Contents
Whether you’re setting up a charity, a not‐for‐profit, or a profit‐making social enterprise, the structure you choose is crucial to how you conduct your business activities. In a rapidly changing legal landscape as we look towards 2025, ensuring that your organisation is compliant and fit for purpose is more important than ever.
Because there is no single avenue or legal structure in the UK specifically prescribed for these organisations, your choice depends largely on your vision. It is therefore critical to decide whether you want to be a social enterprise or a charity, as this decision will impact everything from your funding routes to your governance framework. For further insights on the importance of choosing the right business structure, you might find our article on Does Business Structure Matter? very useful.
In this article, we’ll walk you through the differences between a charity and a social enterprise in light of recent legal updates and best practices for 2025. This should help you decide on the best approach to support your operation and meet the current regulatory obligations.
What Is A Charity?
Charities operate under, and are regulated by, the Charity Commission and are defined principally in the Charities Act 2011 – which has been updated with guidance for 2025. It is important to note that the requirements differ if you wish to set up a charity in Scotland or Northern Ireland.
Under this legislation, an entity is considered a charity in England and Wales if it fulfils the following criteria:
- It is established for a charitable purpose
- It is subject to the High Court’s jurisdiction over charity law
To satisfy these criteria, a charity must also comply with additional requirements:
1. Charitable Purpose
According to the Charities Act, a charitable purpose must align with one of the descriptions set out in the legislation. While historically there have been 13 recognised purposes, the current focus for 2025 remains on fundamental aims such as:
- The prevention or relief of poverty
- The advancement of education
- The advancement of religion
- The advancement of health or the saving of lives
- The advancement of citizenship or community development
- The advancement of arts, culture, heritage or science
- The advancement of amateur sport
- The advancement of human rights, conflict resolution or reconciliation, or the promotion of racial harmony, equality and diversity
- The advancement of environmental protection or improvement
- The relief of those in need due to youth, age, ill‐health, disability, financial hardship or other disadvantage
2. Public Benefit Requirement
While an organisation might have additional aims, these must be ancillary to and supportive of its primary charitable purpose, which must demonstrably yield public benefit. This requirement is now more clearly defined for 2025:
- The ‘benefit aspect’ – any benefit produced must clearly outweigh any potential harm.
- The ‘public aspect’ – the benefit should extend to the public at large, or at least to a sufficiently large and identifiable section of the public.
A charity meets the public benefit requirement by ensuring that its activities, ranging from the provision of goods and services to educational and spiritual guidance, are designed to benefit the wider community. It is crucial that your governing documents, such as your charity’s constitution or Charity Charter, explicitly affirm these principles.
3. High Court’s Charity Law Jurisdiction
An organisation is only considered a charity if it is clearly subject to the High Court’s jurisdiction for charity law matters. In practical terms, your governing document must unambiguously state that the Charity Commission and the appropriate judicial authority have oversight over your charity’s operations. This is essential to ensure transparency and accountability in line with the latest legal expectations for 2025.
What Is A Social Enterprise?
A social enterprise is an organisation that undertakes business activities with the primary aim of achieving social impact. Although at first glance this may appear similar to a charity, there are important differences which we will discuss shortly.
Social enterprises are distinct in that they have the freedom to make a profit while creating social impact. They can choose to reinvest their profits wholly or partially into social causes, or blend profit-making with socially beneficial activities. For instance, a social enterprise might reinvest its profits in environmental clean-up projects or offer enhanced employment opportunities to underrepresented groups.
What Is The Difference Between A Charity And A Social Enterprise?
Having defined both a charity and a social enterprise, let’s explore the key differences between the two models in the context of current regulations and market expectations in 2025.
Mission
For charities, the mission must strictly adhere to the legislative requirements: it must align with an approved charitable purpose, satisfy the public benefit requirement, and fall under the High Court’s jurisdiction. Social enterprises, however, enjoy greater flexibility. Without a statutory definition, they can pursue any social cause that they believe will effect positive change.
