Social enterprises are profit making businesses set up to tackle a social or environmental need. Many commercial businesses would consider themselves to have social objectives, but social enterprises are distinctive because their social or environmental purpose is central to what they do.

Rather than maximising shareholder value, their main aim is to generate profit to further their social and environmental goals.

The social enterprise movement is inclusive and extremely diverse, encompassing organisations such as development trusts, community enterprises, co-operatives, housing associations, social firms and leisure trusts, among others. These businesses are operating across an incredibly wide range of industries and sectors from health and social care, to renewable energy, recycling and fair trade.

They’re not not-for-profit

Because the purpose of social enterprises is to make a profit and then to use it to tackle a social or environmental need, the term not-for-profit isn’t correct for them. Social enterprises are for ‘more-than-profit’ (a term coined by a BBC journalist).

Social enterprises are businesses. They need to make a profit to compete in the market, ensure their continued survival and be able to invest in their social or environmental aims. For many social enterprises, being sustainable – in every sense of the word – enables them to become more independent and reduce any dependency on public grants.

They contribute to public service

Social enterprises can make a significant contribution as agents of public service delivery, regeneration and economic development. They are able to harness the power of local communities – catalysing regeneration and promoting active citizenship.

Development trusts, for example, have pioneered sustainable approaches to development, housing co-operatives have a proven track record in community empowerment and cost-effective property management, and in rural areas community owned shops and pubs are vital to locking in long-term prosperity. Those working within public services, meanwhile, are actively competing in sectors from recycling and waste management to leisure and housing.

By combining a public service ethos with a commercial focus on efficiency and good business practice, social enterprises are able to deliver on the things that really matter, whilst remaining both independent and sustainable.

History of the movement

The pioneers of social enterprise can be traced back to 1840s Rochdale, where a workers’ co-operative was set up to provide high-quality but affordable food in response to factory conditions that were considered to be exploitative.

In the UK, a resurgence of social enterprise started in the late 1990s with the coming together of different traditions, including co-operatives, community enterprises, enterprising voluntary organisations and other forms of social business.

How social enterprises work in a legal sense

Social enterprises can take a wide variety of legal forms. The most common are the limited liability company (either a company limited by shares or a company limited by guarantee), Industrial and Provident Society and Limited Liability Partnership. In 2005, the Community Interest Company (CIC) form was set up specifically for social enterprises.

A CIC is a legal form designed specifically for social enterprise. They have the flexibility of a standard company structure, while serving a specified community of interest and having a perpetual lock on their assets, including some constraints on profit distribution. They cannot register for charitable status.

But a significant proportion of social enterprises have charitable status, which gives them a range of tax advantages. Others consider that being a charity would place undesirable constraints on their activities.

Is social enterprise part of the third sector?

The Office for the Third Sector in the Cabinet Office defines the Third Sector as: “Organisations which share the common characteristics of being non-governmental organisations which are driven by their values and which principally reinvest any financial surpluses to further social, environmental or cultural objectives. It encompasses voluntary and community organisations, charities, social enterprises, cooperatives and mutuals both large and small.”

There are considerable overlaps between social enterprises and the remainder of the third sector, but social enterprises are a distinct group within this sector, with unique needs in relation to some issues ie., business support and access to finance.