Social enterprise

Posted by admin - December 12, 2013 4:21 pm The rise of the social enterprise

Social enterprise sector is growing

Despite the current economic climate or perhaps as a result, the social enterprise sector appears to be growing.

A social enterprise is a business that trades for a social and/or environmental purpose. The purpose and the desired impact of the entity will be clearly defined and will identify who it aims to help, and how it plans to do it. It will generate most or all of its income through selling goods or services rather than from receiving grants and/or donations. It will also have clear rules about what it does with its profits, reinvesting these to further the ‘social mission’.

We have seen a significant increase in enquiries to our charities and not for profit team and these have resulted in a number of new social enterprises being formed.

Scope for structure

Traditionally the vehicle for not for profit entities has been a charity but recent changes mean that there is now considerable scope when considering the structure that you should adopt when starting out.

Your entity could take the form of any of the following:

Below are the key features, pros and cons of some of these structures but for a more comprehensive list please refer to the full table featured in the news area of our website.

Unincorporated association and registered charity

These must be registered with the Charities Commission. Activities must fall into a pre-defined charitable object for the public benefit. This entity is governed by a board of trustees who give their time on a voluntary basis.

Pros

  • Easier to raise funds
  • Tax exemptions and reliefs

Cons

  • Active regulation from the Charities Commission
  • More responsibility for those involved i.e. trustees
  • Charitable law does not allow individuals to be paid for their role as a trustee
  • Restrictions on trading apply

Company limited by guarantee and a registered charity

These are run by the board of directors/trustees and are registered with the Charities Commission. Activities must fall into a pre-defined charitable object for the public benefit.

Pros

  • Possess a legal personality separate from its members
  • Can own property and hold contracts
  • Easier to raise funds
  • Tax exemptions and reliefs

Cons

  • Increased regulation in accordance with the Companies Act and Charities Commission
  • People involved are company directors so face more responsibility
  • Trustees can not be paid for their roles as trustees

Community Interest Company

CICs can be private companies limited by shares or guarantee and can adopt the cooperative not for profit or general commercial company model. There are a number of obligations that a CIC
has to meet and continue to meet in addition to those imposed on an ordinary company. It must also satisfy a community interest test, adopt certain statutory clauses into its constitution and deliver an annual community interest company report with its accounts.

A CIC limited by shares may pay a dividend if agreed by a resolution of its members but dividends payable to private share holders (non-asset locked bodies) will be subject to a dividend cap.

Pros

  • Directors can be paid
  • Light touch CIC regulator
  • Separate legal identity
  • Can own property or enter into contracts in its own right

Cons

  • Dual regulation with Companies Act and CIC regulator
  • More responsibilities for those involved i.e. become company directors
  • May be difficult to raise philanthropic grants and donations
  • Cap on dividends could suppress interest from investors
  • No specific tax exemptions/reliefs

Charitable Incorporated Organisation

This is an incorporated form of charity which is not a company and only has to register with the Charity Commission and not Companies House. Its trustees will normally have limited or no liability for the debts of the CIO and it can enter into contracts in its own right.

Pros

  • Separate legal person
  • Limited liability
  • Can enter into contracts and hold property
  • May qualify for tax relief

Cons

  • Active regulation from the Charities Commission
  • More responsibility for those involved i.e. trustees
  • Charitable law does not allow individuals to be paid for their roles as trustees
  • Restrictions on trading

At McCabe Ford Williams we can assist you in selecting the appropriate entity for your Social Enterprise. Once you are up and running we can provide you with a wide range of accountancy, tax, audit and business services.

In this sector there is always a need for specialist help and this is where the support of our experienced team will really benefit you. For instance some of the structures detailed above do not automatically qualify for the tax reliefs afforded to traditional charities and our experienced team can assist you with applying for charitable tax status, as and where appropriate.

Our new website contains a comprehensive list of all the services that we offer to the not for profit sector and you can also read our fact sheet on social enterprise.

If you would like more specific information about the services and support we can provide to such entities please do not hesitate to contact us or visit our specialist sectors section for more information.