Rwanda

The most common for-profit organizations in Rwanda are corporations and the limited liability company (“LLC”), which are well governed by the 2018 Company Law.  The Company Law was amended to incorporate the common law principles of managing a limited liability company, although with a focus on protecting minority shareholders and improving the oversight role of the Board. One of the unique management structures put in place by the Company law is that a limited liability company should have at least one resident director.

It’s also important to note that for-profit social enterprises have evolved to accommodate the social recovery that was geared towards supporting the needs of citizens who were most affected by the 1994 genocide. In this regard, social enterprises have evolved into Cooperatives that are primarily focused on promoting social programs for specific target groups. For instance, there are co-operative companies formed by widows who are victims of genocide specifically designed to help widows generate income to support their families.

a. Enterprises that seek financing from investors usually adopt the structures of limited liability companies. Although the most common form of financing for most social enterprises is loans and a few other cases of grants from development partners.

b. The most common organizational forms are co-operatives which have been structured to implement social programs that are aligned to the post genocide recovery strategy. The Government has passed several laws governing Co-operatives including guidelines on code of ethics for members of governing organs of co-operative organizations.

In general, the Government policy drives Boards to prioritize contributions towards Public sector driven social programs. For instance, every institution in Rwanda is required to contribute towards the Agaciro Development Fund, a wealth fund initiated by the government and Boards are expected to support this agenda.

Within the context of the post Covid-19 era, as part of the Government’s social responsibility scheme, some government employees are required to relinquish part of their salary to support the Covid-19 recovery plan.

Co-operatives are the most common type of organizational form and several laws and policies have been instituted to guide their operations. The key differentiating factor is that the policy in Rwanda places a lot of emphasis on Code of Ethics for members of co-operatives and in case of non-compliance; they are penalties that are issued. 

One of the most unique features about Rwanda is that Government provides benefits such as tax waivers and free land to social enterprises that drive overall social and economic growth and are aligned to Government strategy. For instance, free land is given to co-operatives to produce coffee for export

There are no such restrictions except the government places emphasis on compliance with regulatory directives.

There are no material differences in timing or costs. Registering a social enterprise as a Limited Liability Company in Rwanda is done online (takes 6-8 hours) and the cost is free. However, deregistering a social enterprise is done at a moderate cost as the Company is required to pay deregistration fees and present tax clearance forms before deregistration.

Social Enterprises are permitted to be formed and operated as Nonprofits; Where their businesses fall in the category of activity permitted to Nonprofits, it is permitted for Social Enterprises to form as Nonprofits. Nonprofit organizations are generally free from paying taxes.  In the event that the activities of the Social enterprise are within the scope of activities that are taxable, then the social enterprise will be required to pay relevant taxes. The use of Non-profits as social enterprises is mainly prevalent among “vulnerable” groups such as widows and orphans as well as children with disabilities particularly those most affected by the 1994 genocide.

Yes, as discussed above, forming as a worker-owned Cooperative allows for worker control and management as well as ease in accessing credit facilities and grants. Enterprises taking the form of Cooperatives in Rwanda sometimes experience difficulties in raising capital and having the relevant technical skills in implementing their programs. However, Government and other donors have expressed support in helping co-operatives to deal with these challenges and have continually set up funds to address such gaps. 

Yes, Social enterprises that are registered as Limited liability Companies are required to submit annual reports (including a statement of accounts) to the Rwanda Development Board.

If a Social Enterprise decides to form as a Nonprofit; they are also expected to submit annual plans to the Regulatory in order to have their operational license renewed.

The concept of Social enterprises is just at its primary stages. We do not have much case law on the subject. Although most of the cases for-profit social enterprises that are presented in court usually revolve around disagreements between shareholders and cases of mismanagement in general. 

No.

In general, ESG requirements are formed based on the context of the constitutions of the individual social enterprises.  Although for some social enterprises dealing with the highly regulated industry; for example, FINTECHS that work with Financial institutions and Co-operatives that deal with agriculture, there are some specific ESG requirements that are put in place by the regulatory while seeking regulatory approval for some activities.

The industry within which the investor operates is very critical in depending on whether ESG requirements are required by the regulatory especially when seeking approval to operate. For instance, investors who deal with the Telecom and Financial services sector are highly regulated in this jurisdiction and ESG compliance is a priority while seeking regulatory approval. 

