Over the past three decades, legislators around the world have introduced legal frameworks for social profit companies. These are companies that commit, in their articles of association and/or through their company form or type, to pursue both the distribution of profits to shareholders and one or more social purposes. Because of their dual purpose, social profit companies are situated in the middle of a spectrum between purely for-profit companies and nonprofit organizations, which often pursue social purposes. In a world where environmental and other societal challenges are becoming increasingly urgent, this hybrid model holds great promise. Indeed, such companies could address said challenges by leveraging the scalability and access to capital associated with equity financing and the support from socially-minded investors, consumers, employees, business partners and/or governments. However, in pursuing both a social mission and profit distribution, social profit companies relinquish key characteristics that, in the dominant law and economics literature, are seen as essential to the success of both for-profit and nonprofit organizations. Without the pursuit of shareholder wealth as a single, measurable objective and without the nondistribution constraint which fosters trust among donors and customers, social profit companies require a distinct theoretical framework and set of legal strategies.
In my PhD thesis, I seek to explain, compare and assess specific laws on social profit companies in order to propose adequate regulation that balances accountability to the social purpose with the pursuit of the profit distribution purpose. To this end, I first combine insights from law and economics with a comparative analysis of company laws in Belgium, France, Germany, Italy, the Netherlands, the United Kingdom, and the United States to explain the need for and the functions of social profit company laws. Second, I develop a specific theoretical framework to study the governance of social profit companies and to precisely identify the risks associated with it. Third, I use the developed theoretical frameworks to functionally compare and evaluate the adequacy of the laws on Belgian certified social enterprises, French sociétés à mission, Italian società benefit, UK community interest companies and US benefit corporations.
My thesis formulates normative recommendations for each of these regimes individually and for social profit company laws more generally. It covers the full range of company law issues relevant to the accountability to the social profit company’s social purpose, including the phrasing and intensity of the social purpose, the conditions for conversion to a conventional company, directors’ duties, specific corporate bodies such as the comité de mission, shareholder voting and duties, stakeholder involvement and restrictions on the distribution of profits. The thesis also offers an in-depth analysis of enforcement, focusing on the incentives of the various actors, their access to information (e.g. through social purpose reports), the role of government supervisors and of independent third-party organizations and the enforcement methods available under social profit company laws and conventional company law.
In this blog post, I focus on one aspect that is relevant for the Belgian context: the dividend cap applicable to Belgian certified social enterprises. For a broader discussion of the other issues addressed in my thesis, I warmly invite you to attend the defence of my PhD thesis, which will take place in Leuven on 17 June 2026 at 5 PM. For further information, for the practical details and to register, click here.
Why impose profit distribution restrictions?
Certified social enterprises are subject to specific restrictions on the distribution of profits. In continuity, they may, per year, only distribute economic benefits to their shareholders up to a percentage of the amount they actually paid up on the shares (art. 8:5, §1, 2° Code of Companies and Associations, ‘CCA’). Upon liquidation, their shareholders can only recoup the historical (i.e. unindexed) value paid up on the shares and are not entitled to the remaining balance, which must receive an allocation as close as possible to the company’s objects (art. 8:5, §1, 3° CCA) and purpose. To prevent the circumvention of these restrictions, shareholders may only recoup their historical contribution upon withdrawal (and exclusion), while directors’ remuneration is capped to a limited (cost) allowance or a limited attendance fee (een beperkte onkostenvergoeding of presentiegeld/ une indemnité limitée ou des jetons de présence limités, art. 6, §1, 3° and 4° of the Royal Decree of 28 June 2019).
By imposing restrictions on profit distribution, Belgian law aligns with a broader pattern observed across jurisdictions. Despite the variety of legal strategies adopted by legislators, a summa divisio emerges between laws that mandate the primacy of the social purpose and those that do not. The former laws, including the regime governing the certified social enterprise (art. 8:5, §1, 1° CCA) typically impose specific profit distribution restrictions and specific government supervision. This can be explained by the fact that, because such companies prioritize purpose over profit, they cannot access a significant share of the profit-maximizing equity investors and must instead typically rely heavily on ‘subsidies’ provided by their stakeholders. These subsidies include “any contribution of value—monetary or otherwise—that is provided to the ultimate beneficiary of the subsidy for no consideration”[1] and can take various forms. They may be granted by the state, for instance through tax benefits or regulatory privileges (e.g. the possibility for certified social enterprises to be subject to the legal entity tax and to operate in certain sectors, such as the service voucher industry). Yet such subsidies can also be granted by private stakeholders: consumers willing to pay higher prices, employees willing to accept lower wages or to exert greater effort, investors willing to accept lower financial returns, etc.
For stakeholders to be willing to incur financial sacrifices to support social profit companies, stakeholders must trust that their subsidies will be used to pursue the primary social purpose. While the standard of the corporate interest already generally restricts profit distributions, legislators typically also specifically restrict profit distributions through a set of rules. These rules establish clear and reliable ex-ante expectations for subsidizing stakeholders, similar to the nondistribution constraint applicable to nonprofit organizations. By precisely restricting the extent to which shareholders may enrich themselves, these restrictions by and large also reduce incentives for social profit companies and their insiders to maximize profits in the first place and attract insiders for whom profit (distribution) is less important.
