Top
Top

Social Enterprise Law Surveys

Finland

(Europe) Firm Roschier, Attorneys Ltd.
What jurisdiction(s) do you practice in?

Finland.

What are the most commonly used types of for-profit corporate organizational forms in your jurisdiction (e.g., corporation, limited liability company, benefit corporation, social purpose corporation, etc.) used by Enterprises operating a trade ...

The most common for-profit organizational form utilized in Finland is the limited liability company, “LLC” (osakeyhtiö or “Oy”). A limited liability company may be established by a single person, several founders or a company. The company's shareholders are not personally liable for the company's obligations. If there are several shareholders, each is only liable for the amount of his own investments.

In addition, there is a partnership (avoin yhtiö) and a limited partnership (kommandiittiyhtiö). A partnership is formed when two or more partners agree to it by signing a partnership agreement. All these partners have equal status in all the partnership's operations and have personal responsibility for the decisions, liabilities and debts of the partnership. A limited partnership differs from a general partnership in that, in addition to one or more general partners, there is at least one silent partner who is responsible for the partnership's liabilities only up to the amount of capital they have invested into the partnership.

Worth mentioning, even though it is quite uncommon, is also a cooperative association (osuuskunta), which is owned by its members. Its main distinguishing characteristic is that membership and share capital have not been determined in advance. The purpose of a cooperative is to promote the economic activity or the livelihood of its members through the pursuit of economic activities by cooperative members using the services provided by the cooperative itself.

 

a. The LLC.

b. The majority of Social Enterprises are LLCs (or, as non-profits, foundations, (säätiö), and associations, (yhdistys)).

Do any of your jurisdiction’s traditional organizational forms require or permit the board or managers to consider, balance or prioritize interests other than shareholder value in decision making? What other interests, if any, are they required...

There are no required interests to be considered, but LLCs are flexible and permitted to consider any factor or interest in accordance with the Articles of Association – as long as they are not contrary to the Limited Liability Companies Act or any other mandatory provision of law or to good manners. According to the Limited Liability Companies Act, the purpose of a company is to generate profits for the shareholders unless otherwise provided in the Articles of Association.

Such other purpose can effectively be any lawful activity, including charity and can be as specific as required. Please note that even if the purpose of the company is other than generating profits for shareholders, the company is liable to maintain its net equity at a level at least corresponding to its restricted equity. In addition, if the purpose of the company is other than the generation of profits, the Articles of Association has to include provisions governing the distribution of assets both during the existence of the company and at liquidation.

Does your jurisdiction have organizational forms specifically designed for Social Enterprises? If so:a. What type(s) of organizational forms are they?b. How do they materially differ from the most closely analogous traditional organizational ...

There are no specific organizational forms designed for Social Enterprises per se and a Social Enterprise may select any form of incorporation.  The Finnish law does not make distinction between social enterprises and other businesses.

Finland has two common Social Enterprises definitions that correspond to previously institutionalized forms of social provision. The first defines work integration social enterprises (sosiaalinen yritys), WISE, regulated by and needing to meet criteria set out in law (Act on Social Enterprises 1351/2003 revised 924/2012). A WISE offers employment opportunities to the disabled and long-term unemployed. Any type of enterprise, non-profit association, foundation, cooperative and limited liability company is eligible to register as a WISE if it meets the social enterprise act’s criteria. The second refers to enterprises that hold a Finnish Social Enterprise Mark (yhteiskunnallinen yritys), SEM, based on the European Commission’s Social Business Initiative definition. It is intended for businesses that address social or ecological issues and invest the majority of their profits in promoting their social aims, featuring openness and transparency.

All types of enterprises and social economy organizations that include business activities are eligible to register on the WISE list or be awarded a SEM. WISE-registered organizations can additionally be awarded SEM status. As a consequence, Social Enterprises can adopt a variety of legal forms and ownership structures.

Enterprises can, however, classify as a Social Enterprise within the meaning in this Questionnaire outside these abovementioned two definitions as well.

Are Social Enterprises permitted to be formed and operated as Nonprofits? If so: a. Are Nonprofits that are Social Enterprises treated differently under the law as compared to Nonprofits that are not Social Enterprises, whether from a corporat...

