Setting up a social enterprise: things you need to know

This article provides a list of things to consider when choosing to set up a social enterprise, CIC, CIO, charity, or similar organisation:

Key Considerations When Setting Up a Social Impact Organisation

When you're passionate about making a positive change in the world, choosing the right organisational structure is crucial. Whether you're leaning towards a social enterprise, Community Interest Company (CIC), Charitable Incorporated Organisation (CIO), or traditional charity, here are some key factors to consider:

Define Your Mission and Goals

Before diving into legal structures, clearly articulate your organization's purpose. What social or environmental problem are you addressing? Who are your beneficiaries? Having a well-defined mission will guide your decision-making process.

Understand the Different Structures

Social Enterprise: A business with primarily social objectives. Profits are reinvested in the business or community.

Community Interest Company (CIC): A special type of limited company designed for social enterprises that want to use profits for public good.

Charitable Incorporated Organisation (CIO): A corporate structure designed specifically for charities.

Traditional Charity: An organisation set up exclusively for charitable purposes.

Consider Funding Sources

Different structures have varying access to funding:

- Charities can access a wider range of grants and enjoy tax benefits.

- CICs may find it easier to secure loans and investments.

- Social enterprises can generate income through trading activities.

Think about your potential funding mix and choose a structure that aligns with it[1].

Evaluate Governance and Control

- Charities are governed by trustees who cannot personally benefit from the organisation.

- CICs and social enterprises offer more flexibility in governance and can pay directors.

Consider how much control you want over decision-making and whether you plan to draw a salary [2].

Assess Regulatory Requirements

- Charities face stricter regulations and reporting requirements.

- CICs have annual reporting obligations but are less stringent than charities.

- Social enterprises have more flexibility but may miss out on certain benefits.

Evaluate your capacity to meet ongoing compliance requirements [3].

Think About Growth and Flexibility

Consider your long-term plans:

- Do you anticipate significant growth?

- Might you need to pivot your activities in the future?

- Will you need to employ staff?

Some structures offer more flexibility than others for adapting and scaling [1].

Analyse Tax Implications

Different structures have varying tax treatments:

- Charities enjoy substantial tax relief.

- CICs pay corporation tax but can claim some reliefs.

- Social enterprises are taxed like normal businesses unless they qualify for specific reliefs.

Evaluate Public Perception

Consider how your chosen structure might be perceived by potential supporters, partners, and beneficiaries. Charities often enjoy higher public trust, while social enterprises may be seen as more innovative [2].

Seek Expert Advice

Given the complexities involved, it's wise to consult with legal and financial professionals who specialise in the non-profit and social enterprise sector. They can provide tailored advice based on your specific circumstances  [1][2].

Start Small and Test

If you're unsure, consider starting as an unincorporated association or sole trader to test your idea. You can always change structures as you grow and gain clarity on your needs [1].

Remember, there's no one-size-fits-all solution. The best structure for your organisation will depend on your specific goals, activities, and circumstances. Take the time to research thoroughly and reflect on these considerations to make an informed decision that sets your social impact venture up for success.

Citations:

[1] https://www.startupdonut.co.uk/set-up-a-business/setting-up-a-social-enterprise/setting-up-a-social-enterprise-overview

[2] https://www.charityexcellence.co.uk/community-interest-company-cic-vs-charity/

[3] https://www.gov.uk/set-up-a-social-enterprise

[4] https://www.charityexcellence.co.uk/how-to-set-up-a-charity/

[5] https://www.linkedin.com/pulse/how-register-your-charity-ian-mclintock

[6] https://kgaccountantsblog.com/2021/08/09/the-benefits-of-setting-up-a-social-enterprise-entity/

[7] https://www.elitelawsolicitors.co.uk/charitable-incorporated-organisations/

[8] https://www.charityexcellence.co.uk/setting-up-a-community-interest-company-cic/