SOCIAL ENTERPRISE FAQs
A social enterprise is a business that trades for a social and/or environmental purpose. It will have a clear sense of its ‘social mission’: which means it will know what difference it is trying to make, who it aims to help, and how it plans to do it. It will bring in most or all of its income through selling goods or services. And it will also have clear rules about what it does with its profits, reinvesting these to further the ‘social mission’.
Social enterprises come in many shapes and sizes from large national and international businesses to small community based enterprises (see question 2). But they all:
Are businesses that aim to generate their income by selling goods and services, rather than through grants and donations
Are set up to specifically make a difference
Reinvest the profits they make in their social mission
If you meet or aim to meet these criteria and you have these commitments expressed clearly in your governing documents then you are very probably a social enterprise.
Read the short guide - Social Enterprise Explained - to find out more.
According to Social Enterprise UK, social enterprises 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
More detail about these points can be found in the short paper - What makes a social enterprise a social enterprise?
The Big Issue, the Eden Project and Jamie Oliver's restaurant Fifteen are examples of social enterprises. So are award-winners Divine Chocolate, a fair trade chocolate company co-owned by the cocoa farmers cooperative KuapaKokoo in Ghana and Timewise, which connects professionals with flexible employment opportunities.
Social enterprises operate in a range of industries - Cafedirect is the UK's largest Fairtrade hot drinks company; The Elvis & Kresse Organisation (EaKo) takes industrial waste materials, turns them into stylish luggage and hand bags and donates 50% of the profits to the Fire Fighters Charity; Hill Holt Wood educates at-risk youth in an ancient woodland; Central Surrey Health is a pioneering social enterprise in the healthcare world that is run by the nursing and therapy teams it employs.
We are the national body for social enterprise. Social enterprises are businesses that are changing the world. When they profit, society profits.
Together with our members we are the voice for social enterprise. We do research, provide information and tools, share knowledge, build networks, raise awareness and campaign to create a business environment where social enterprises can thrive.
Working with our members, we:
Raise awareness of social enterprise and what it can achieve through the media and campaigning.
Influence politicians across the spectrum, generating support for social enterprise. Political engagement has been the bedrock of our work and we continue to have great success pushing social enterprise up the policy agenda.
Organise the annual Social Enterprise Awards.
Run a number of programmes, including the Social Enterprise Places project, which recognises social enterprise towns, cities and villages in the UK.
Work with private sector organisations who want to explore or consolidate their position in the growing social enterprise market. We provide a range of opportunities for them to engage with social enterprises and get involved in the social enterprise ‘space’. The Buy Social guide gives advice on how firms can bring social enterprises into their supply chains and use their purchasing power to benefit society.
- Provide a range of support and consultancy services to social enterprises as well as public and private sector organisations.
Share knowledge and information - we publish a range of how to guides and training materials.
Read our latest Annual Review to find out more about what we do.
The pioneers of social enterprise can be traced at least as far back as the 1840s, in Rochdale, where a workers' co-operative was set up to provide high-quality affordable food in response to factory conditions that were considered to be exploitative.
In the UK, a resurgence of social enterprise started in the mid 1990s with the coming together of different organisations, including co-operatives, community enterprises, enterprising charities and other forms of social business, all united by the prospect of using business to create social change.
The best government data estimates that there are approximately 70,000 social enterprises in the UK contributing £18.5 billion to the UK economy (based upon 2012 Small Business Survey, 2013) and employing almost a million people.
While it is difficult to agree data on the absolute size of the social enterprise sector, Social Enterprise UK’s report The People's Business provides up-to-date information and insight into the characteristics and strength of the sector.
The two are distinct ways of doing business. A social enterprise's primary purpose is its social and/or environmental mission – it tries to maximise the amount of social good it creates balanced against its financial goals.
An ethical business however, attempts to minimise its negative impact on society or the environment.
Social enterprises use a wide variety of legal forms, the most common forms are listed below. To see a full list and their pros and cons, as well as more information about the things you need to consider when starting a social enterprise, read the guide: Start your social enterprise.
