Setting up a Social Enterprise

Social enterprises are dynamic businesses with a social purpose working all around the UK and internationally to deliver lasting social and environmental change.  The social enterprise sector is incredibly diverse, encompassing co-operatives, development trusts, community enterprises, housing associations, football supporter’s trusts, social firms and leisure trusts, among others.

As a result social enterprises use a wide variety of legal forms: some incorporate as companies while others take the form of industrial and provident societies. From July 2005, social enterprises have also been able to register as Community Interest Companies and a new form, Charitable Incorporated Organisations, will soon be available.

If you are thinking of setting up a social enterprise, it is wise to seek advice from an appropriate support agency (see below). But here are some initial questions to consider:

Why set up a social enterprise?

Social enterprises suit those who wish to adopt an entrepreneurial approach to achieving social or environmental change. The model is appropriate where personal profit is not the business objective.

They are often set up by existing organisations or charities who wish to fund their work through trading (rather than simply donations) or set up a business that in itself achieves some of their charitable purposes (e.g. offering employment to marginalised groups). Some of these activities might otherwise be unduly restricted under charity law. (See Charities, trading, tax and subsidiaries).

As a social enterprise, the business can still clearly communicate its social purposes and assure clients, customers and supporters regarding how profits and assets are applied. However, depending on the legal structure chosen, you can have greater freedoms regarding payments to company directors, a wider range of acceptable purposes and (limited) options regarding payments of dividends.

Does your proposed business have the key features of a social enterprise?

Social enterprises share a number of common features which distinguish them from other businesses:

• They have a social, community, ethical or environmental purpose
• They generally operate using a commercial business model
• They are not run for personal profit (but do aspire to make profit)
• They operate on the basis of a set of values
• They have a legal status appropriate to these characteristics

Click here for more on these features.

What legal form will be most appropriate?

Legal forms appropriate to social enterprises include:

• Company limited by guarantee (with or without charitable status)
• Community Interest Company (CIC)
• Industrial and Provident Society (IPS)
• Charitable Incorporated Organisation (CIO)

Each structure brings its own benefits, restrictions and reporting requirements which will determine which is most appropriate for your business. Use the links above to find out more about each option and when it is appropriate.

What local sources of information and advice are available?

Social Enterprise NI is the voice for Social Enterprises and Social Entrepreneurs in Northern Ireland. A central meeting place where the sector can collaborate, share knowledge, information and best practice to create real social change.

NICVA’s Governance and Charity Advice Service can provide advice on choosing an appropriate legal structure.

Members of the Developing Governance Group all provide support and advice on a wide range of governance matters.