How to choose a Legal Structure for Your Social Enterprise

Social Enterprise
Social Enterprise

For many, the idea of becoming a ruthless corporate tycoon is unpalatable. For those who dream of opening a business and making a difference, this image is too often seen as a triumph.

Pushes in the past fifteen years have been made to honour organizations that look at the public good. Formalized as social enterprise, these organisation work with communities to generate goodwill, make a profit and fulfil their Social objectives

The road to setting up a social enterprise isn’t treacherous, but complications are sure to arise. Forming and managing such a business to achieve its goals and to find longevity takes consideration.

What is a Social Enterprise?

Village Post Office
Village Post Office

While the core tenant of a business is to generate profit and equity while using the public good as a marketing scheme, social enterprise goes the other way. They seek to empower the public and stay profitable as a sideline.

Of course, there is no set ratio between the drive for public benefit and organisational profit. Individual organisations establish what they mean by providing benefits and improvements to society. 

social enterprises in the uk operate very much like a business in it’s day to day operations. It requires a business plan, projections for income and expenses, and governing policies for employees and shareholders. 

Why a Social Enterprise?

People establish social enterprises for many individual reasons but collectively they aim to effect social change or solve societal problems. 

Businesses can achieve this goal by donating to charitable organisations. A charity does the work towards benefiting society but doesn’t generate its own profit. A social enterprise looks to collect multiple rewards by tackling both challenges at once. 

The social entrepreneurs that work in this sector see making profit and change as equally exciting rewards. It’s challenging to do both but the specific label of a social enterprise has advantages and disadvantages. 

Value Added by Social Enterprise

community interest
Value Added by Social enterprises

Social enterprises operate not only to repair existing damage but to operate in a fashion that boosts social, economic, and environmental well-being. 

Organisations that add value to local communities build stronger connections between the two. Rather than one taking from the other, both sides cooperate for mutual benefit.

Various Acts have been passed since 2012 to reinforce the obligations and value of social enterprises. Thee add accountability and metrics to measure the impacts of work done. 

Legal Structures (business models)

Regardless of the mixture of goals that an individual social enterprise chooses, it needs a legal business structure to operate. 

The chosen structure change components of how the business operates and how the public perceives the efforts. There isn’t a clear choice to be made as every structure brings a trade-off at some level. 

For more complete information on these legal forms check out the guide here. The following offers a quick overview to give prospective social entrepreneurs a starting point. 

Unincorporated Association

Golf Club
Golf Club

This structure is bare bones. It forms an entity for social enterprise where a group of individual combine efforts for a social goal. The limited formalities of the structure make it quick to form and to manoeuvre pieces. Rules are set by members and it can have any number of managers chosen by whatever means.

Unincorporated associations can engage in commercial activities and social activities. 

The downside of this structure is the lack of separate legal identity. The members and the organisation are the same for legal purposes. This means that debts and financial risks are undertaken by the group without separation. 

Limited Company

A health Club
A health Club

To deal with the liability implications of the unincorporated association, one would choose a limited company. This structure provides limited liability as a separate legal entity from the members within it.

Limited companies are required to set out objectives when formed, so specifying a social purpose needs to include any commercial objectives as well. 

From there, a limited company further chooses if it is limited by guarantee or limited by shares. 

A limited company can be set as a charity and follow the audits and regulatory boards that cover such. A limited company registered as a charity does gain certain tax reliefs even on profits and gains. 

Charitable Incorporated Organisation

Charity Race
Charity Race

A CIO works as a limited company but eschews liability to the members by keeping the organisation as a sperate legal entity. 



A trust manages a set of assets and/or properties. It is run by trustees that follow a deed that lays out the objectives of the trust. 

Trustees, on behalf of the trust, can lock assets and acquire new ones in pursuit of the goals laid out by the objectives.

Like an unincorporated association, the trustees are liable for the actions of the trust. Like a limited company, a trust can be set up as a charity. 

Community Benefits Society

Local Jazz Club
Local Jazz Club

A community benefit society (sometimes abbreviated BenComs) is formed to benefit a community specifically. This structure can only be formed with the one purpose stated and addressed.

Profits can be generated but must be put directly back into the community. 

As it must benefit the community, a BenCom also has restrictions on how it offers services with no special consideration for any group.

Community Interest Company

asset locked
Community Cafe

Like a charity, a CIC needs to be registered with an appropriate commission. The purpose of a CIC is to provide structure to social enterprises that don’t have charitable functions. Companies with this structure can be established quickly, though there are small print guidelines to consider. 

Like a limited company, they can be limited by shares or by guarantee. This provides a CIC with limited liability protections. 

Like a BenCom, they need to show an intention toward community in the form of a community interest test. 

A CIC is an ideal structure for many social enterprises as its structure most directly mirrors the purpose of the enterprise. However, they also exist to benefit communities and thus block profit to shareholders.

Those directing a CIC can be paid for their time and attention unlike in a charity structure. 

How we can help

All of the above social enterprise entity structures require specialist advice so, if you are considering such a business in the South East London area we, at KG Accountants, can assist you.

We will be happy to discuss your plans and the most appropriate structure with you. The most appropriate structure will depend on a number of factors, including consideration of taxation implications, the legal entity, regulation and management style.

Call us today on 0207 953 8913 or complete our enquiry form in order to book a FREE initial consultation.

For further information on establishing a social enterprise contact KG Accountants.

Categories: Charities, Charity, Community Interest Companies, Social Enterprises

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