What is a social enterprise?

A social enterprise is a business which re-invests its profits to benefit society. It is still focused on maximising revenue but instead of distributing profits amongst shareholders and owners, they are principally used to develop the business or improve the community.

Social enterprises are usually set up with a specific goal or mission. This can vary from business to business and includes environmental protection, job creation, improvement of local services and education. Social enterprises exist outside the public sector and in many ways function in the same way as a traditional private company.

The history of social enterprise

The idea of social enterprise was established in the UK during the late 1970s. Against a backdrop of growing economic uncertainty, social enterprise was developed as an alternative to commercial enterprise with the idea of bridging the gap between the private and volunteer sectors. The first social enterprises often aimed to provide employment to the marginalised, recently redundant and long-term unemployed, while also providing housing for those most in need.

As the idea of social enterprise was developed, three areas were identified to measure the enterprise’s success. Known as the Triple Bottom Line, they consist of social, environmental and financial benefits. By 1997 social enterprises were an important part of the UK’s business demographic. In March 1997 the UK Social Enterprise Partnership Ltd was established to provide specialist organisational support.

Today there are over 100,000 social enterprises in the UK, contributing in the region of £60 billion to the national economy.

The main characteristics of a social enterprise

In order to assess and assure that a social enterprise is functioning as required, the Social Enterprise Mark was created. To meet the required qualification criteria, a company is independently assessed to ensure that it is meeting its social and environmental declarations. To function as a genuine social enterprise, a business must:

• Have a core statement in their governing documents which illustrates their social/environmental goals
• Generate over 50% of their income through trade
• Prioritise the re-investment of profits into the company or society rather than distributing amongst shareholders
• Be privately funded with no state/public involvement
• Have a transparent and accountable business model
• Be independently owned and managed to further their social mission

Social enterprises are a vital part of the UK employment sector. Over two million people in the UK are employed by a social enterprise and their input into wider society has made a huge impact.

How are social enterprises structured

As mentioned above, social enterprises often function in the same way as a Private Limited Company with a focus on maximising profit. The original UK social enterprises were set up as co-operatives and mutual societies but today there are several legal structures available for establishing a social enterprise.

The latest option for setting up a social enterprise is called a CIC (Community Interest Company). A CIC has a legal framework specifically designed to suit a social enterprise. A CIC protects the company’s assets to benefit community/society while limiting the dividends payable to shareholders. A CIC cannot be used to set up a charity or to support political activities.

Successful social enterprises

Social enterprises are now an integral part of the UK economy. Research from the State of Social Enterprise Report found that 31% of the UK’s social enterprises are located in 20% of the UK’s most deprived communities. 59% of social enterprises employ at least one person from a disadvantaged background, and the average difference in salary between the CEO of a social enterprise and their lowest paid worker is just 3.6:1 compared to 150:1 for an average FTSE 100 company.

The success of social enterprises is perhaps due in part to the underlying ethical drive for profit. Their ethical values and focus on social awareness has proven to be an effective initiative to achieve success. To give a broader view of the impact of social enterprises on the UK economy, here’s a list of some of the most high profile social enterprises:

• The Big Issue
• The Co-operative Group
• The Eden Project
• John Lewis Partnership
• Two Fingers Brewing Co.
• Welsh Water
• Divine Chocolate

These examples perfectly illustrate that social enterprises can be successful in almost any sector. From community services to consumer goods, social enterprises look set to play a significant role in the future of the UK economy.

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