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The Difference Between a Charity and a Social Enterprise

8.06.2016

The difference between a Charity and a Social Enterprise?

This is a question we are often asked as legal advisors and also which is the best structure for an organisation to operate under.

Both a charity and a social enterprise share an objective which is to complete a social mission and to make a positive difference to a particular group or sector within society. For both types of organisation, sustainability is key so the business must operate efficiently and effectively.

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

Charities and social enterprises must comply with the law, as any business should, but these laws are somewhat complex. Contracts for voluntary workers, duty of care issues for charity-dependent people, data protection are just some of the other issues which need to be considered.

A Charity:

A charity must 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.

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.

A Community Interest Company:

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.

There are clearly both pros and cons for all of these scenarios, so taking the time to get a full understanding of how your organisation can benefit is really important.

Marianne Webb can be contacted at [email protected]

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