How to Set Up a Social Enterprise

If you’re planning to set up a social enterprise, we recommend that you seek professional advice to guide you.

Social Enterprise Resource Pack

In partnership with Stone King LLP, we have produced a Social Enterprise Resource Pack, with guidance on setting up your social enterprise and achieving the Social Enterprise Mark.

Stone King are experts in legal advice for charities and social enterprises, recognised as one of the leading practices in the UK.

To order your copy, please email Rachel Fell or call the helpline on 0345 504 6536.

The guidance below is designed to help you understand the requirements of the Social Enterprise Mark – the steps you must take to achieve the Mark will help you prove your credentials as a credible social enterprise.

When getting started in social enterprise, there is no legal definition or requirement to adopt a particular legal structure on what constitutes a social enterprise. However, in order to qualify for the Social Enterprise Mark you should adopt formal incorporation and the governing documents you create (your company constitution) must clearly express your commitment to the principles of social enterprise that the Mark encapsulates.

This provides public transparency and reassurance in regard to your social enterprise status and business intent.

Your constitution should specifically make allowances for the following:

1. Objects. Be sure to include clear social objects, usually defined at the start of your constitution. These do not need to be heavily detailed but try to be as precise as possible – think in terms of how you will measure your social impact, such factors as who your social beneficiaries are, their location, what benefits will be achieved and how.

2. Profit distribution: Your constitution must confirm that at least 50% of any annual profits generated will be distributed to social/environmental purposes. This can include reinvesting them back into your own business activities, providing these activities themselves have a direct social/environmental benefit.

3. Dissolution. Your constitution must confirm that should the company ever dissolve/wind up, all residual assets – remaining finances, premises, equipment etc – will be distributed to social/environmental purposes.

To become a social enterprise, you should choose an appropriate legal structure which will be influenced by various considerations relevant to your business purpose, needs, and stakeholders. Your stakeholders include the social beneficiaries of your business and may also be the members, shareholders and Directors who exert an influence over the ownership and direction of your business. In order to be eligible for the Mark, you must be an independent business, free from any majority ownership or control by other corporate organisations (unless these organisations are charities or would themselves meet the criteria of the Social Enterprise Mark ).

In addition to these constitutional matters, when you are setting up a social enterprise which would qualify for the Social Enterprise Mark, you will also need to demonstrate that:

1. you have started trading and trading income makes up at least 50% of your total annual income (or will go on to make up this 50% within 18 months of you applying for an being approved for the Mark);

2. organisations will be able to provide evidence of the social impact they are having, in accordance with their defined objectives and profit distribution commitments.

You can find further details about the benefits of achieving the Social Enterprise Mark:

You can find more information about the criteria of the Social Enterprise Mark.