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What is a Social Enterprise Organization?

By Charles Hopkins Published 04/20/2006 | Entrepreneur
Social Enterprises are businesses that are not only driven by the profit motive, they are also driven by a social mission. However, unlike a charity a Social Enterprise aims to be self-sustaining, or even profit making.

A Social Enterprise tends to be more "business-like" than many charities. Staff usually expects to receive a realistic wage and the "Social Entrepreneur" faces the additional challenge of having a "double bottom line" of profit and social conscience. This makes a Social Enterprise even more of a challenge to the average business leader, and consequently, all the more rewarding.

Whilst having this double bottom line increases the complexities involved with making the organization profitable, the philanthropic aims of the organization often open a number of alternative sources of income, especially in the start-up phase. For example, there are many government and private sector grants and loans that target companies with a social mission.

The social mission of a Social Enterprise can take almost any form. For example, profit from the business may be used to directly support a charitable or other non-profit organization, for example a charity shop, or the company may aim to provide a better standard of living for disadvantaged individuals, perhaps by employing those individuals or by providing a community facility.

Because of the potentially unlimited number of social missions that can be undertaken, the term Social Enterprise is interpreted differently around the world. For example, in general terms, the UK focuses on the use of surplus for the benefit of society, North Americans emphasize the social improvements directly resulting from the organizations work and many mainland European countries emphasize social rather than individual ownership.

These three, seemingly contrary, views of Social Enterprise illustrate three common characteristics of Social Enterprises, that is:

Enterprise orientation - Social Enterprises seek to be profitable trading organizations, and are therefore directly involved in producing goods or providing services to a market.

Social Aims - Social Enterprises have stated and binding ethical values. These may include, but are not limited to a commitment to local capacity building, environmental preservation or improvement, job creation, training and the provision of local services.

Social ownership - Social Enterprises are autonomous organizations. They are managed and owned by participating stakeholder groups such as users or clients, local community groups and staff.

Given this wide range of "types" of Social Enterprise it will come as no surprise that there is a wide range of legal structures that such an organization can take. Some of these allow the owner to benefit from the organization, others do not. It is therefore very important to select the correct structure if you intend to make a living from your Social Enterprise.

Below is a brief summary of the most common structures available in the UK, most other countries have a similar range of options:

Unincorporated Association: This is an informal organization that is not formally owned by anyone. This structure has the maximum flexibility in what it can and can't do, but also provides the minimum of legal protection for its officers.

Trust: The assets of the organization are held in trust and managed by a board of trustees who are legally responsible for those assets. Under normal circumstances the trustees may not benefit from the enterprise.

Limited Company: Directors manage the company on behalf of members. Directors and members can benefit from the organization but, if it is a company limited by guarantee there can be no dividends paid to members.

Community Interest Company (CIC): This is similar to a Limited Company, but has some additional restrictions that are geared towards ensuring the community benefit of the organization. Directors and members can benefit from the enterprise and investors may receive limited dividends, however, there is a legal requirement for the organization to benefit the community.

Industrial and Provident Society (Co-Operative): An elected committee manages the enterprise on behalf of its members. Each member has one vote. Members are allowed to benefit, but this is through trade with members rather than through shareholdings.

Industrial and Provident Society (Community Benefit Society):
Similar to a co-operative, but aims to benefit the community rather than just the members. Since non-members are the main beneficiaries members do not generally benefit directly from their membership.

Charitable Incorporate Organization (CIO): This is a new legal structure for charities (expected 2006). Governance and management is similar to a limited company, but using different terminology (e.g. "charity trustee" = "director"). Members cannot benefit from the enterprise and, under normal circumstances, the trustees cannot benefit. function SubmitRating(btn) { ratingchecked = false; if (btn.form.aRating0.checked) ratingchecked = true; if (btn.form.aRating1.checked) ratingchecked = true; if (btn.form.aRating2.checked) ratingchecked = true; if (btn.form.aRating3.checked) ratingchecked = true; if (btn.form.aRating4.checked) ratingchecked = true; if (ratingchecked) { btn.form.btnRating.value=btn.value; btn.form.submit(); } else { alert("Be sure a rating value has been selected to continue."); } }