Choosing The Right Structure For Your Social Enterprise

What Is A Social Enterprise?

Traditionally, businesses are set up to make a profit. Not-for-profits are set up to do social good.

But what if you want to do both?

Social enterprises sit right in the middle of this spectrum – they are a rising group of organisations who want to create profit and social impact.

Starting a social enterprise is a great way to create both financial and social value.

But, just with starting any organisation, the first challenge is always choosing the right structure.

What Is The Right Structure For A Social Enterprise?

In the UK, there are legal structures for corporations making a profit and for not-for-profits. But there is no specific legal structure that’s called “social enterprise” or one that is specifically designed for social enterprises.

Instead, social enterprises must use any of the existing legal structures to achieve their objectives. But, choosing the right structure is an important first step.

You’ll need to make sure your structure complements your purpose, growth strategy and the sources of finance you’d like to pursue.

More importantly, you’ll need to ask yourself: do you want to make a profit?

We’ll walk you through some of the most common structures for social enterprises.

And, we’ll also talk about how some innovative social enterprises are changing the game in this space and creatively utilising their legal structure to complement their strategy.

Private Ltd Company

Most social startups and new social enterprises are jumping into a private limited company company structure. 

This is the most common business structure under which most normal profit-driven businesses operate.

A company is a separate legal identity to its owners, which means that you won’t be personally liable for any debts that the business incurs.

There are shareholders (the owners of the company) who are paid dividends, while the directors are the ones who make the decisions.

A company structure is good if you need to raise some capital to grow your social enterprise because most investors are familiar with the structure.

Company Limited by Guarantee

A common option for not-for-profits is a ‘Company Limited by Guarantee’ (CLG) structure.

In a CLG structure, there are no shareholders or dividends.

Instead, there are “members” of the association who come together for a purpose that’s not profit-driven.

A CLG structure is attractive for government grants and philanthropic donations because you have a social purpose.

Certifications

On top of legal structure or rules embedded in legal documents, you may also want to consider certification for your social enterprise.

In the UK, you can apply for a B-Corp certification which is administered by an organisation called B-Lab .

They are active all around the world – with big names such as Ben & Jerrys, Patagonia and Etsy all certified as B-Corps.

What To Take Away…

We’ve discussed the most common legal structures for social enterprises, and the new ways of doing it too.

There are also other types of legal structures available to social enterprises.

Choosing the right structure for your social enterprise is important to get right from the outset.

Your structure will determine what kind of finance you can source, whether you can make profit and how decisions are made.

Particularly, there are a number of regulations on what you can and cannot do depending on your structure.

So, you’ll need to make sure your structure also suits your long-term strategy as a social enterprise.

And there are different regulators with a range of reporting obligations and minimum standards.

The size and financial position of your social enterprise may also influence which structure is most suitable for you.

This can be a lot to think about but don’t worry, we can help!

If you’d like to book a consultation to help you decide on a structure, or you’d like to get started with the relevant legal documents – let’s chat.

You can get in touch with us at [email protected].

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