Social enterprises are businesses that are changing the world for the better. Like traditional businesses, they aim to make a profit but it’s what they do with their profits that sets them apart – reinvesting or donating them to create positive social change.
Social enterprises are defined as businesses that:
Your business has a clear social or environmental mission that is set out in its governing documents;
You are an independent business and earn more than half of your income through trading (or are working towards this);
You are controlled or owned in the interests of your social mission;
You reinvest or give away at least half your profits or surpluses towards your social purpose;
You are transparent about how you operate and the impact that you have.
CAF divide social enterprises into 3 distinct business models, based on their research defining enterprises according to the social impact they are achieving rather than their legal form.
Model 1 – Profit Generator:
Trading activity itself is primarily seeking a financial return only. As such, it is deemed to have no direct social impact but gives some or all of its profits to charity. Financial risk of the investment is disconnected from the likelihood of achieving social impact.
Model 2 – Trade Off:
Social impact is integral to the nature of the trading activity, but a balance has to be struck between generating financial returns and creating social impact. The firm could increase its social impact by decreasing financial returns, or vice versa. In other words, there is a trade-off.
Model 3 - Lock Step:
Trading activity has direct social impact, but that social impact increases or decreases in step with financial returns. Apparently these types of enterprise are scarce as they operate in clearly competitive markets.
What is the difference between a charity and a social enterprise?
Whether it’s a charity or a social enterprise, the main goal is to complete a social mission, and to make a positive difference to the world. Both charities and social enterprises tend to reinvest their profits into good things that benefit a part of society, or society as a whole. For both types of organisation, sustainability is paramount. In order to continue doing good, the business must operate efficiently and effectively.
Whilst charities often fund their good work through donations and fundraising, social enterprises often sell products or services, in order to reinvest their profits.
Checklist for Starting A Social Enterprise
Before setting up a social enterprise, you might want to ask yourself the following questions to see if you are ready and whether a social enterprise is right for you:
Have you considered what legal form your social enterprise is going to take? Options include unincorporated associations, trusts, limited companies, industrial and provident societies, Community Interest Companies, and charitable incorporated organisations.
Have you explored all the start-up support options available to you and your social enterprise?
Are you completely committed to the social and/or environmental aims of the company?
Have you considered other key regulations that might affect your business - eg if working with vulnerable people, children, and the elderly? GOV.UK has a Licence Finder tool which you can use to find out if you need a licence for your business activities.
Have you thought about how you will finance the social enterprise, both at start-up and during periods of growth? If you are using your own money, will you be able to survive while the business finds its feet?
Do you have a viable business idea - ie is there a market for your service or product?
Have you considered how you will research your customers, or engage with your stakeholders?
Will you require the services of professionals such as an accountant or solicitor?
Will you need to employ staff in your social enterprise and do you fulfill the requirements of becoming an employer?
The documents you need to form a new CIC
To form a new CIC you need to deliver the following documents (which are given in detail in this chapter and Chapter 5) to the appropriate Registrar of Companies for England and Wales, Scotland, or Northern Ireland:
- Memorandum of Association
- A printed copy of the Articles that complies with the requirements of section 18 of the Companies Act 2006 and related CIC legislation. (Do not rely on the default Articles under section 20 of the Companies Act 2006.)
- Form IN01 requires details of the CICs proposed name; whether limited by shares or guarantee public or private; the first directors (and secretary if applicable), the situation of registered office; a statement of compliance etc.
- Form CIC36 which is the community interest statement to confirm that the CIC will provide benefit to the community. (Describe its intended activities who they will help and how.)
- A cheque for made payable to “Companies House”