from other EU Member States. Accordingly, the NAP provides for grants, loans, access to infrastructure and knowledge, access to public procurement, but also for the creation of a social entrepreneurship culture and a favorable business environment.
The ‘Law for the development and maintenance of a Registry for Social Enterprises’, which was passed in December 2020 by the House of Representatives, was developed in 2017, aiming to regulate the registration of businesses in a Social Enterprises Registry. The law specifies the criteria that a natural or legal person must meet in order to register as a social enterprise, and defines the obligations of these social enterprises. The law provides for a definition of social enterprises and classifies them in two types: General purpose (GP), and Social inclusion/integration (SI) social enterprises.
The law supports social entrepreneurship by giving access to finance from European funds aimed exclusively at social enterprises. Also, through the law, both social entrepreneurship and the social economy gain momentum by offering innovative responses to economic, social and environmental challenges, while promoting the creation of sustainable jobs, social inclusion, and the improvement of social services.
Nevertheless, in Cyprus, the general public lacks basic knowledge and understanding of what social enterprises are and what they can do. The main challenges for social enterprises in Cyprus are both in the start-up phase and in the development phase.
> In the start-up phase, the primary needs are business planning and finding funding opportunities. Also, the bureaucracy and other administrative procedures may cripple the system in Cyprus.
> In the development phase, there is a need for the development of a marketing strategy and to maintain self-sustainability and self-efficiency of social businesses. Also, the risk of conflict between the business and social mission of the social businesses is evident. Networking is a common need for both phases. Moreover, both consumers and business community are not familiar with the term Social Enterprise.
> Finally, incubation needs, such as availability and real collaboration with municipalities and government bodies or administrative and bureaucratic support for the establishment of a social business, due to the lack of legislation, are not covered.