The Difficulties of Forming a Social Enterprise

Social Enterprise is a term used to refer to a body established for the benefit of the community. The Social Enterprise Coalition refers to them as “businesses trading for social and environmental purposes” and with over 60,000 such businesses already trading within the UK, it’s not hard to see why the government encourages their growth.

Social Enterprises operate over a wide range of industry sectors and not only do they give back to the community but they provide jobs for hundreds of thousands of people.

Despite being a “trading business”, social enterprise bodies tend not to operate in the common business manner. They are not established with the normal business goals in mind – i.e. making a profit. Any and all finances accrued while running the business are either re-invested in the enterprise or used to fund the objective it was set up for in the first place.

The Purposes of Social Enterprise

Social Enterprises are established for a wide variety of reasons including helping the poor, regenerating run down areas of the community, promoting recycling and much more. Case study examples of social enterprises can be found on the coalition website.

Formation Difficulties

For many people, the problems come at the start. They have an idea of what they want to do but don’t necessarily realise what’s involved in trying to get set up. Firstly, it’s important to realise that there are a number of options available and the law governing each varies quite a bit. A social enterprise might be formed using a Limited Liability Company, a Company Limited by Guarantee or a Community Interest Company. Depending on the intentions of the founder, forming as a charity might be another option. For each type of legal structure the formation requirements vary, but considerations might go further. Forming as a charity for example, the organisation will be expected to register with both Companies House and the Charities Commission and will be regulated by both. Whereas a Community Interest Company (which is quite often the most common choice for a social enterprise formation) is required to have “objects” within its memorandum and articles of association which satisfy the “community interest test” – basically showing that they are carrying out business for the benefit of the community. Choosing to form a social enterprise using a company limited by guarantee, there is a requirement to include objects which show the company intends to operate in a social manner.

You can see, there are a number of choices available to people looking to form a social enterprise and it can be confusing as to which is the best. A good example of problems faced by people looking to start a social enterprise can be seen on this blog article by about the memorandums and articles of association for social enterprises.

Being a company formation agent, The Company Warehouse have helped many people over the years establish companies and other bodies with the aim of benefiting the community. We have a specialist team with up-to-date knowledge of what is required to properly draft the necessary company articles in order to carry out a formation and we’re happy to help anyone who wants to get started. If you need further guidance, contact a member of our team and see what we can do for you!

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