‘Social Enterprise’ has become a fashionable concept, with many businesses proudly proclaiming their credentials.
But, do businesses really understand what a Social Enterprise is and how to become one? There are a number of misconceptions about the term and what it means.
What is a Social Enterprise?
There is no hard and fast definition of a Social Enterprise.
Any business can refer to itself as a Social Enterprise; there is no obligation to apply to a specific body for legitimacy. This does mean that the term Social Enterprise can be misleading – and misused.
To counter this, several organisations, such as socialenterprise.org.uk, are attempting to bring Social Enterprises together under an umbrella. None of them, however, are official government bodies and there is no legal requirement to join.
Defining a Social Enterprise
The good news is that the sector is moving towards implementing a unified definition of what a Social Enterprise is.
The generally accepted characteristics are:
The business is trading. This means it sells goods or services, as opposed to an organisation that is entirely or largely supported by grants.
At least 50% of profits are used for the social cause (i.e. the charitable/community benefit).
A Social Enterprise is not a legal structure
It is often assumed that a Social Enterprise is a specified legal structure. In fact, it is simply a business that operates under a set of principles.
Many different structures – companies, charities, community interest companies (CIC) and sole traders – can be Social Enterprises.
What legal structure should I use for my Social Enterprise?
This is a complicated question and the answer depends on what exactly you are trying to achieve. I would recommend that you take appropriate advice before you make any decision.
However, in a nutshell:
If what you are doing is charitable by nature, you should set up a charity or else you will be wasting money on tax that could benefit your users
If you want to take money out of the business, in most cases it would be better to set up a limited company
In some situations, setting up a CIC might be the right option – but there are specifics associated with this
Society profits from a Social Enterprise
When considering setting up a Social Enterprise, remember that you should balance the social good you create against your financial goals. The primary purpose of a Social Enterprise is to support communities, improve opportunities for people, tackle social problems or help the environment.