An introduction to social enterprise

This article by Andrew Bibby, in a slightly different form, was first published in Choice magazine, 2008

Across the country there are teams of advisers eager to help social enterprises. There are specialist business consultants, specialist grant and loan funds, and a network of regional support agencies all there to enable social enterprises to thrive. The government, too, enthusiastically backs the concept. There's no doubt: social enterprise is an idea that's firmly established as the current big thing.

There is just one little problem: defining a social enterprise can be as tricky a task as trying to stop a jelly wobbling. Look closely, and all sorts of initiatives can be found using the ‘social enterprise' tag. Examples usually mentioned include well-known ventures like the Big Issue (the magazine sold by homeless people), Cafedirect (which sells fair trade products such as tea and coffee) and Fifteen (the restaurants launched by TV chef Jamie Oliver, employing unemployed young people). Away from the headlines, all sorts of lower-profile social enterprises are up and running, often based in a particular neighbourhood and meeting a particular local need: community-run recycling schemes, community day nurseries, and ventures offering employment to adults with learning difficulties, for example.

Some people include all sorts of other things as social enterprises as well: housing associations, leisure trusts, credit unions, charity shops, and businesses with ethical policies like the Co-op Bank. The concept, in other words, is an elastic one. Fortunately, however, the general idea is fairly clear. The government talks of businesses ‘with primarily social objectives', which aren't driven by the need to maximise profits to reward owners or shareholders. The Social Enterprise Coalition (the main UK-wide umbrella group for the sector) have a shorter definition: they talk of ‘profit-making businesses set up to tackle a social or environmental need'.

This means that quite a number of community and voluntary organisations which receive income from the activities they run but which may never have seen themselves primarily as businesses may nevertheless qualify as social enterprises – and this in turns means that they may be able to tap into the resources which are being made available for the social enterprise sector. There's also potentially new opportunities open for initiatives getting under way at the grass-roots across Britain . So perhaps we don't need to worry too much about exactly what constitutes a social enterprise – we just need to see this as a useful idea and, like everybody else, get on board the bandwagon.

Your questions answered

Q: Don't lots of commercial businesses also claim to have social and ethical policies?

A: Yes, but social enterprises would claim that their social, ethical or environmental goals are central to what they do. Their business activity is a means to an end, not the end in itself.

Q: What's the relationship between social enterprises and charities?

A: There is no direct correlation. However, some social enterprises choose also to become registered charities: they are more tightly regulated, but in exchange can benefit from the advantages charities enjoy. Conversely, some traditional charities have trading arms which are often referred to as social enterprises: one example is Oxfam's Unwrapped internet and mail order business.

Q: What legal structure does a social enterprise have?

A: This is complicated. Traditionally many community organisations who wanted to incorporate to obtain limited liability for their members chose one of two routes. They either became companies limited by guarantee, or they became a form of cooperative (technically an Industrial and Provident Society).

More recently, the government introduced the concept of the Community Interest Company (CIC), and currently just over 1500 ventures have chosen to incorporate in this way. CICs have by law an ‘asset lock', designed to ensure that the reserves of the company are kept for community benefit and not distributed out to members or investors.

A fourth alternative will also be possible very soon: charities will be able to get limited liability by establishing themselves as a Charitable Incorporated Organisation (CIO).

Q: Do social enterprises make profits?

A : Social enterprises are usually described as ‘not-for-profit' rather than ‘non-profit'. In other words, they need to be profitable to survive, to enable them to meet their objectives.

Q: Are social enterprises exempt from legal, tax and employment requirements on ordinary businesses?

A: Generally speaking, no.

Q: What are the steps involved in establishing a new social enterprise?

A: They are likely to be similar to the steps which any new small business should normally take, if it is to be successful. Central to the planning is likely to be the development of a business plan, looking among other things at the financial prospects for the business and the market in which it will operate.

IQ: What about money?

A: There are a number of specialist sources of finance for social enterprises, typically offering ‘soft' loans and also sometimes grant finance. These are known generically as Community Development Finance Institutions: their association, the CDFA, publishes a Finding Finance directory. The government-backed Adventure Capital Fund has been an important funding agency in the past, though it is currently closed for new applications. Bridges Ventures Ltd focuses specifically on more socially deprived areas.

Return to my home page