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 hello@thewo.org.uk

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

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