What is the difference between a charity and a social enterprise?

Posted on: January 26th, 2016

We deal with many charities and social enterprises in the UK. Indeed, it is one of our specialisms, along with education, healthcare, and technology. As with all businesses, situations arise in charities and social enterprises that require legal advice – breakdowns in relationships, incompetence, crime, contract disputes, and much more. Whilst all businesses face similar broad challenges, we understand that every enterprise confronts specific and unique issues during its lifetime.

This article will look at the difference between a social enterprise and a charity, and explore some of the legal issues surrounding these two.

Similarities

Whether it’s a charity or a social enterprise, the main goal is to complete a social mission, and to make a positive difference to the world. Both charities and social enterprises tend to reinvest their profits into good things that benefit a part of society, or society as a whole. For both types of organisation, sustainability is paramount. In order to continue doing good, the business must operate efficiently and effectively.

Differences

Whilst charities often fund their good work through donations and fundraising, social enterprises often sell products or services, in order to reinvest their profits.

Setting up a charity

Firstly, you need to decide whether setting up a charity is the right course of action. A charity must follow specific rules – to follow Charity Law, to do things that are “charitable by law”, and to be wholly independent and not operate for the benefit of trustees.

The law says that you must register a charity with the Charity Commission if it is a charitable incorporated organisation (CIO), or its annual income is over £5000. For more specific information about whether you should be setting up and registering a charity, get in touch with Coffin Mew Solicitors today.

Setting up a social enterprise

Setting up a social enterprise can simply be by setting up a limited company with Companies House. You can set up a social enterprise as a limited company, a co-operative, a CIC (community interest company), a sole trader, or a business partnership. They tend to include provisions dealing with reinvestment of profits to demonstrate how they do good, but this is not essential and is more flexible than a charity would be.

CICs are limited companies that exist to benefit the community. To set one up, you need to submit a “community interest statement” within your application, create an asset lock, and get your company approved by the community interest company regulator. For more information about complying with the rules before and after setting up your social enterprise, contact our experts.

Marketing a good message

For charities and social enterprises, marketing and advertising cannot be understated. It’s important to amplify the message, whether it’s to increase donations or increase the sales of products and services that will ultimately do good. Digital channels provide amazing opportunities to get the message out there; to promote positive work, and to highlight progress of the overall mission – video, blog content, social media, and much more.

As with traditional profit-making businesses, a marketing budget is often a wise investment to maintain brand awareness and develop a loyal following. People are more responsive to a company that does good than to a wholly self-serving business, so it’s important for charities and social enterprises to shout about what they do.

It’s important for any charity or social enterprise to develop and communicate a clear mission statement and a plan upon which to follow this with clear objectives and goals along the way. It is vital that you are clear about the impact you wish to make, and to find the right audience to help you achieve your aims.

Complying with the law

Charities and social enterprises – as any other for-profit business – must comply with the law. In many cases, these laws are somewhat complex. Contracts for voluntary workers, duty of care issues for charity-dependent people, data protection, and much more need to be considered. It’s important to get expert independent legal advice from the beginning, and it’s beneficial to build a relationship with legal advisors who understand the intricacies of your organisation.

Coffin Mew

We have vast experience in providing legal advice to charities and social enterprises in the UK. Our leader in this field is Nick Gross, who has knowledge of the voluntary sector, combined with a sharp commercial edge. For more information about the services we here at Coffin Mew offer to charities, social enterprises, and not-for-profit organisations, get in touch today.