No major investor classes are required to look at ESG issues. They may be permitted to consider such factors but it has not been practiced. At least not yet.

Investors consider many factors aside from profit motive. These range from clear investment structures, business readiness and a unique idea among other factors.

Social Enterprises receive grants, charitable investments, and traditional investments. The type of funding typically varies based on the Enterprise form that the Social Enterprise chooses. For example, Social Enterprises formed as Non-profits receive more grants and charitable investments, while Social Enterprises formed as for-profit corporations receive more traditional investments. 

For-profit impact investments are very new in our jurisdiction primarily because we do not have comprehensive laws to support such structures. We have very few venture capital firms because our laws are still a work in progress. For instance, the partnership law and trust law are still being discussed.

There is a great deal of Government funding and support available in Rwanda in terms of loans, grants and investment. Depending on the nature of the enterprise, there are banks like Urwego Bank and Sacco groups that lend money to specific social enterprises like those that support orphans, widows, HIV infected groups among others.

Rwandan government plays a big role in support and funding of social enterprises and it is not difficult to obtain the funding as long as the enterprise falls among the qualifying categories. Government funding is not limited to enterprises incorporated using social enterprise forms but it is much simpler and easier to receive funds as a social enterprise.

Yes, Some of the Government driven Social enterprises, like the Agaciro Development Fund is listed on the Securities Exchange.

They are not required to disclose ESG factors, though some may choose to do so for the sake of showing compliance with international best practice

Impact bonds are utilized and driven by Government policy where some Government Social enterprises are required to include this as a core investment priority.

No, there are no restrictions.

Crowdfunding is legal, allowing small businesses and Social Enterprise to solicit investment from the general public mostly in form of saving groups. However, it is not a common practice for most successful enterprises.

There are tax exemptions available for Nonprofits generally. For example, that they do not have to pay income tax. In some cases, some social enterprises that are aligned to government social and economic priorities may seek tax waivers.

No.

No.

No.

No.

There are government grants and loan guarantees available for small businesses. The Small Business Administration, which manages many of these programs as well as much of the COVID-19 relief in the United States, also provides a number of resources such as articles and classes to help small businesses grow and operate.

Yes. SPCs, PBCs, PBLLCs and PCs are required to produce annual reports assessing the company’s performance. The BCs report must measure the Enterprise’s performance against third-party standards, while reports for the SPC, PBC and PBLLC do not need to measure the Enterprise’s performance against a third-party standard, although many do. The SPC must also contain a special management and discussion analysis section that evaluates whether the SPC has achieved its special purpose. The PBC must provide a report to its stockholders, no less than every two years, describing the Enterprise’s pursuit of its public benefit(s).

No.

No.

Currently, Registration of enterprises is done online and takes up to six (6) hours to get a confirmation. If all requirements are filed.

Registering an enterprise in Rwanda is free and deregistration is done at a modest fee ( Government requires that a limited liability company pays only 10,000RWF to deregister )

Incorporation certificates, certificates of tax clearance and good standing certificates are some of the common certifications required for enterprises to access benefits.

Yes, startups can easily form and flourish in Rwanda. They have a number of Enterprise forms available to choose from, there are relatively few reporting requirements for private for-profit businesses and incorporation processes are fast, cheap and simple. 

Social Enterprises can form relatively easily if they want to organize as a for-profit Enterprise, but must go through a relatively lengthy application process if they want to form as a Nonprofit and take advantage of the tax benefits. One hard issue many Social Enterprises face is the simple choice of whether to be a for-profit or Nonprofit.

There are no obstructive laws that actively disfavor, discourage or penalize the formation of social enterprises.

No.

1. Providing tax benefits to Social Enterprises utilizing for-profit Enterprise forms.

2. Expanding the scope of permitted activity for Nonprofits regardless of activity (even if the Nonprofits for certain activities did not have all tax benefits of other Nonprofits).

Implementing a uniform set of standards for ESG policies and reporting of public companies would make it easier for investors and consumers to compare and evaluate which enterprises are in fact doing good in the world, which would drive companies to perform better.

In general, Rwanda’s social enterprises eco-system has been designed to accommodate the post-recovery strategy after 1994 genocide. Therefore, the elements and features of the social enterprises are geared towards helping the most affected vulnerable groups to recover from the difficulties created by the 1994 genocide.