Social Enterprise Structures

Oct 21, 2010
Jonathan Fant

A quick investigation into the different company structures a Social Enterprise could take and outlining the very basics of these.

Having worked in the third sector for a number of years now, I have seen and heard of a number of structures formed when developing a company or charity for trading. A couple of years ago the buzzword was social entrepreneur, that has now evolved into social enterprise. Some of the structures have become almost fashion statements, the promise of what the future holds. Some changes where driven by new Charity Commission guidelines a couple of years ago, but each is valid and they all have their place.

There are two elements that unite social enterprises together, firstly they have to have a social outcome secondly it needs to be able to draw a financial income. They plan is that through being a trading company they should be able to support themselves with the right development plan.

Not for Profit Companies Limited by Guarantee with no Share Capital or PRI/LTD BY GUAR/NSC for short.

These are what are commonly referred to as not for profits, often now falling within the social enterprise category. They are seen as being the quickest and easiest way to start up a community-oriented business. The directors however cannot take a wage or draw income from it and there is no share capital so there is also no share income. It is possible to pay expense’s for directors, however this is a choice from business to business.

On the whole you are usually bound by the same rates and taxes as business of a similar size. You have the same protection if everything goes wrong as a business would.

Charities

Charities come in all different shapes and sizes, they can be large, they can be small. But they all have to be for public benefit. There is a degree that Charity Commission will allow a lot of room for communities benefiting from the charity. The way these charities or sometimes Trusts draw an income and stay afloat can vary. They could be a grant maker or a small charity aimed at addressing a specific need.

However a charity is not necessarily a social enterprise. As mentioned in order to be a social enterprise you have to be able to trade, draw your own income. It is possible to be both a charity and a not for profit company. This is often referred to as a charitable company.

I work for a charitable company, we are an indoor skatepark, with cafe and outdoor BMX track. In order to be a charity you have to classify yourself as a charity, this comes in three categories, simply put as What, Who and How.

For us our "What" is:

Education/Training
Sport/Recreation
Economic/Community Development/Employment

Our "Who" is:

Children/Young People

Our "How" is:

Provides Buildings/Facilities/Open Space
Provides Services

This can be seen on the Charity Commision "Charity Overview"

In order for you to be a charity you have to have a classification, it does not have to look like the one above but it will be listed for all to view on your page of the Charity Commission website. As you can see this does not determine your ability to trade or not trade. We charge for the facilities available, by charging we have the ability to grow into being sustainable, another buzzword used in a variety of ways at this current time.

The charitable company I work for can be complicated. However simply due to the ability to trade we can be seen as a social enterprise. Whether something is a social enterprise or not it is that simple.

Charitable status gives a number of benefits over simply being a not for profit company, it should lead to a reduction of rates paid. There are also VAT benefits, often a 5% VAT rate can be achieved and sometimes even 0%. This can lead to a reduction in the amount you pay for buildings, utilities and goods.

Getting these reductions in practice can sometimes be easier said than done particularly for smaller charities.

Simply being a charity however does not offer you the same legal protection as being a company director. When a company is well managed has done everything properly and could be seen to do so, any problems should be limited to the guarantee or share capital of that company.

A charity does not have the same legal position. This is one of the biggest advantages behind being a charitable company. To be a charitable company you are registered both with Companies house and Charity Commission.

Community Interest Companies (CIC’s)

This is effectively a not for profit company with a difference, it was brought into being in 'The Companies (Audit, Investigations and Community Enterprise) Act 2004.' This formed a regulator who is to ensure that the specific criteria of a CIC is met and upheld. To be a CIC you are required to register first with Companies House and then with the regulator according to Business Link "Community Interest Companies." An example of CIC requirements can be found in Community Interest Companies " About Us." One such example they give is the asset lock, which firstly regulators the way you trade assets and secondly if dissolved ensures the asset's go back into the community.

The really exciting part about CICs is that they have the capacity for share capital built in, they can be limited by guarantee as with not for profit companies. However it is possible for CICs to issue shares. Which means that investors can get a dividend of the company earnings. This then makes them very attractive to social entrepreneurs who might wish to invest some of their money into their or someone else's social enterprises. It should be noted that even though they can pay a dividend this is capped. This is certainly not a high-flying profit making investment.

But as the funding net gets smaller and smaller, this offers a real way to help people and secure backing and funding in the process. It is also not possible currently for a CIC to also be a charity, however their is scope for a CIC to be solely owned by a charity.

Social Enterprise Support

If you need help on any of these items there are a number of places to turn. For anyone in Wales you could seek advice from the Welsh Co-op. If you are in an ex-coalfields area then you could contact your regional Coalfields Regeneration Trust center. Alternatively in England you could get in touch with the NCVO (National Council for Voluntary Organisations) or in Wales get in touch with WCVA (Welsh Council for Voluntary Actions.

Both of these organisations should be able to put you in touch with someone in your local area. They will probably not be able to give direct advice however.