What is a social enterprise?

Image - What is a social enterprise?

You asked, so I’ll answer – What is a social enterprise? What are social enterprises?

Social enterprises are businesses that have a social or environmental purpose. This means that they reinvest any surpluses they make back into the business in order to deliver more of their social or environmental purpose. Another key thing about a social enterprise is that it is still a business and it needs to generate profits and be sustainable.

In order to do this the social enterprise needs to have a product or service that it can trade and make profits from selling. When we talk about the social or environmental purpose for a social enterprise this is at the heart of what they do and it’s not an add-on like you see sometimes with larger corporates and businesses. The social or environmental purpose is at the heart of how the social enterprise operates.

Another key thing to remember is that social enterprises are a way of doing business and not a particular legal structure. This means you will find lots of different legal structures for social enterprises. For example there are community interest companies, charities, companies limited by guarantee, companies limited by share, Co-operatives and community benefit societies. As well as all these different legal structures there are also a number of marks or accreditations that social enterprises can have such as being a B Corp, fair trade etc.

There are lots of different definitions for a social enterprise but generally they are expected to generate more than 50% of their income from trading, although initially they may be dependent on start up funding and grants. They also reinvest the majority of their surpluses to deliver more of their social purpose.

Depending on the definition used for social enterprise there are between 70,000 and 741,000 social enterprises in the UK! Regardless of the exact number, one thing is for certain, social enterprise is a growth sector. More people are choosing to set up social enterprises each year.

The Department for Business, Innovation and Skills (BIS) used the following to identify if a small/medium enterprise (SME) was a social enterprise:

  1. The enterprise must consider itself to be a social enterprise
  2. It must not pay more than 50% of profit or surplus to owners or shareholders
  3. 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
  4. 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

Social enterprises also tend to have an asset lock or specific clauses in their Articles around their social purpose and how they use any surpluses/profits. This is regardless of the legal structure they operate through.

To find out more about social enterprises in the UK check out the following reports/data about social enterprise: