What is a Social Enterprise Organization?

Emma Crawshaw

April 23, 2019

A social enterprise is an organisation that uses business strategies to fulfil social objectives. Social objectives can be anything from financing a local cats’ home to helping to feed people during a famine. The main aim is a positive social impact.With this mind, social enterprises are in business to make a profit, just like any other business. Namely, there are nearly 80,000 social enterprise businesses operating in the UK today.

What is a social enterprise organisation?

There are many different types. Social enterprises operate on many levels. They can be huge corporations that fund social programmes and schemes to help the disadvantaged or smaller home-grown businesses that work on a grass-roots level. They can exist on a worldwide basis or on the high-street or in your local community.

Here’s a handy video by Michael Sheen to explain it in relation to socks. The great thing about social enterprises is that they often supply the products you need anyway, but with the added benefit of assisting someone else as a by-product. They help us to think ethically about who we are buying from/working with and how we can give back to society.Social enterprises all feature the following:

The focus is on creating positive social change
They benefit the environment
They use trade to generate profit
Reinvestment of the profits to fund social reform
They are self-governing/not reliant on the state
They are transparent and accountable

Focused, innovative male entrepreneur examining prototype

What are the different types of social enterprise?

Social enterprises have both business goals and social goals. Because of this, they are different from regular companies and corporations. But surely a business is a business? Actually, no. Social enterprises give back. They create jobs and put their profits back into their business or the local community. They help solve social problems, improve people’s lives, give training and jobs to people who are otherwise excluded, support communities and make environmental change.Social enterprises can be non-profit or for-profit. Here are some different types of social enterprise:

Co-operatives. Jointly owned and run by members who share the profit/benefits. They have a common goal and everyone has a role in the business.
Mutual organisations. Private companies that are owned by their clients or policyholders. As such, they are entitled to receive profits or income from the company.
Disregarded entities. These companies do not have to pay tax in the UK.
Social businesses. Created and designed to address a specific social problem. Profit is reinvested to increase social impact.
Benefit corporations. Originating in the US, a ‘B corp’ must achieve social and environmental goals, as well as financial ones.
Community-interest companies. CICs were introduced by the UK government in 2005. They are social enterprises that use profits and assets for public improvement.
Companies limited by guarantee. Used mostly for non-profit organisations requiring legal rights. They do not have share capital/shareholders: the members act as guarantors.
Charities. Set up to provide help and raise money for the needy.

How to set up a social enterprise business?

So, you’ve seen the examples and decided that you want to set up your own social enterprise. Well done – running a business that helps others and contributes to positive social change is admirable.Here’s how to do it. First, you have to create a solid business plan.

Start by identifying the social issue/problem that you want to solve. Include the following aspects in your plan:

Outline the beneficial element of your plan. How will your business contribute to your community?
Who is your customer base?
What market will you operate in?
How will you connect with your future customers?
How will you manage your finances, operations and budget?
What is the ideal legal structure for your company?

Inspire2Enterprise offers loads of information on how to get your business idea into shape. They even have advisors who can take you through the process step-by-step and give you tips on what to do. Why not give them a call?

Social impact

What social impact do you imagine your company having? Believe it or not, there are actual measurements for this: Social Return on Investment (SROI), Social Accounting and Audit (SAA) and LM3 and Simple. These measurements will help you to gain PR and create valuable marketing plans that will get you noticed and on the way to success.

Positive results on these scales can also help you with grant applications and donations. Check with the social investors or funding organisations in your business area and find out which method they prefer. Then use that method.

Okay, business plan? Check. Next, choose your business model.

The government website has a handy page that breaks down each category. So, you can find out which is best for your planned social, charitable or community-based objective. They suggest the following for profit-making companies:

Limited company
Charity or charitable incorporated organisation
Co-operative
Community-interest company (CIC)
Sole trader or business partnership

Create an ‘unincorporated association’ if your organisation is small, like a sports club or a voluntary collective, and you won’t be making a profit.

Smiling, curious, innovative entrepreneurs examining glass triangle prototype

Right, business and legal structure? Sorted.

Now you have your business plan and your proposed structure. Next, it’s off to Companies House. Register your ‘community interest statement’, outlining your business objectives.Then you create an ‘asset lock’, which is a legal promise ‘stating that the company’s assets will only be used for its social objectives’. At the same time, you also set limits to the profits paid out to shareholders.

Your application will be automatically sent to the community-interest regulator to be approved.And, assuming you get approval, all you have to do is get your business underway! Yes, we know it’s a big undertaking, but luckily there are many associations out there just itching to help you get up and running. Social Enterprise UK is involved in hundreds of businesses throughout the UK. They can help you through the quagmire of making an idea into a reality.

How does a social enterprise differ from a charity?

This is a key question and is quite hard to answer. Charities are often also social enterprises. The grey area occurs because they are seen to function differently. Thing is, charities are perfectly capable of operating as a business. In fact, they can often be more useful to their chosen charities by behaving like a business – think Oxfam.

However, there is a legal difference between a registered charity and a profit-making enterprise. A charity is an entity that works with volunteers, raises funds through donations/grants, has charitable aims and is run by a board of volunteer trustees.A registered charity mainly relies on charitable donations and philanthropy for its survival. It is not self-sufficient. Thinking about Oxfam again: it relies on donations of items, which it then sells for profit to benefit its recipients (the business part).

A social enterprise is more likely to repurpose/make items for sale. It relies on the profits generated by the sales to continue benefiting society and functioning as a commercial entity. A social enterprise is self-sustaining over the long term because it makes a profit. It does not rely on cash injections from benefactors.

Charities are highly regulated and oversight is rigid. With good reason, otherwise, there would be lots of fake charities, which only benefit the people who set them up.Right, now you have established your area of interest, your business plan is made and you know what business structure you want to follow. All that remains is to get started making the world a better place.