Community interest company (CIC)
A CIC is a legal form created specifically for social enterprises. It has a social objective that is "regulated", ensuring that the organisation cannot deviate from its social mission and that its assets are protected from being sold privately. For more information on CICs, contact the CIC regulator - www.cicregulator.gov.uk
Industrial and provident society (IPS)
This is the usual form for co-operatives and community benefit societies, and is democratically controlled by its members in order to ensure their involvement in the decisions of the business.
Companies limited by guarantee or shares
The most common legal structure for standard businesses. Many social enterprises also choose these legal forms because they are very flexible when it comes to governance, and when it comes to getting investment. To ensure a standard company is a true social enterprise it will need to ensure it has a social mission written into its Memorandum and Articles of Association and is clear about reinvesting its profits.
Group structures with charitable status
This is a very common legal form for social enterprises. In part, it is common as increasing numbers of charities are moving away from traditional models of fundraising and becoming more businesslike in order to ensure their sustainability. Partly it is a result of the fact that tax is an important consideration for some organisations where the retention of surpluses is essential. In these cases the tax breaks associated with charitable status can be an important factor and mean that having a charitable structure as part of the group is worthwhile.
As with any other business, setting up a social enterprise will often require substantial advice and support. Social Enterprise UK has developed a range of publications including Start your social enterprise which will provide you with some information on the legal structure and streams of finance you may want to consider. Other guides are available to download from our online resources library.
Much of the support available to mainstream business may be relevant to social enterprises starting up, as they often face many of the same barriers. You may want to contact one of the regional social enterprise networks, who have an intimate knowledge of local conditions, and can put you in touch with other local organisations.
Whether you’re looking for finance to start, grow or move into social enterprise, there are a number of different types of finance available, each with their own advantages and disadvantages. Finance for social enterprises range from grants to social investment, with many different options in between.
The most common finance options include:
Grants - Do not need to be repaid, but there are also a number of drawbacks that must be considered, such as flexibility and sustainability issues. Grants are available from various initiatives including the Big Lottery Fund, various trust and foundations, and from local authorities and government departments.
Debt finance - Usually available as a basic loan which will need to be paid back with interest, and these can usually be put to more flexible use than grants.
Equity finance - Involves the exchange of capital for part-ownership of the business (think Dragon’s Den). Two main providers for this are venture capitalists and business angels.
Community Finance - Often provided by Community Development Finance Institutions (CDFIs) and Credit Unions who work to address financial exclusion.
In our advice and support section you can find a comprehensive list of organisations that provide finance and funding.
We run the Social Investment Forum, a network of Social Investment Finance Intermediaries - organisations working in the space to provide social investment (the provision and use of finance to generate social and financial returns) for social enterprises.
Big Society Capital is the world's first social investment back, which was launched in April 2012 and will be an important anchor within the UK’s growing social investment market. With £600million it has the potential to direct capital to social enterprises looking to start up or expand. Please note that Big Society Capital does not finance social enterprises or charities directly - funds are given to Social Investment Finance Intermediaries. It is these organisations you should contact if you're an organisation seeking finance.
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Firstly, we need to bust a myth. A registered charity can still be a business. Many charities are social enterprises through and through: they don’t rely on grants and donations, but instead earn teh bulk of their income through selling goods and services.
HCT Group, London Early Years Foundation, Turning Point, Sandwell Community Caring Trust – are all social enterprises with charitable status. If your charity raises most of its income by trading it probably already is a social enterprise. In which case, welcome to the social enterprise world! Do join us or sign up for more information using the links above.
If this is not the case then turning a charity into a social enterprise is principally about changing the funding / business model of the organisation. This means moving away from being dependent on grants and donations to generating more of your income through trading – selling goods and services. Read our guide for charities interested in social enterprise.
