Currently there is no single UK-wide legal definition for social enterprises. Within the social enterprise sector, it is generally agreed that certain criteria should be fulfilled by organisations claiming to operate a social enterprise business model. These include:
- Trading primarily for defined social or environmental purposes, in contrast to trading to maximise the benefit of shareholders and owners;
- Earning at least 50% of income from trading;
- Having independent ownership; and
- Committing to spending at least 51% of any profits on achieving social or environmental purposes.
For greater public trust and recognition, it is advisable to apply for accreditation, such as that offered by Social Enterprise Mark CIC (SEMCIC). It is responsible for the Social Enterprise Mark (SEM), the only internationally available accreditation for social enterprises, therefore securing global visibility. The accreditation body provides a checklist of the points mentioned above, externally assesses whether a business has fulfilled the criteria and regularly monitors successful applicants. Should your business not qualify at the point of application, SEMCIC also provides guidance about how to make the necessary changes.
The governing documents of a social enterprise, to be filed at the relevant authority, must clearly state its purpose. A number of law firms and legal advice platforms are available to ensure that you successfully set up your community-orientated business.
Understanding the complexities of the differing legal structures, law firm Tozers has created a free resource pack in collaboration with SEMCIC. The pack gives explanations of the various legal structures and statuses available to businesses, which include:
- Community Interest Company (CIC);
- Company limited by shares;
- Company limited by guarantee;
- Charitable Incorporated Organisation;
- Registered Societies – Co-operative society and community benefit society
Advice is given on the financial, reputational and regulatory implications of each structure.
For example, a company limited by shares is unlikely to automatically meet the SEM criteria. This company is usually established in a corporate environment. It issues shares to shareholders, encouraging investment for the company’s growth while also maximising shareholders’ benefits. Specific clauses, such as its trading purpose to be primarily for social or environmental purpose, must be inserted in order to attempt to qualify for the SEM.
On the other hand, in most cases, a CIC should automatically meet the SEM criteria. Although this company can be limited by shares or guarantee, it will naturally have a social or environmental purpose, will be independently owned and will be approved by the CIC Regulator.
In addition to the resource pack, Tozers provides a free 30 min call or meeting to existing or prospective social enterprises. Businesses which have already received the SEM also receive a 5% discount for further legal advice.
A number of other law firms also give advice and provide a briefing note on their website about the services which they offer:
Purposely is a free online tool which advises businesses on inserting the correct clauses and objectives in governing documents.
The platform provides model articles for businesses to adopt. For example, the Model 4 articles will meet the SEM qualifying criteria. The Model 3 articles similarly address the social and/or environmental concerns of a social enterprise. It lacks, however, a legal commitment to reinvest the majority of profits back into the business itself and the services it provides; it is therefore less likely to qualify.
GetLegal – free/discounted legal documents
Bates Wells LLP provides legal documents optimally priced for charities and social enterprises.
Using the platform, GetLegal, businesses can access free documents such as:
- Tips for setting up a social enterprise business;
- Q&A before starting a social enterprise;
- Q&A about charity tax; and
- Advice for protecting your social mission.
For a reduced free, other documents can be accessed such as:
- Checklist of filing requirements;
- Pros and cons of charitable status; and
- Setting up a social enterprise – a guide to legal forms.
If you really want to hit the mark, contact a specialist law firm which can give you the appropriate advice to help you set-up a successful social enterprise business.