As it is social enterprise day this week, I thought I’d explore the definitions of social enterprise. There is a lot of talk about social enterprise in the third sector at the moment. But what exactly is the definition?
The Social Enterprise Coalition, which is the UK’s national body for social enterprise, defines social enterprise as ‘businesses trading for social and environmental purposes’. This includes both non-profit and for-profit organisations. However, social enterprises need to have a social/environmental primary purpose and the majority of any profit has to be reinvested into the organisation.
Our definition at The Social Investment Business is similar but a bit more specific: ‘a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners’. We require all social enterprises that we invest in to have these characteristics clearly expressed in their governing documents. Ethical businesses, on the other hand, will conduct their business as their primary purpose, while only minimising any negative social or environmental effects.
Forms of social enterprise
There are a range of different company structures that social enterprises take on. The most common are:
Community interest company (CIC) CIC is the legal formation created specifically for social enterprises. It has a social objective that is “regulated” ensuring that the organisation cannot deviate from its social mission and that its assets are protected. CIC’s are regulated by the CIC Regulator.
Industrial and provident society (IPS) This is the usual formation for co-operatives and community benefit societies, and is democratically controlled by their members in order to ensure their involvement in the decisions of the business.
Company limited by guarantee or shares This is the the most common legal structure for businesses and often considered to be the most flexible, particularly companies limited by shares. While they can ensure they have a social mission written into their Memorandum and Articles of Association, this is not regulated.
Group structures and charitable status Tax is an important consideration for some organisations where the retention of surpluses is essential, particularly if they can’t take on equity. In these cases tax breaks associated with charitable status are important.
The Social Enterprise Identifier Project
The Social Enterprise Identifier Project is a steering group, made up of leaders from the social enterprise movement and supported by the Central Office of Information (COI) and the Office of the Third Sector (OTS) which is working on developing a ‘brand identity’ or single business identifier for social enterprise.
- Pontus Westerberg
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