It’s admirable to want to run an organisation that puts the benefit of the public first, rather than profit for shareholders. These organisations are known as ‘social enterprises’.
A lot of people assume a social enterprise is synonymous with charity. But while a charity structure is the right option for some organisations, it does come with some drawbacks.
The law imposes high standards of regulation on charities, for instance. Trading, political and campaigning activities are restricted. Meanwhile, charities must have exclusively charitable aims, significantly restricting what you can and can’t do.
Therefore, you might be asking yourself whether a charity and its various structures – charitable company, charitable incorporated organisation or trust – is the only, or indeed the right way to do things.
But by choosing to run a different type of social enterprise, you can enjoy greater freedom and benefits to do things the way you want while still giving something back.
Community interest companies
A community interest company (CIC) is a structure that was specifically created in 2005 for social enterprises.
They are a special type of non-charitable limited company, which primarily exists for the benefit of the community. They pursue a social purpose, rather than to make a profit for shareholders.
However, unlike a charity, CICs have more freedom to get involved with commercial trading and face fewer restrictions in what they can do.
We’ve seen social enterprises do all sorts of things with that freedom, from food banks, cinema restoration to green reservation projects.
You can choose to have either a company limited by guarantee (CLG) or a company limited by shares (CLS).
CLGs have no shareholders, only ‘members’. These members cannot personally profit from the company.
In a CLS, there can be shareholders, but you must be extremely clear about what is going to happen to your profits in your governing documents.
As for the advantages of operating as a CIC, they share many of the benefits of limited liability companies. Your personal assets are protected, for instance, and you’ll be able to benefit from certain forms of finance.
CICs are also relatively easy to set up and given how similar they are in structure to limited companies, you, your employees or trusted advisers are more likely to feel right at home.
Furthermore, a CIC provides a certain continuity as individuals come and go, as well as the option for Gift Aid, trustees, proper reporting and the setting up of a charter. Plus, you’re more likely to be taken seriously by funding providers and partners.
However, as a CIC, your organisation will not be able to benefit from the tax allowances that charities enjoy.
Co-operatives
Outside of CICs and charities, co-operatives are the most common form of social enterprise.
Like a CIC, they are first and foremost a business, but donate a chunk of their profits. The key difference, however, is their commitment to a democratic business model.
A cooperative can be formed by at least ten adults and practice an open membership policy, so anyone with an interest, from customers to suppliers, can join. Under the rule of one person, one vote, members have the ultimate say of what happens in the organisation.
Therefore, if you’re not just interested in using a business to help the wider community through donations but by giving people a greater stake in the organisation, this could be a good charitable structure to investigate in more detail.
Employee efficiency will be the most important thing to manage. Some people say that without hardened managers, individual workers will lose a lack of direction, while others argue that with a stake in the business, employees will work harder.
Contact us
As you can see, there are more ways for social enterprises to do good than just setting up a charity.
To learn more about CICs, co-operatives or another charitable structure, don’t hesitate to get in touch with the team at Almar BSL.
