In short: A social enterprise is a business that trades to achieve a social or environmental purpose and reinvests most of its profits in that purpose. There is no single legal form. Common choices are a community interest company (CIC), a company limited by guarantee, a co-operative or a charity, each with different rules on profits, control and tax.
What is a social enterprise?
A social enterprise is a business with a social or environmental mission. Like any business, it sells goods or services. The difference is that its main aim is to make a positive impact, and it uses most of its profits to further that aim rather than paying them out to owners.
Examples include cafés that train people facing barriers to work, community energy schemes, recycling businesses and social care providers.
"Social enterprise" is a description, not a legal structure. You still need to choose how to set up the organisation.
Choosing a legal structure
The main options in the UK are:
- Community interest company (CIC): a limited company designed for social enterprise. It has an "asset lock" and must benefit the community.
- Company limited by guarantee: has members rather than shareholders. Profits are not distributed. Common for not-for-profits.
- Company limited by shares: possible if you want to raise investment, with your social mission written into the articles. There is no legal protection of the mission unless you add it.
- Charity or charitable company: suits purely charitable purposes and gives access to tax reliefs, but has stricter rules on trading and paying trustees.
- Co-operative or community benefit society: owned and run by members, registered with the Financial Conduct Authority.
The right choice depends on how you will raise money, who will control the organisation, and whether you want charitable status. If in doubt, take advice from a solicitor or a local social enterprise support body.
How a community interest company works
A CIC is a special type of limited company. It can be limited by shares or by guarantee. Key features:
- Community interest statement: when you apply, you explain what the company will do and how it will benefit the community.
- Asset lock: a legal commitment that the company's assets are used for its community purpose. If a CIC limited by shares pays dividends, the amount is restricted.
- The CIC Regulator: applications are approved by the Office of the Regulator of Community Interest Companies, which also oversees CICs once they are set up.
- Annual CIC report: each year, alongside its accounts, a CIC must file a report showing how it has benefited the community.
A CIC is not a charity. It does not get charity tax reliefs, but it has more freedom to trade and to pay directors.
Steps to set up a social enterprise
- Define your mission. Write a clear sentence on the change you want to make and for whom.
- Test your business model. Who will pay, how much and how often? A social enterprise still needs income to survive.
- Choose your structure from the options above.
- Choose your name and check it is available.
- Prepare your governing documents. For a company, this means the articles of association. For a CIC, use the regulator's model constitution or adapt your own.
- Register. Companies are registered with Companies House. CIC applications are passed to the CIC Regulator automatically.
- Register for tax. Register for Corporation Tax within 3 months of starting to trade, and for VAT or PAYE if needed.
- Measure your impact. Keep simple records of the difference you make. Funders and customers will ask.
Funding a social enterprise
Social enterprises can use trading income, grants, loans, crowdfunding and social investment. Some funders only support certain structures, so check what your target funders require before you choose a legal form.
Common mistakes
- Choosing a structure before knowing how you will be funded.
- Writing a mission so broad it is hard to show impact.
- Assuming a CIC gets the same tax reliefs as a charity.
- Forgetting the annual CIC report.
How Form My Company can help
We form not-for-profit companies across the UK. Our Company Limited by Guarantee formation costs £290, including the Companies House fee and VAT, and our Bespoke Articles service (£800) writes your social purpose and rules into the company's constitution. If your purposes are charitable, see our Charity Company Formation service.
Frequently asked questions
Is a social enterprise a legal structure?
No. It describes a business with a social or environmental purpose. You still choose a legal structure, such as a CIC, a company limited by guarantee or a co-operative.
What is the difference between a CIC and a charity?
A CIC is a limited company with an asset lock and a community purpose, regulated by the CIC Regulator. A charity has exclusively charitable purposes and gets charity tax reliefs, but has stricter rules.
Can a social enterprise make a profit?
Yes. It should make a profit to be sustainable, but it reinvests most of it in its social purpose.
Can directors of a CIC be paid?
Yes. CIC directors can be paid a reasonable amount for their work, unlike charity trustees, who usually cannot be paid for being trustees.