Trading as a Social Enterprise

The term ‘social enterprise’ refers to a means of operating - a business model. 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. A social enterprise differs from other businesses in that all profits made are reinvested into the business or community. 

There is no universally agreed definition, but the most widely used definition is that of the UK Department of Trade and Industry:

"A Social Enterprise is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners."

Operating as a social enterprise is an option for groups or organisations who can evidence strong social or environmental aims. Whilst most Third Sector organisations operate on the basis that they do not set out to make or distribute profits (often referred to as not-for-profit), operating as a social enterprise offers groups the alternative of trading specifically to make a profit (like a private business). 

Social Enterprise can range in size from small start-up businesses to those generating millions of pounds. By definition, a group or organisation trading as a social enterprise will have clear social aims and will operate in an ethical manner. 

The distributable profit from social enterprise trading must be reinvested to further the social or environmental aims of the organisation. For example, social enterprise businesses often provide work opportunities for long-term unemployed people or those with mental health issues or for people disadvantaged by geographical location. 

If a social enterprise is dissolved (or goes out of business) any residual assets must be distributed to social/environmental causes.

Organisations and groups operating as a social enterprise will be competing with other businesses. They need to apply market-based business strategies such as identifying a gap in the market, a niche market or offering a particular unique service. It is therefore a good idea for groups looking at a social enterprise model to encourage and support committee (board) members who have business or entrepreneurial skills.

Because social enterprise will often need to own or lease property or equipment, enter into legal contracts and employ staff, it is advisable that the group or organisation is incorporated with a suitable incorporated structure such as:

  • Community Interest Company (CIC)

  • Industrial & Provident Society (ISP)

  • Company Limited by Guarantee

  • Scottish Charitable Incorporated Organisation (SCIO)