In recent years, the third sector – encompassing cooperatives, associations, foundations and similar entities – has grown increasingly prominent in its commitment to bridging social gaps that neither the market, driven by private autonomy, nor the State, constrained in its capacity to act, can fully address. According to INE and CASES, the third sector in Portugal accounted for 2.8% of gross value added in 2010, 3.0% in 2016, and 3.2% in 2020, with more than 70,000 entities in the sector striving to advance the collective interest and promote social impact in the community.
This universe encompasses the most varied areas of activity, bringing together long-established models of intervention – such as those promoted by the Misericórdias, with over five centuries of history – and decidedly innovative approaches. It is within this second group that the so-called “social enterprises” emerge: entities created as commercial companies that depart from the traditional corporate paradigm by directing their activity not merely towards the distribution of profits but towards the generation of meaningful social impact.
What Exactly is a Social Enterprise?
In 2011, the European Commission recognised the concept of “social enterprise” in its Social Entrepreneurship Initiative, defining it as “an operator in the social economy whose main objective is to have a social impact rather than make a profit for their owners or shareholders.”
Two years later, the European Parliament and the Council reinforced this concept, in the context of the creation of the European Union Programme for Employment and Social Innovation (EaSI), defining “social enterprise” as an entity which:
1. in accordance with its Articles of Association, Statutes or with any other legal document by which it is established, has as its primary objective the achievement of measurable, positive social impacts rather than generating profit for its owners, members and shareholders, and which:
a) provides services or goods which generate a social return and/or
b) employs a method of production of goods or services that embodies its social objective.
2. uses its profits first and foremost to achieve its primary objective and has predefined procedures and rules covering any distribution of profits to shareholders and owners that ensure that such distribution does not undermine the primary objective; and
3. is managed in an entrepreneurial, accountable and transparent way, in particular by involving workers, customers and stakeholders affected by its business activities.
In other words, these are entities that continuously carry out an economic activity, but whose primary objective is social impact, reinvesting most of their results in that same mission.
The Inadequacy of the Current Portuguese Legal Framework
In the same year that the European Parliament and the Council moved to strengthen the concept of social enterprise, the Social Economy Framework Law was enacted in Portugal, establishing the general framework for the social economy. Yet, contrary to what had been contemplated in the respective preliminary draft law and in clear departure from the prevailing European trend, the said legislation omitted any express reference to the concept of the social enterprise[1].
Today, more than a decade after the publication of the Social Economy Framework Law, the national situation has not undergone significant changes: Portugal still does not have specific legal regulation for social enterprises, and references to this concept in normative documents remain only occasional[2]. What we find today are the so-called de facto social enterprises — entities created in the form of commercial companies that, while not legally recognised as social enterprises under a specific legal framework, are in practice perceived as such, since they provide services of general interest and operate with social impact logics.
This absence of formal recognition is not, however, a mere detail: it directly affects the conditions under which these entities operate, undermining their visibility and their distinct identity within the broader business fabric. Because they are not acknowledged as an autonomous category, social enterprises are likewise overlooked in the design of public policies – including, for example, the development of an adapted tax regime and financing instruments suited to their hybrid nature.
This misalignment between reality and the law is, moreover, confirmed by the sector’s own data. The European Social Enterprise Monitor – Portuguese Report 2023-2024 identifies two major challenges highlighted by Portuguese social enterprises themselves: on the one hand, awareness and visibility, where the absence of a specific legal entity emerges as a particularly relevant factor; and on the other, financing, marked by the lack of consistent public support schemes, the excessive complexity of public financing, and the scarcity of patient capital, both public and private.
It is therefore not surprising that a significant majority of the entities surveyed — approximately 78% — consider the creation of a specific legal form for social enterprises to be useful. When the question shifts to the existence of a specific legal status, a register, or a designation for them, the consensus is even clearer: 86% of entities recognise the value of such formal recognition.
The Future of Social Enterprises
Analysing the future of social enterprises in Portugal necessarily requires looking at the latest developments promoted by the European Union and, individually, by its Member States. The incentives from the European Union are multiple and operate on different levels. In the area of financing, the European Social Fund Plus (ESF+) is of particular note. The ESF+ enshrines a definition of social enterprise that is independent of the legal form adopted by the entity, and which emphasises, in particular, the pursuit of measurable and positive social impacts, the allocation of profits to the social objective, and entrepreneurial, participatory, accountable, and transparent management. Complementing the ESF+ is the InvestEU Fund, which, with a view to strengthening the social economy ecosystem, aims to increase access to microfinance and to dedicated financing instruments for social enterprises.
In turn, the Council Recommendation of 27 November 2023 points towards strengthening cooperation between social economy entities and conventional businesses, in particular through the adoption of good practices that promote the integration of social enterprises into long-term supply and value chains and encourage the acquisition of goods and services produced by social economy entities. Similarly, Council Decision 2024/3134 also recommends the active promotion of the development of the social economy, including social enterprises, and the exploitation of all their potential. This European evolution also finds parallels in different solutions adopted by Member States, with the examples of France, which enshrines the “socially useful solidarity enterprise” in its Social and Solidarity Economy Framework Law, and Italy, which has its own legal regime for social enterprises, standing out.
Notwithstanding the growing importance attributed to social enterprises in the European context, in Portugal, the future of social enterprises remains uncertain, with no legislative initiative currently underway on the matter and no announced intention to legislate thereon. It remains to be seen whether Portugal will be able to join forces with the European Union and the Member States, creating a national legal framework that recognises, finances, and promotes social enterprises.
In the meantime, navigating this universe has been possible, but at a cost. The absence of a clear framework constrains the full realisation of the sector’s potential and, in particular, hampers the emergence of new initiatives and the growth of existing social enterprises, which face heightened obstacles as a result.
[1]Occasional references to this concept: Only subparagraph h) of Article 4 of the Social Economy Framework Law, which lists the entities of the Social Economy, could very broadly include the concept of a social enterprise, as stated: “other entities endowed with legal personality, which respect the guiding principles of the social economy set out in Article 5 of the present law and are included in the social economy database”.
[2]Occasional references to this figure: for preference purposes in the award of public contracts in the health, social services, education services, and cultural services sectors, under paragraphs 6 and 7 of Article 250-D of the Public Contracts Code, it is provided that “social enterprises are considered to be those that are dedicated to the production of goods and services with a strong component of social entrepreneurship or social innovation, and promoting integration into the labour market, through the development of research, innovation, and social development programmes, in the areas of services provided for in paragraph 1.”.