There is no single regulator for social enterprises. Unlike charities, social enterprises take a range of legal forms so they are regulated by a range of different bodies:
Community Interest Companies are regulated by Companies house and the Community Interest Company Regulator
Standard companies limited by share and guarantee are regulated by Companies House
Industrial and Provident Societies are currently regulated by the FSA – though this is likely to change shortly
Social enterprises with charitable status are regulated by the Charity Commission
In the end, being a social enterprise is about adopting a set of operational principles. These include:
Having a clear social and/or environmental mission (set out in your governing documents)
Generating the majority of your income through trade
Reinvesting the majority of your profits to further the social mission
This is regardless of what form the organisation takes. So if you have these in place – you are acting as a social enterprise. There is no social enterprise regulator, but if you do want to identify as a social enterprise, join Social Enterprise UK and you will receive a "We're a social enterprise" badge to use in your electronic and printed materials.
Enabling groups to ‘spin out’ of the public sector into social enterprise models is a big part of the government’s mutualisation agenda.
There are a number of guides and resources designed to support people and groups on this journey.
The Right to Run guide produced by Social Enterprise UK on the subject has an excellent resource section with support bodies who specialise in this area listed.
The government has also launched a Mutual Information System and Support Programme to support people through the journey to becoming a mutual.
The government is committed to getting more small businesses, social enterprises and other civil society organisations into the public sector’s supply chain. One way the government aims to do this is by ensuring that all opportunities are advertised in a central portal. While this does not yet have all contracts on it, it’s a good place to start.
The National Consortium of Social Enterprises has been created in response to the demand from the public service commissioner market to have more social enterprises in their supply chains. It aims to make it easier for public sector commissioners to contact and contract from social enterprises.
The Cabinet Office has also committed to finding routes through the barriers that social enterprises come up against when bidding for contracts. They have set up the supplier feedback service to capture information on barriers and intervene where possible.
If you want to convert your private business into a social enterprise there are a number of things to consider.
Firstly you need to be clear about why you are doing it. Most importantly you need to be clear about the difference you want to make – your social mission. If know what this is, and it is central to your business – then social enterprise is probably the right choice for you.
The next thing to think about is your business plan. You need to make sure that your business will work as a social enterprise – take into consideration how you generate your income and how being a social enterprise will influence this.
Social enterprises re-invest their profits and can’t be sold in the same way as standard businesses as they are set up for a social mission. Because of this you will need to think carefully about any existing and future investment before converting to a social enterprise.
When it comes to future investment needs, social enterprises can sometimes struggle to get investment through the same channels as private businesses, so you need to bear this in mind and look at the social investment options out there.
You will also need to think about how you recover any personal investment you may have put into the business yourself. It is fine for you to do this and make a reasonable return, you will just need to be clear and transparent about it, and seek advice.
Once you have thought these things through – if you decide social enterprise is right for you, there are few steps to follow.
Social enterprises don’t have a single regulator so most of the changes you will need to make will be to your governance. It could be that you are already operating as a social enterprise – your business has a clear social mission and you reinvest your profits, but you have not made this a formal arrangement. In which case you will need legal advice to ensure these are written it into your governing documents. Many solicitors specialise in this sort of thing – including the ones in our membership directory.
You will also need to think about accountability and how you are held to account on your social mission. This could be through appointing an independent board or adopting a membership structure of some form. Alternatively you could investigate converting your existing company into a community interest company (a legal form set up specifically for social enterprises).
There is helpful guidance available from BIS on creating a CIC.
16. What is social impact and how do I measure it?
Social impact is the effect of an activity on the social fabric of a community and well-being of individuals and families.
Measuring your social impact will help you understand, manage and communicate the social value that your social enterprise creates in a clear and consistent way. This information can be used for a number of very beneficial purposes, the principle of which are:
1. Helping you better understand, and target, your work
2. Attracting investors and retaining investor confidence
3. Tendering for public sector contracts or selling goods and services
Click here to find out more and for examples of quality social impact measurement reporting that were recognised by the 2012 UK Social Enterprise Awards.