However, profit distribution restrictions evidently also entail costs. For one, they typically decrease the attractiveness of the social profit company to more financially-oriented equity investors. This could diminish the scalability of individual companies and undermine the ability of the social profit company law to achieve sufficiently broad adoption and become well-known and trusted enough to convince stakeholders to subsidize the companies subject to it. In addition, profit distribution restrictions reduce the financial incentives for current shareholders to actively engage in monitoring and for potential future shareholders to acquire shares hoping to increase profitability. This may protect the pursuit of the social purpose, but it may also come at a price in terms of efficiency.
Against this background, legislators should seek to ensure that specific profit distribution restrictions safeguard the primacy of the social purpose, while balancing this objective against the impact on investor attractiveness and shareholder monitoring. From this perspective, the dividend cap applicable to certified social enterprises could be improved.
Caps on shareholder returns
The certified social enterprise may, per year, only distribute economic benefits to its shareholders up to 6% (after deduction of the withholding tax) of the amount they actually paid up on the shares (art. 8:5, §1, 2° CCA). The CCA does not state this percentage. Instead, it refers to the percentage of the cap imposed for certified cooperative companies. Indeed, the dividend cap applicable to certified social enterprises was originally designed to ensure that shareholders of such certified cooperative companies only earn moderate returns in line with the third cooperative principle of the International Cooperative Alliance. It is therefore unsurprising that such cap on annual returns is a staple of laws which seek, through mandatory rules, to confine (a variant of) the cooperative company to ‘true cooperatives’. However, under Belgian law, this is not the function of the certified social enterprise, but of the certification as a cooperative company.
In contrast, for certified social enterprises, the cap on annual returns does not adequately protect the social purpose and excessively reduces attractiveness as well as the incentives for shareholder monitoring. For one, as long as the annual returns do not exceed it, the cap does not preclude the systematic distribution of all or the vast majority of profits. This is probably why certified social enterprises may only declare dividends after having determined an amount reserved for projects and allocations necessary or useful to the realization of their (purpose through their) objects (art. 6, §1 of the Royal Decree of 28 June 2019). Yet there is no specific rule preventing these companies from systematically distributing the vast majority of their profits to their shareholders. In addition, a cap on annual returns strictly limits the maximum return expectations to a set level, which does not proportionately increase as the company becomes more profitable. As a consequence, unless the cap is set insufficiently stringently, it will significantly decrease the incentives for current and prospective shareholders to engage in monitoring or acquire shares with a view to maximizing profitability. While this also insulates the social profit company from pressure to pursue shareholder wealth, it disproportionately affects attractiveness and the incentives for shareholder monitoring.
Caps on distributable profits
A more appropriate manner to protect the primacy of the social purpose consists of restricting the percentage of distributable profits that may be distributed to shareholders. This is the approach chosen for the UK community interest company, which may only declare dividends up to 35 percent of its distributable profits. Notably, this cap was accompanied by a cap on shareholder returns until 2010, when the latter was abolished after a government consultation suggested that it excessively reduced the attractiveness of the form to shareholders. In comparison, a cap expressed as a percentage of distributable profits is less problematic for attractiveness and incentives for shareholder monitoring because it proportionately rewards increased profitability and efficiency. Even more importantly, caps expressed as a percentage of distributable profits more reliably protect the primacy of the social purpose. By capping dividends at 35% of the distributable profits and prohibiting other forms of profit distributions, UK law ensures that the majority (65%) of the profits made by the community interest company must be used to pursue the social purpose. Admittedly, this cap does not preclude shareholders from making very high returns which are excessive compared to market returns. This could happen when the company makes a large, rather exceptional (‘windfall’) profit (e.g. due to the sale of an asset) or it may be a consequence of shareholders’ preferential rights to share in the profits. Yet even in these cases, the majority of profits would still be allocated to the social purpose, thereby safeguarding the primacy of this purpose.
Conclusion and recommendations
Given the clear advantages of caps on distributable profits compared to caps on shareholder returns, the conditions for certification as a social enterprise should be amended. By ensuring that the majority of profits are allocated to the social purpose, the certification conditions would more effectively protect the social purpose of certified social enterprises. If certified social enterprises wish to signal their cooperative identity and/or if their subsidizing stakeholders find very high returns unacceptable, they can enshrine and signal the commitment to pursue moderate returns by also becoming certified as a cooperative company. A similar reasoning applies to the cap on shareholder voting power (art. 6, §1, 5° of the Royal Decree of 28 June 2019), which does not adequately and proportionately protect the social purpose and should only be imposed on certified cooperative companies. By removing these typically cooperative constraints and opening certification as a social enterprise to non-cooperative companies, the regime would strike a more appropriate balance between accountability and attractiveness. The protection and signaling of the cooperative identity would then be left to the certification specifically designed for that purpose.
For a broader discussion of the many other issues addressed in my thesis, I warmly invite you to attend my PhD defence, which will take place on 17 June 2026 at 5 PM in the Promotiezaal in Leuven (Naamsestraat 22). For further information, the practical details and to register, click here.
[1] Ofer Eldar, ‘The Role of Social Enterprise and Hybrid Organizations’ 1 Columbia Business Law Review 2017, 92, 105.
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