There is no legal definition of social enterprise. The term ‘social enterprise’ refers to a means of operating - a business model – rather than an actual legal structure. Third Sector organisations that choose this model for trading are often referred to as social enterprises, specifically when over 50% of their income is generated from trading.
Social enterprises are businesses that trade specifically for social and/or environmental purposes. They operate in all markets, selling goods and services to local authorities, central government, private businesses and individual consumers. Social enterprises exist to make a profit just like any private sector business. However, instead of paying dividends to shareholders, any profits or surpluses they make are reinvested into social and environmental purposes; for example providing employment opportunities to the long term unemployed. Without making a profit, social enterprises cannot meet their social and environmental objectives; they must trade, to be sustainable.
Social Enterprises can take many forms and the best legal structure for a social enterprise depends on the aim of the social enterprise. Many social enterprises are set up as a company limited by guarantee, a community interest company or an industrial and provident society and many are registered as charities.
Types of Social Enterprise
- Co-operatives and mutual’s - democratically-owned businesses which give employees, customers or members a stake in the business
- Credit Unions - a type of cooperative which provides financial service to members
- Housing Associations - voluntary-managed companies which provide affordable housing for those in most need, with profits being reinvested into building up housing stock
- Social Firms - commercial businesses that provide integrated employment for people who are disadvantaged or have a disability
- Development Trusts - owned and managed by the local community, their focus is on economic, environmental, cultural and/or social needs in the community. They aim to generate income through trading activity in order to become self sustaining
Criteria for a Social Enterprise in Scotland includes:
- having a social mission
- able to measure social and environmental impact
- set up as a trading business, evidenced by the enterprise earning 50% or more of its income from trading. This can include income from contracts but not grants. This criteria marks the boundary between Social Enterprise which can be defined as a "more-than-profit" organisation and the rest of the voluntary sector which is defined as "not-for-profit"
- reinvests all its distributable profits into activities that further its social mission
- no more than 35% of profits being distributed in dividends (for enterprises that have shareholding investments)
- constitutionally independent from any public sector body
- operates in a competitive market but deals in an social and ethical manner
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Last Updated 19/08/2013 16:01