Social Enterprise

A social enterprise is a business that generates an income through selling goods or services, and it reinvests some or all that money back into the community, or is working towards being able to do that.  As part of its business plan, it aims to maximise the social good it does as well as meet financial targets.

Ideally, according to Social Enterprise UK, a social enterprise should:

• Have a clear social and/or environmental mission set out in their governing documents
• Generate the majority of their income through trade
• Reinvest the majority of their profits
• Be autonomous of state
• Be majority controlled in the interests of the social mission
• Be accountable and transparent

‘Social enterprise’ isn’t a formal legal term, and so lots of different types of businesses and organisations can class themselves as one, including co-operatives, Community Interest Companies, community businesses, companies limited by guarantee.  A charity can be a social enterprise too if it doesn’t rely on grants and donations, but gets most of its income from selling something, for example, through running a charity shop or café.

Examples of big national social enterprises are:

• The Big Issue
• Café Direct
• Divine Chocolate
• The Co-op
• Suma Foods

Examples of some local social enterprises are:

• Clem’s Garden
• Locala
• Local Services 2 You (LS2Y)
• Eden’s Forest
• Our Creative Connection
• The Crescent and Co CIC
• Green Valley Grocer

It can be a good way of saving a local community asset, such as a pub, shop or community centre, or setting up a new service that your community needs such as nursery or social care provision, a food share or meal delivery scheme, or furniture recycling.

The pros and cons of being a social enterprise vary depending on which structure you choose, but in general:

pros

• You will be part of a team of people who are all working towards the same goal and all have different skills and experience to contribute
• You will share the risk and responsibilities between you
• You may be eligible for grants and support as both a business and a charity/third sector organisation
• Depending on what structure you choose, you can choose to run it yourself and earn an income from it

cons

• Depending on the structure you choose, you may have to pay tax on your profits, and you may have to charge VAT on your goods and services
• Lots of charitable trusts and foundations don’t give grants to social enterprises
• You may have to have at least 3 non-related directors in order to qualify for funding
• Depending on the structure you choose, you may have to report annually to more than one regulator
• Depending on the structure you choose, you may have to include an ‘asset lock’ in your governing documents.  This means that you can’t sell off your assets for a profit or for your own gain.  They can only be transferred to a similar organisation to be used for community benefit.

You may want to go down the route of setting up a formal legal structure in order to protect yourself and any other people involved in the social enterprise with you from being personally liable for any costs or debts incurred.  This is particularly important if you’re employing people, taking on loans or other funding, or taking on property or a lease. 

When you do this, you’re turning your organisation into a legal entity in its own right (effectively a separate legal ‘body’ or ‘person’) that is distinct from you.  It also helps formalise your key values and principles and how your social enterprise will be governed.

There are several different legal structures that you can use, and each is formed in a different way and regulated by a different body.  For example,

• You can set up a standard limited company or a company limited by guarantee (without shareholders) with Companies House
• You can set up a Community Interest Company (CIC) by setting up a company at Companies House and then registering with the CIC Regulator
• You can set up a Community Benefit Society, regulated by the Financial Conduct Authority (FCA) that trades for the benefit of the wider community
• You can set up a Co-operative Society that trades for the benefit of its members

You can be a social enterprise and have charitable status too (in which case you’ll register with the Charity Commission), and you can be a charity and earn income from trading (for example through a charity shop, café or renting out space in a building).

Find out more:

• Setting up a social enterprise – GOV.UK (www.gov.uk)
• Setting up a social enterprise – BusinessAdvice.co.uk
• What is a co-op – Co-operatives UK 

Ideally, you will need to have a business model that generates enough income to cover your running costs, and allows you to make a profit that can be reinvested in your social aims, for example:

• You may run a café or a shop to earn income to invest in training for disadvantaged young people, or
• You may offer professional services to business so that you can invest in offering the same services to local community groups for free
• You may run a community shop, village hall, pub or post office at cost to make sure that those essential facilities remain in your community
• You may run a care home or care service in your local community at cost to make sure that local people have access to good quality affordable local care

It’s a good idea to put together a business plan.  This will help you think through what you’re going to do, how you’re going to do it, and what the risks and challenges might be.

Things you need to think about are:

• What is the product or service that you want to sell?
• Who will you be selling it to?
• What will your social mission be?
• How will you achieve that?
• How will you demonstrate your social impact?