Friday, January 29, 2016

What is a Social Enterprise? Which Business Structure fits my Social Objectives?

One of the most common questions I get asked by my clients as a business adviser is ‘what is a social enterprise?’  Many of us support the idea of starting a Social Enterprise but are unsure exactly what a Social Enterprise is and if their business idea meets the criteria of that title. In fact according to a report published in 2015, three quarters of the British public are unsure of what a social enterprise is, so you aren't alone. 

The short answer to this is that social enterprise, unlike a charity, does not have a legal definition or a prescribed legal set up. However, generally speaking, it is widely agreed that a social enterprise is a business set up with a purpose to tackle a social or environmental need and will achieve this like any other business making goods or providing services to make a profit. The key difference is that social enterprises reinvest their profits into the business to do more good, rather than distribute them amongst shareholders for individual benefit.

Unlike a charity set up, social enterprises are not reliant on grant funding and donations, although there may be opportunities for social enterprises on occasion to apply for grant funding for a particular activity. Grant funding is not an integral feature of social enterprises, they will operate a more self-sustaining model.

Social Enterprises can use a wide variety of legal set up forms
The most common legal sets ups are listed below:

Community Interest Company (CIC) 
A CIC is a relatively new type of limited company, created specifically to provide a legal form for enterprises which aim to provide benefit to the community or to trade with a “social purpose,” rather than to make a profit for individuals. A feature of the CIC is the ‘Asset lock’ which ensures the social enterprise’s assets are preserved for social benefit.
CIC’s  present a brand for social enterprise as they are visibly distinguished by the suffix CIC/Community Interest Company, rather than Ltd displayed after the company name

Company Limited By Guarantee
A Company Limited by Guarantee is a limited company without shares. Individuals have limited liability which means that in the event of liquidation they will not be liable personally for any debts, as long a company law has been followed. This structure is not unique to social enterprise, but can be used by businesses looking to fulfill social aims. 

Co-operative and Community Benefit Societies (formally known as Industrial and provident society - IPS) 
A co-operative society is run for the mutual benefit of members who use its services. This is based upon the common economic, social and cultural needs or interests of the members.

A community benefit society is run primarily for the benefit of the community at large, rather than just for members of the society. An applicant enterprise must also have a special reason for being a community benefit society rather than a company, such as wanting to have democratic decision-making built into its structure.  More on these options can be found here.

The choice of which legal form is important as it has a significant bearing on what you can/can’t do with your money and assets. A business adviser can talk your through this in more detail and assist you to set your social enterprise with  the most appropriate format.

If you are a woman based in Merseyside and are considering setting up a social enterprise, contact our team to make an appointment to talk through the options in more detail.  We can support you in building a business plan for your social enterprise and getting the right structure for you. Get in touch with The Women's Organisation via 0151 706 8111 or

by Janine Hyland, Senior Business Adviser, The Women's Organisation

No comments:

Post a Comment