Yes. However, a WISE cannot be a Nonprofit. Regarding SEM on the other hand, its status is understood, although not stated in its criteria, as a category for business actors, i.e. for commercial organizations (even though almost half of the SEM organizations are non-profit associations or foundations).

Also, curiously, some 10% of nonprofit welfare associations and foundations perform economic activity and are therefore considered social enterprises based on the EU definition. 

Does your jurisdiction allow for worker-owned Enterprises, such as cooperatives? If so, please describe any material benefits of, and/or restrictions on, using such forms.

Yes, as mentioned in II.2, Finland’s cooperative’s purpose is to promote the economic activity or the livelihood of its members through the pursuit of economic activities by cooperative members using the services provided by the cooperative itself. Its membership and share capital have not been determined in advance. The member may have the role of an owner, investor, supplier of raw material, buyer of services and products, employee and administrator. Restrictions mainly concern the protection of members and creditors (such as dismissal of members and allocation of funds).

Are there unique reporting requirements for Social Enterprises? If there are, please describe them. Please also discuss what government bodies Social Enterprises are required to report to.

WISE registration applicants must provide the Ministry of Economic Affairs and Employment with the necessary information on the fulfillment of the criteria for registration as well as any other necessary information required for the maintenance of the register in accordance with the Act on Social Enterprises. A registered WISE must without delay notify the Ministry of any changes in the aforementioned information.

In your jurisdiction, has case law and jurisprudence evolved to address Social Enterprises? If there is meaningful jurisprudence around Social Enterprises, please provide some brief examples.

No, as there is not enough case law yet.

Does your jurisdiction have any ESG requirements for Enterprises generally? If it does, please describe.

No. However, there are several voluntary frameworks applied by Finnish companies (mainly listed companies) which address ESG or other non-financial factors.

Does your jurisdiction have any ESG requirements specifically for Social Enterprises? If it does, please describe.

No. Regarding WISE, for example, there are however some requirements in order to be registered and receive governmental support that touch on social impact (at least 30% of the employees in the company’s employ are disabled persons, or at least 30% of all employees are disabled and long-term unemployed).

Does your jurisdiction have any ESG requirements for investors? If it does, please describe.

No, although many institutional investors and financial intermediaries have signed the UN Principles for Responsible Investment and are thus also taking into consideration the sustainable development goals in their investments.

Are any major investor classes (e.g., pension funds, mutual funds, etc.) required to look at ESG issues when making investment decisions in your jurisdiction? a. If they are, please describe the requirements.b. If they are not, are they permi...

There are no legal requirements for major investor classes to look at ESG issues. There are associations for investors such as Finnish Venture Capital Association (Pääomasijoittajat ry) which require their members to take the ESG factors into account. Institutional investors such as pension funds are however increasingly taking ESG issues into account in their investment decisions.

What kinds of philanthropic funding do Social Enterprises in your jurisdiction commonly receive (e.g., grants, charitable investment, traditional investment)?

Social Enterprises may have more difficulties in receiving funding when compared to traditional enterprises because of their limited profit distribution. Additionally, they may be considered to be too commercial for philanthropic funding. The most common sources of public funding are grants from Public employment and business services (TE-palvelut) and Centres of Economic Development, Transport and the Environment (ELY-keskus). Banks are the main source of private funding.

How prevalent, if at all, are new for-profit impact investments in your jurisdiction (e.g. traditional instruments with impact terms, new investment instruments, aggregation with philanthropic capital, community based funding, etc.)?

Impact investing is a rather young phenomenon in Finland. The market ecosystem required for cost-efficient impact investing does not exist yet preventing supply and demand to meet. Philanthropic and impact investing is becoming more and more common among professional investors although there are no exact definitions and certificates for impact investing vehicles and their targets. The target companies for impact investment funds are mostly located in developing countries as the profitable companies meeting the criteria are difficult to recognize on domestic and European markets due to the still developing market infrastructure for impact investing.

