If you want to start a business that helps people or communities (a ‘social enterprise’) you need to choose a business structure. Read this Quick Guide to find out what the options are.
If you want to set up a business that has social, charitable or community-based objectives, you can set up as a:
unincorporated association
incorporate organisation such as an:
limited company
charity, or a charitable incorporated organisation (CIO)
co-operative
community interest company (CIC)
sole trader or business partnership
Unincorporated associations are groups that come together for a particular purpose, such as a sports club.
Usually, they would have a constitution that sets out the rules governing their relationship and a broad membership which elects the management committee. Unincorporated associations do not have a separate legal entity and so members of the management committee can carry personal liability.
This is a very popular vehicle for social enterprises when the entrepreneur establishing the organisation wishes to remain in control and receive a salary from it.
CICs can be established either as a company limited by guarantee or shares.
However, there are some particular features associated with these type of companies in order to safeguard the social mission:
a CIC has to carry out activities which fulfil a "community purpose"
a CIC also has a lock on its assets, which prevents profits from being distributed to its members or shareholders other than in certain limited circumstances. However, the board of directors will still be paid.
Note that these cannot be charities. CICs are regulated by the CIC Regulator.
A CIC is required to file a community interest report each year, which will include details of how it has pursued the community interest and involved stakeholders.
A co-operative (co-op) is a member-owned business. The members may be local residents. Co-operatives UK is an organisation which supports UK co-operatives and it provides online tools that help organisations.
This legal structure gives wider membership an equal stake in the organisation and an equal say in management and other affairs, for example, by co-operatives and credit unions.
Ask a lawyer if you would like to set up a social enterprise or need further assistance with your social enterprise.