How to start a social enterprise
Set up a business that makes a difference
If you’ve got a business idea that you think will benefit the environment or your community, setting up a social enterprise could help you get your vision off the ground.
Rather than being run to produce profits for shareholders, social enterprises aim to put the money they make either back into their business or use it to help their local community. Here’s how to set one up.
Before you start
If you’ve had a bright idea about a social enterprise, don’t rush into setting it up without doing plenty of market research first. Think carefully about who your target audience is, and what sort of people will be prepared to pay for the type of product or service you plan to offer. Even if you’re clear on the social or environmental issue you’re hoping to tackle, it’s vital that your enterprise works from a commercial perspective, otherwise it won’t be around for long.
You’ll also need to think carefully about how you’ll fund your social enterprise until it gets up and running. Grants may be available to help. Useful sources of information about grants can be found at governmentfunding.org.uk and grantsonline.org.uk although there are subscription fees to use these services.
How to set up a social enterprise
Once you’re as confident as you can be that your scheme will work, it’s time to think about the logistics of setting it up.
There are several different legal business structures you can use. If you’re planning on going it alone, for example, you may wish to operate as a sole trader, whereby you’re self-employed and run your business as an individual. You may opt instead to set up as a private limited company, which means the company finances will be kept entirely separate from yours. To do this you’ll need to register your company with Companies House, and you’ll need shareholders to agree to create the company.
Many social enterprises are set up as what’s known as ‘community interest companies’ (CIC). These are a type of limited company, but rather than benefiting shareholders, they benefit the community. You’ll need to provide a special statement explaining what your business plans to do, and you’ll also need to provide a legal promise that any assets will only be used for the company’s social objectives. CICs are understood as being clearly a social enterprise and as such can often get access to grant funding.
As with other limited companies, you’ll have to apply to Companies House to set up as a CIC, but your company must also be approved by The Office of the Regulator of Community Interest Companies whose job it is to decide whether organisations are eligible to become CICs.
What about setting up as a charity?
Social enterprises can operate as charities. However, they differ from traditional charities because they don’t depend on donations, volunteers or grants, but instead make most of their money from selling services or products. You may decide to set up a charity if your business is going to have ‘charitable purposes’ that help the public, for example, relieving poverty. You’ll usually need at least three trustees for your charity. Charities are more heavily regulated than other entities but this is rewarded by greater access to tax reliefs and grants.
A co-operative, which is operated by and for the benefit of its members, is also a popular form of social enterprise. These operate under a variety of legal forms, and you can find out more from Co-operatives UK, which is a network for Britain’s co-operative businesses.
As there are so many different options to choose from, it’s worth getting professional advice to help you decide which route might work best for you. You can find more help and information from Social Enterprise UK, the biggest network of social enterprises in the UK.
Before making financial decisions always do research, or talk to a financial adviser. Views are those of our mentors and customers and do not constitute financial advice.