Set up a social enterprise

Social enterprises operate to achieve social objectives. When setting up a social enterprise you must consider what legal structure to use.

Guide

4 min read

1. What is a social enterprise?

A social enterprise is a business that operates primarily to achieve social goals, rather than to maximise profits for owners or shareholders. Profits are usually reinvested back into the business or to support the social mission.

Social enterprises are operated as businesses and most of their income is generated by trading goods and services, however many also take donations, or seek funding and grants.

However the business must be viable to ensure it can continue to benefit their cause, meaning they have a ‘double bottom line’. Success is measured against social impact, as well as financial performance.

2. Define your social purpose

As a first step in setting up, it’s a good idea to create a clear mission statement for your social enterprise to keep your business focused on its social goals, as well as financial goals. It can also help with your advertising and marketing messaging, attracting staff, and applications for any funding or investment.

In this statement, describe the social problem your enterprise addresses, giving details of the scale of the issue and the impact it has - and how your organisation is approaching this issue.

Include

  • what activity your enterprise will carry out, and the benefit to the community

  • who will serve as owners, directors, shareholders, managers, or guarantors

  • how the enterprise will be financed

  • how you will be generating income, and how that income will be used

  • how any surpluses or profits will be used.

3. Choose a business structure

There are different business structures available for social enterprises, and you must select the most appropriate structure for how you plan to run your business and follow any rules around registration.

To set up a social enterprise your options include setting up as a:


Many social enterprises are limited companies (that are limited by guarantee), or CICs, although the structure you choose must be right for your business and your social aims.

Each structure is distinct and your legal, financial, and other responsibilities will vary depending on the structure you choose, as will your personal liability for losses, your reporting requirements, the business admin required, and your business operations. Select the best structure for your business, and if in doubt see expert advice from an accountant or business adviser.

4. Register your company

Once you have decided on your preferred legal structure, you will need to register your new business.

The process for doing this will vary, but to help be prepared, make sure that you have:

  • a name LINK:https://www.bgateway.com/resou... for business name and have followed all naming rules

  • all of the necessary documentation prepared and completed before registration

  • all of the information needed and necessary input for all directors, owners, people with significant control, guarantors, etc

  • followed the steps for registering or setting up your chosen legal structure

You can incorporate your company yourself, or there are numerous businesses that can help you incorporate a limited company. You can also speak to an accountant or legal professional for help.

5. Understand your roles and responsibilities

As a business owner you are responsible for the proper running of the business. You must meet all of the legal requirements that are relevant to your business - in your business operations, admin, insurance, and in hiring, paying and managing staff.

Your responsibilities will differ by the legal structure of your business, but will include:

  • registering your company with the correct authority and providing accurate information on you, your company, and all relevant parties (like directors and guarantors)

  • signing up for the all of the correct taxes (such as corporation tax, VAT and self-assessment) for your legal structure and business, and submitting accurate tax returns and paying on time

  • appointing directors or trustees as needed and creating and submitting the necessary governing documents and articles for your business

  • submitting annual reports and accounts to Companies House if needed

  • keeping accurate records for your business in the correct way, including records about the company, financial and accounting records, records of key decisions and meeting minutes

  • registering as an employer with HMRC and operate a 'Pay as you earn' (PAYE) LINK: https://www.gov.uk/paye-for-em... payroll scheme (even if you are only employing yourself as a 'director').

  • set up a business bank account and keep all financial records, and have all necessary insurance


For more information on setting up a social enterprise see Gov.uk.

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