Last updated Dec 13, 2023 and written by David Goulden

What is a social enterprise?

Here at MadeSimple we believe that a starting a business can not only be life changing, but also offers fantastic potential to transform society and benefit the lives of others. Some truly fantastic business ideas can be hugely beneficial to deprived areas. If you are looking to create a company that operates in this way then turning your business into a social enterprise may be the way to go.

This blog will look at various different types of social enterprise’s and how exactly they work. Here at Company Formations MadeSimple we offer a wide range of companies which you can form. See here for more information on our Company Registration packages.

Basic definition

The basic way to understanding social enterprise according to BBC is that they essentially

“Use Business methods to tackle problems in society”. A Government report from 2002 on Social Enterprise goes even further calling it

“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”

So generally speaking the profits made by a social enterprise will be invested into the community that it intends to benefit. So if you want a company for the purpose of making profit for yourself (nothing wrong with that) then this probably isn’t the thing for you.

What type of company structure is best for a Social Enterprise?

The great thing about creating a social enterprise is that you can form under so many different types of company structures. You can be a sole trader, co-operative or a charity and be classified as social enterprise.

Another interesting company structure that can facilitate a social enterprise is the popular Community Interest Company (CIC). It works in a similar way to a Ltd by shares company. Its formed just like a limited company with similar company documents. So for example a CIC company will have its own Memorandum and Articles.

However there are differences: Firstly there is an asset lock which is essentially a legal guarantee that any company assets will only be used for social objectives – thus setting fundamental limits on what can be paid to shareholders. You will also need to have a something known as a community interest statement – which explains what your business will do and the greater societal effects it will have.

Another popular structure which can be used to form a social enterprise is a company Limited by Guarantee. This type of company does not have any share capital or shareholders. What it does have though is members who can act as guarantors. According to the Company Law Club

“ Most guarantee companies are not-for-profit companies – that is, they do not distribute their profits to their members but either retain them within the company or use them for some other purpose.”

Here at Company Formation MadeSimple you can form a Private Company Limited by Guarantee for more information see here.

What counts as a social enterprise?

Where to start – there are so many ways you can use a social enterprise to better society. The website The Social give an idea of what this could be by giving well known examples

“ Have you ever bought the Big Issue? Read it over a bar of Divine Chocolate? Watched Jamie Oliver’s Fifteen? Visited the Eden Project? Shopped at the Co-op? – Well, then you already know a bit about social enterprises”

So in terms of what could be considered a social enterprise the possibilities really are endless and vast in scope. A very notable example of a well established social enterprise would be something like Cafe Direct. They were the first coffee brand to adopt the Fairtrade mark and they reinvest a third of their profits into the cooperatives and communities of their coffee farmers.

For many small businesses now consider themselves to be a social enterprise with “Some startups focusing on long standing institutes, such as healthcare and reforming education, others are using tech to battle new problems”

It is clear that startups are reacting to the various global problems today by using their business models , and specifically their technology, to help improve the lives of others. Therefore being a social enterprise really is a great route if your are looking at turning your idea into a business.

We hope that this gives you a good understanding of social enterprises and the benefit they can bring to the wider community. If you would like to know more about the type of companies you can create with us here for more information.