Guide to Setting up a Social Enterprise

If you are looking to set up a social enterprise, chances are you’ll want some of your profits to go to a good cause. However, it might not be clear what this type of company is. Let’s take a look at this now.

1. What is a social enterprise company?
2. How do I create a social enterprise?
3. Do social enterprises pay tax?
4. Can a social enterprise be for-profit?
5. What is a social enterprise model?
6. Types of social enterprise
7. More about Community interest companies (CICs)

What is a social enterprise company?

A social enterprise company is a business that works to make changes in the world. For example, you may be aware of a local restaurant or business that invests in the local community. This lets the company improve lives, help the environment or tackle social issues.

How do I create a social enterprise?

If you would like to create a social enterprise, you will have to make sure you know what your target market is. You also need to make sure that your business can make enough money to survive. This is in addition to raising money to help improve other people’s lives.

Consider who is going to buy your products or services. Is there any local competition you need to be aware of?

You may also wish to consider getting some advice from people who have already opened a social enterprise. They will tell you what to look out for and what to do.

Make sure you have a clear mission so you can stand out. Potential investors will also want to know. In addition to this, your customers will want to know how you are different to other perhaps less ethical alternatives.

Here you can find out more about setting up your social enterprise.

Do social enterprises pay tax?

Yes, they aren’t exempt from paying tax as many people like to believe. In fact, HMRC will treat a social enterprise in the same way as they treat limited companies. The good news is there are some reliefs available to some social enterprises.

You also need to register for VAT. However, there are some VAT accounting schemes you could register for if you meet the requirements.

Can a social enterprise be for-profit?

Yes, this is because they need to make money so that they can sustain themselves. A social enterprise will have to pay for its workers and its bills. They need to do this in addition to reinvesting their money back into the community.

What is a social enterprise model?

If you’re considering setting up a social enterprise, you will need to be aware of the models out there. There isn’t a single clear model out there, in fact, there are thought to be as many as 5 different social enterprise models. These are:

1. Non-non-profit – These models tend to work out how they can be tax-exempt. While they do make a profit, they exist to address a social issue.
2. Socially responsible business – These businesses do exist to address a social issue. If they adopt practices which benefit their employees, the environment or the community.
3. Conscious company/brand – This is a business that sells a range of products that are designed to either raise awareness of a social issue or engage the community.
4. Entrepreneurial non-profit – This is a tax-exempt entity in part that either implements a revenue generating programme of has an entrepreneurial business model.
5. Donate a portion of your proceeds – There are operated by companies that donate some of their money to charities. They are typically separate from the activities that the charities partake in.

Types of social enterprise

If you are planning to set up a social enterprise, you will need to choose a business structure.

• Limited company
• A Charity
• A charitable incorporated organisation (CIO)
• Co-operative community interest company (CIC)
• Sole trader
• Business partnership
• Unincorporated association

More about Community interest companies (CICs)

Community interest companies is a specific type of limited company. A company such as this purely exists to benefit the local community as opposed to shareholders.

If you wish to set up a CIC, you will need to come up with a community interest statement. This statement explains what your business plans are. You will also need an asset lock. This is a legal promise which states the profits will only be used for social objectives. It also sets a limit to the money that is paid to shareholders. Thirdly, you will need a constitution and finally, the CIC will need approval from the community interest company regulator.