Registration
Charities can be registered with the Charity Commission – a process that, while voluntary, is mandatory if your annual income exceeds £5,000 or if you are established as a charitable incorporated organisation. In contrast, there is no bespoke registration process for social enterprises; however, both charities and social enterprises typically register with Companies House. For guidance on setting up your company, our Company Set-Up resources can be particularly helpful.
How Do Each Get Funding?
Charities tend to raise funds through donations, fundraising initiatives, trading activities, investments, and government grants – although they are not permitted to obtain funding via investors aiming for a financial return. Social enterprises that operate on a profit-making basis attract investment from individuals and institutions looking for both financial returns and social impact. Not-for-profit social enterprises, meanwhile, may secure funding through government grants or reinvest their surpluses directly into their social mission. Read more about funding options in our article on starting a business from home, which also touches on alternative financing models.
Types Of Charities
Charities can be constituted in a number of ways, with the choice of legal structure influencing how your organisation operates and its membership requirements. For example, selecting a Charitable Incorporated Organisation (CIO) allows you to include a broader range of voting members beyond your trustees. For further clarification on the implications of different legal structures, see our guide on business structure.
There are four primary charity structures:
- Charitable incorporated organisation (CIO)
- Charitable company (limited by guarantee)
- Unincorporated association
- Trust
Types of Social Enterprises
Unlike charities, social enterprises do not have prescribed legal types, although many adopt structures similar to those available for profit‐making businesses. Common examples include:
- Businesses that offer training or employment opportunities for disadvantaged groups
- Enterprises that reinvest profits in social causes – for example, environmental projects or community development
- Organisations that provide essential services to communities that might otherwise be underserved
- Hybrid models that combine elements of charitable aims with commercial trading activities
Tax Concessions
Charities recognised by HMRC benefit from various capital and operational tax reliefs, such as reduced rates on donations, trading profits, rental and investment income, and gains from asset disposals. However, these tax concessions are exclusive to organisations that meet the statutory requirements.
- Donations
- Profits from trading
- Rental/investment income
- Profits from asset disposal
- Buying property
Social enterprises, by contrast, typically adhere to standard company taxation, although some may qualify for sector‐specific incentives if they meet certain criteria. For more details on tax issues affecting small businesses and social enterprises, our legal guide for startups is a useful resource.
Is A Charity A Social Enterprise?
The short answer is that some charities can also operate as social enterprises. For instance, a not‐for‐profit social enterprise that meets all the charitable criteria – including having a recognised charitable purpose – can register as a charity with the Charity Commission. In such cases, funding is generated through activities such as fundraising, donations, and the reinvestment of trading profits.
On the other hand, social enterprises whose operational model aims to generate profit for shareholders or investors, or whose social purpose does not conform to any established charitable category, will not qualify for charity status.
Which Classification Is Right For My Business?
Your choice hinges on your organisation’s mission, funding methods, and desired legal obligations. Charities are bound by strict regulatory requirements, including a narrowly defined charitable purpose and oversight by the Charity Commission, whereas social enterprises benefit from greater operational flexibility but do not receive the same tax concessions. For a comprehensive review of your options and to ensure you choose the ideal structure, consider our business set-up services and legal health check guides.
As legal specifications continue to evolve in 2025, it is more crucial than ever to have your governing documents – such as your constitution or Charity Charter – reviewed and updated by professionals. Our Contract Review and Redraft service is designed to help you align your documents with current legal standards.
Need Help?
Deciding between charity status and operating as a social enterprise can be complex, especially given the evolving regulatory environment in 2025. It is essential to fully understand the implications of each model so that you can structure your organisation in a compliant and sustainable manner.
If you need expert advice to navigate these choices, please reach out to our team for a free, no-obligations chat at [email protected] or call us on +44 (0)2034321860. We’re here to help you achieve the best legal foundations for your organisation in 2025 and beyond.
Meet some of our Not-for-profits & Charities Lawyers
Get in touch now!
We'll get back to you within 1 business day.
Top 3 Legal Mistakes
Book in a free consultation with us to discuss your legal needs.
0 Comments on "What Is The Difference Between A Charity And A Social Enterprise? (2025 Updated)"