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How to setup a social enterprise

Learn the ins and outs of setting up a social enterprise including what legal structure to choose, where to register and other important things to consider
Rachel Bridge

/ Last updated on 30th October 2017

Creating a successful business need not just been about making as much money as you can. It can also be the most fantastic opportunity to do some good in the world at the same time. You can choose to do this in one of two ways – make your money first and then spend it in an altruistic way, such as Bill Gates is doing, or set up your business in such a way that it does good alongside making money and has another goal other than simply making profits.

Related: How to find investment for social enterprises

This kind of business is called a social enterprise, and the numbers of businesses being set up like this are growing fast – there are now more than 60,000 social enterprises in the UK alone. Well-known examples of social enterprises include The Big Issue, The Eden Project and Jamie Oliver’s restaurant Fifteen.

What is a social enterprise?

A social enterprise is a business which has a primary social or environmental objective and reinvests a substantial percentage of the profits it makes into furthering that objective rather than distributing them to shareholders or owners. It has a clear sense of its ‘social mission’ – in other words, what difference it is trying to make, who it aims to help, and how it plans to do it. It generates most or all of its income through selling goods or services rather than through grants and donations.

How to set one up

There is no official legal definition of a social enterprise, or indeed any formal structure or format required in order to create one, but it is widely accepted that a social enterprise should aim to invest at least 50% of its profits into socially positive cause, either by donating those profits to an external charity or community organisation which provides a positive social impact, or by reinvesting that amount back into the business itself to provide a positive social impact in the way it operates. Most social enterprises choose to include details of their commitment to a social mission in their company’s articles of association. You may also choose to get an externally awarded sign of your commitment to social causes by getting a mark of accreditation from Social Enterprise Mark or Social Enterprise UK.

The practicalities

In theory, you can adopt any business structure to be a social enterprise although in practice it makes sense to set up a limited liability company rather than trade as a sole trader. You also need to ensure that your social enterprise is sustainable as a business – giving away 50% of your profits is not going to mean very much if you are not making any profits in the first place, no to mention making your route to capital very difficult.

Things to consider

As an alternative to setting up a social enterprise, you can also choose to show your commitment to social causes in other ways, by choosing to employ only disabled people or former convicts, for example, or by only using recycled or environmentally sustainable materials. In this case, it is probably more useful to describe your company as a social venture, or simply an ethical business.

Case study

Kresse Wesling and James Henrit make handbags, belts and wallets out of old fire hoses being thrown out by British fire brigades. Previously the decommissioned fire hoses would have been thrown into landfill sites, but now Kresse and James take them and turn them into beautiful accessories, selling them via their website. Then they donate 50 percent of their profits to the Fire Fighters charity.

The idea for the business was dreamt up when Kresse spotted an old red fire hose and dragged it home to show James to see if he could do anything with it. The linings for the bags and wallets are all made from recycled materials too, such as textiles from old office furniture, scrap sailcloth and waste parachute silk. The two of them also made shopping bags for the supermarket chain J Sainsbury made from old coffee sacks, which would have otherwise been thrown away.

Kresse said: “We are firm believers that you are not going to save the planet with a doom and gloom message. You are going to save it by making it fun and exciting and engaging for everybody.’

Related: 3 Steps to becoming a successful social entrepreneur

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