What are the types of government funding and support available to Social Enterprises, if any, available in your jurisdiction (e.g., grants, investments, bonds, and guarantees)? a. How difficult is it for Social Enterprises to obtain government...

The Social Enterprises are on the same level as other enterprises in terms of funding from both private and public sources although they may have more difficulties in receiving funding. WISEs may receive wage subsidies and employment policy project support from Public employment and business services (TE-palvelut) under different conditions. Social Enterprises may have difficulties in receiving certain forms of governmental funding for charitable purposes as they are considered too commercial. Currently, there is no government funding limited exclusively to Social Enterprises although the majority of the funding for Social Enterprises comes from public sources.

Are there any companies that are formed as a Social Enterprise listed on your jurisdiction’s leading securities exchange(s)?

No.

To what extent are publicly traded Enterprises required to disclose ESG related factors in annual reports/public filings in your jurisdiction.

According to an amendment 1376/2016 to the Accounting Act based on an EU Directive, listed companies, credit institutions and insurance companies employing over 500 people during the financial year are required to disclose ESG related guidelines. The regulation is flexible and the companies may choose freely in which form they disclose the information (e.g. as a part of an annual report or as a separate report).

How prevalent, if at all, are impact bonds in your jurisdiction?

Social impact investing is a rather young phenomenon in Finland. The Finnish Innovation Fund Sitra is initiating impact

investment and has piloted SIBs in Finland. These bonds are not limited only for Social Enterprises but are and open to all impact-oriented organizations to use.

In your jurisdiction, are there any restrictions on foreign investments or donations that are unique to Social Enterprises (whether incorporated as for profit entities or as Nonprofits)?

No.

Is “crowdfunding” legal in your jurisdiction? Are there rules under applicable securities laws that make it easier for smaller businesses or Social Enterprises to take money from investors that are not sophisticated/accredited/qualified under a...

Crowdfunding is legal and regulated by Crowdfunding Act (Act 734/2016, Joukkorahoituslaki) since 2016. The use of crowdfunding has increased year after year and the system is designed mainly for small and medium-sized enterprises. The total funding for enterprises received through crowdfunding is however only one percent of the amount of received corporate bonds from credit institutions according to statistics data of Bank of Finland. The Crowdfunding Act applies only to Finnish companies and crowdfunding for for-profit activities e.g. in developing countries may be more difficult to organize, due to other legislation and regulation.

Are there any tax exemptions that are uniquely available for Social Enterprises? a. Please describe any tax exemptions that are available and whether they are partial or full.b. Are they dependent on the Social Enterprise utilized using a spe...

No.

There are tax exemptions available for non-profit associations which are generally formed as associations or foundations such as registered political parties, trade unions, sport clubs, but there are no tax exemptions that are uniquely available for Social Enterprises structured using a for-profit organizational form (such as limited liability companies).

Are individuals or other organizations able to provide tax deductible donations to for-profit Social Enterprises? If they are, please describe any restrictions applicable to tax deductible donations?

No. Donations of EUR 850 – EUR 50,000 are tax deductible for companies if made to certain non-profit foundations, funds and charitable associations listed by Finnish Tax Administration (Verohallinto) or publicly funded universities in the European Economic Area but not if made to for-profit companies or organizations.

Are there any other tax benefits uniquely available for Social Enterprises? (e.g. deferrals, favorable tax rates, business deductions, etc.)

No.

Does your jurisdiction provide for reciprocal recognition of tax-exempt status that has been granted under the law of any other jurisdictions?

No.

Does your jurisdiction have Regulatory Sandboxes or similar policy frameworks for Social Enterprises? If it does, please describe.

No.

What government operational support, resources, training or services, are available for small businesses or Social Enterprises?

The government has grants and loan guarantees available as well as provides funding, advice, development services, training, networks etc. to small businesses – mostly by Business Finland, Enterprise Finland, Centre for Economic Development, The Funding Centre for Social Welfare and Health Organisations, Transport and the Environment (ELY-keskus) and Finnvera.  These support measures include, for example, the start-up grant to a new entrepreneur, granted by the local TE Office to a new entrepreneur, and a business development aid, granted by the government on a discretionary basis.

