You may be a social purpose organization (SPO) if you are working on advancing social, cultural, or environmental objectives – such as transforming an industry or making an economic impact within a specific community. To access funding from social finance investors, such as Weird Ghosts, you must put impact at the core of your mission and operations.
You’re here because you’re interested in changing what a “normal” video game studio or startup looks like. There’s no set template!
So before getting into the different form options for your SPO, take a minute to think about the following:
Which takes precedence – profit-making activities or furthering a social purpose?
While the goals of making money and furthering a social purpose are not mutually exclusive, their relative importance will influence the optimal structure as they will often conflict during your studio’s life.
Knowing what’s most important is critical to choosing a structure that either gives you the flexibility to respond to financial opportunities or ensures your social purpose remains central in decision-making.
Not-for-profit and unincorporated social ventures cannot seek equity financing and may experience other barriers once the venture grows.
Are you open to sharing control? Can you operate and fund the studio independently?
Members in a co-op and investors split control – and priorities may conflict.
For-profit companies are responsible to shareholders, which can cause pressure to favour financial returns. Because there is no legal way to enforce a social purpose within a for-profit corporation, maintaining a focus on social benefit depends on successive leadership sharing the goals of the original founders.
In a co-op, founding member(s) do not maintain control. Co-ops are legally required to operate on a co-operative basis so they can talk about their community-benefit purpose, but maintaining member participation over time can make management more challenging.
Non-profits won’t have investors with conflicting priorities because they do not issue share capital. Social finance investors offer affordable repayable capital and expect social return on investment (ROI) — and to be repaid.
What is the profit potential based on the services and products you intend to provide? Who will be your primary customers – funders or end-users?
If you focus on providing services such as design and development, your profit potential is different from a product-focused studio.
If you expect it to be relatively easy to be profitable, incorporating as a for-profit makes more sense regardless of how your money is spent. If, by contrast, you expect the venture to be challenging to sustain without donations and grants, then a non-profit structure may be more appropriate.
Non-profits are subject to restrictions on the types of business activities they may carry out. The CRA does not want a non-profit to compete with products and services provided by for-profit organizations.
Will you seek investors expecting a financial return? Can you rely on debt financing? Do you plan to reinvest profits or donate them?
The funds needed at start-up may influence the structure of the venture.
Greater needs for capital and financing flexibility — and in particular, the need to be able to issue share capital — will suggest a for-profit structure.
Non-profit organizations and charities cannot generally access share capital and must rely on debt financing. If you do not hold assets you can borrow against, it may be hard to obtain commercial loans. (Upside is tax exemptions, but this is not super useful if you do not hold assets or wish to present your studio as non-profit.)
Co-ops must operate as close to a cost-recovery basis as possible. Co-ops are generally designed on the assumption that the majority of the organization’s capital will come from the members. However, co-ops are permitted to issue shares and loans to non-members, with the promise of at least a limited financial return on investment. This aids in attracting capital from outside the membership structure if necessary.