Social Enterprises are organisations set up to solve social, ethical and environmental problems using innovative business solutions rather than using the voluntary organisation/charity model.
In other words, they use the skills and principles of the mainstream business world to address social problems, meet local community needs, or bring about social change, rather than solely to make profit for the owners.
Like normal profit making businesses, social enterprises provide demand-led chargeable services/goods with the aim to produce as big a profit as reasonably possible.
However, unlike a normal profit making business, social enterprises have some social element to the business which could be one or all of the following :
(a) the market or issue being targeted ( e.g. the homeless, unemployed youth, the environment, lack of inclusion, etc)
(b) the product /service itself (e.g. an environmentally friendly car )
(c) the way the goods/service is produced (e.g. using fair trade or recycled products)
(d) the people making the product/service (e.g. made by disabled employees).
In addition, the profits of all social enterprises are channelled back into the organisation to further develop its services / products or help the target market / beneficiary group being served.
Social enterprise principles can been applied to all industries and many examples can be seen in childcare, construction firms, retail, education and transport.
In comparison to charities and voluntary organisations, social enterprises have a number of advantages and disadvantages
1. Setting up a social enterprise is easier, quicker and cheaper and are far less regulated than charities. Indeed, you only need one person to start and run a social enterprise but need a minimum of three people to start a charity.
2. Social enterprises can be set up in way that ensures the owner/founder has can maintain control over the way the organisation is run and can easily be paid a salary for the work they do for the organisation. On the other hand, the owner/ founder who sits on a board of trustees for a charity must live with the fact that they can be outvoted on any matter put forward or even be voted out of the organization!
3. Social enterprise can serve a narrower target market/beneficiary group than charities are allowed to. The products/services of a charity must, in theory, be accessible by any member of the general public (or relatively large sections of the general public) as part of their strict public benefit test.
However, the target /beneficiary group for social enterprises can be as wide as the general public (like charities) or as narrow as the employees of a particular company(which could never meet the charity commission criteria).
Social enterprises do not enjoy the tax advantages of Charities. Charities are able to obtain tax reliefs on most income types and are entitled to a substantial discount on business rates. In contrast, social enterprises do not receive such tax breaks.
As social enterprises are essentially profit making, they have the same funding options available to traditional profit making business so they raise funds by applying for loans, issuing share capital and debt capital, etc. Also, because social enterprises are recognised by funders and governmental bodies as social purpose organisations they are well placed to apply for grant funding and even solicit donations from the public.
Registering your social enterprise
There is no formal legal way to register yourself as a social enterprise, it is all about defining and promoting yourself as a social enterprise.
Having said that, the CIC legal structure was designed primarily to cater for social enterprises so adopting this legal structure will reassure investors and the public that you have adopted a social enterprise pathway.
If your social enterprise objectives fall under one the charity commission`s 13 charitable purposes you may be able to register it as a charity. Registering your social enterprise as a charity may be a good as charitable status confers some great benefits the best being exemption from most direct taxes.