National welfare state reform provides certain opportunities for Social Enterprise growth, but there are, in general, no specific policy or support measures for Finnish Social Enterprises. The government support is largely limited to European Social Fund (ESF), the legal approval of WISEs and the SEM’s. Wage subsidies, employment policy assistance and investment support (Act 916/2012) can be granted to WISEs in exceptional circumstances. As WISE’s are no different from other companies, as companies, they may receive the same support as small companies.

Are there different compliance requirements for different types of Social Enterprises than for traditional Enterprises? Please provide examples if there are.

WISEs are no different from other companies, as companies. The difference from other companies lies in the fact that the company must have an entry in the register of social enterprises held by the Ministry of Economic Affairs and Employment, and, as mentioned in question I.4, are regulated by and needing to meet criteria set out in law (Act 1351/2003).

A SEM, on the other hand, needs to follow Social Enterprise Mark criteria. It is, as mentioned, intended for businesses that address social or ecological issues and invest the majority of their profits in promoting their social aims, featuring openness and transparency. The Finnish SEM has a governance aspect that limits profit distribution (the majority of their profits need to benefit society according to their goals and values) and requires transparency. In contrast, the law that governs WISEs does not explicitly limit their profit distribution.

Is there a dedicated government agency or department that oversees Social Enterprises? If there is, please describe its mandate and effectiveness.

Yes, the WISEs must have an entry in the register of social enterprises held by the Ministry of Economic Affairs and Employment.

Is there a different bankruptcy system available for Social Enterprises?

No.

What are the average time and filing fees to form an Enterprise in your jurisdiction?

The estimated processing time for online start-up notifications is 4 working days (January 2021), however, the processing time for a paper start-up notification may take up to 22 working days. An online start-up notification costs EUR 275, whereas a paper start-up notification costs EUR 380.

What government or third-party certifications or accreditations, if any, are available for Social Enterprises that allow for access to benefits e.g. funding, beneficial tax status, etc.? Please provide examples and briefly describe them as well...

Finland deliberately employs a policy decision that treats all types of Social Enterprises the same as any other enterprise or organization that seeks public support. As a result, Social Enterprises can use the same instruments as any other business but receive no fiscal exemptions or advantages either, and so there are no specific support systems or tax relief specifically designed for them.

Please describe whether, in your opinion, startups and other entrepreneurial Enterprises generally can easily form and flourish in your jurisdiction.

Yes, since it is easy to form and register startups and other entrepreneurial Enterprises, and there are many serious governmental and private support systems, such as funding and networks.

Please describe whether, in your opinion, Social Enterprises, in particular, can easily form and flourish in your jurisdiction.

Yes, Social Enterprises are operating in the market on a level playing field with other organizations and are not disadvantaged in relation to the mainstream.

Please describe whether in your opinion there are any laws that are obstructive to the formation of Social Enterprises (i.e. that actively disfavor or penalize, or otherwise discourage their formation) in your jurisdiction (for example, are Soc...

No, not apart from needing to comply with law or criteria set out for them.

In your jurisdiction, are there any major fraud concerns or defects due to corruption or fraud that should be addressed? If there are, please briefly discuss the concerns or defects.

No.

What changes to the law do you think would be most beneficial to enabling Social Enterprises to flourish in your jurisdiction?

Despite the development of certain institutional practices and Social Enterprise experiments, Finland does not have any specific policy framework for their role within a welfare society.

What changes to the law do you think would be most beneficial to enhancing the social and environmental responsibility of Enterprises generally (whether or not Social Enterprises)?

The main factors considered as constraints to the growth of Social Enterprise are the lack of a conducive social enterprise policy framework, underdeveloped social investment markets, and a general lack of understanding regarding specific Social Enterprise characteristics and the social value they create -i.e. public awareness of this business model needs to be increased. From a stakeholder’s perspective, improved options for both buyers and sellers to take social impact into account within public procurement might also present new opportunities for Social Enterprises.

Is there anything else you would like to add or guidance you would like to provide? Are there any questions we should have asked but did not?

No.

Social Enterprise Law Surveys

Finland

(Europe) Firm Roschier, Attorneys Ltd. Updated