You asked so I’ll answer – Can social enterprises be sole traders?
Yes, social enterprises can be sole traders. Social enterprise is a way of doing business and does not refer to a specific legal structure. For further details on what a social enterprise is please refer to the article titled “What are social enterprises?”
To explain why a sole trader can be a social enterprise, let’s look at The Department for Business, Innovation and Skills (BIS) definition of a social enterprise:
The criteria applied for a small/medium enterprise (SME) to be classed as a social enterprise are:
- The enterprise must consider itself to be a social enterprise
- It must not pay more than 50% of profit or surplus to owners or shareholders
- It must not generate more than 50% of income from grants and donations (or, equivalently, it should generate at least 50% of income from trading); and
- It should consider itself either ‘a very good fit’ or ‘a good fit’ with the following statement: ‘A business with primarily social/environmental objectives, whose surpluses are principally reinvested for that purpose in the business or community rather than mainly being paid to shareholders and owners’.”
So, providing your sole trader meets this criteria, you would be classed as a social enterprise. However, there are lots of definitions of social enterprise, and if you met the simple definition of “a business with a social or environmental purpose”, you could still consider yourself to be a social enterprise.
The reason why people often question whether a sole trader can be a social enterprise is primarily because sole traders do not have Articles like companies or other governing documents in which a social purpose or objectives are defined. Nor is there any type of asset lock in place which is common with several of the social enterprise legal structures. This means that as a sole trader you could decide to be a social enterprise today and then tomorrow change your mind, as you do not have any restrictions in place to stop you from doing this. For many people this provides a reason to say sole traders can’t be social enterprises.
However, from my own experience I have seen many social enterprises successfully run by sole traders across all kinds of sectors including taxis, window cleaning, HR, education and more. Plus, organisations like Unltd and School for Social Entrepreneurs, where you can get help and grants to start or develop your social enterprise, accept sole traders on to their programmes, providing you are doing something with a social or environmental purpose.
It may be difficult to obtain funding from many trusts and foundations, as they like social enterprises to have a more formal legal structure in most cases (such as a Community Interest Company (CIC), charity or company limited by guarantee).
If you set up your social enterprise as a sole trader, you will need to register with HMRC as self employed within three months of starting the social enterprise. You will also need to complete a personal tax return (by 31 January following the end of the tax year), declaring the income and expenditure for the social enterprise in the self employment pages of the tax return. You then pay tax and Class 4 National Insurance Contributions on the profits of the social enterprise.
Important Advisory: If you still have further questions regarding your legal structure please look at this document as it explains what free and paid support is available to you from Make an Impact CIC and other external providers. Please note: the free Enquiry Calls available to book via this site are not to provide advice. If you need advice on your legal structure please book a 30 minute Rapid Results call (Fee £90).