Social enterprises operate for the common good rather than for unrestricted private profit. Typically established to address social issues, their goals include strengthening communities, enhancing life opportunities, improving culture, and protecting the environment.
Like any other business, they aim to generate profit, but they reinvest 100% of their earnings into social causes. In Scotland, social enterprises are “asset locked,” meaning that all their property, funds, and resources must be used solely for their social mission and impact.
If you’re interested in this ethical and sustainable approach to business, or if you believe your organisation may already embody the core characteristics of a social enterprise, you may find the following information useful.
Setting Up a Social Enterprise
Legally, there is no specific designation for a ‘social enterprise’—it’s a broad term encompassing various types of organisations. However, to be recognised as a social enterprise, an organisation must meet the common criteria outlined in the Voluntary Code of Practice, summarised as follows:
- They have social and/or environmental objectives.
- They adopt an enterprising approach, minimising reliance on grants by generating income through trading.
- They reinvest their surpluses to expand and enhance their activities.
- Their assets (such as buildings, land, and resources) are secured and would be returned to the community if the organisation were to dissolve.
- They are independent of the public sector and not a subsidiary of a public body.
- They are committed to fair employment practices and do not pay executives excessively.
Practical Considerations
Firstly, ensure that your enterprise is a viable business in its own right. Be clear about your social mission and understand how your business will achieve it. You should also be able to demonstrate the social impact you intend to make.
Social impact or purpose can include:
- Enhancing health and wellbeing
- Providing a community meeting space
- Revitalising neighbourhoods
- Fostering a sense of belonging
- Building individual confidence
- Supporting independent living
- Promoting learning and education
- Creating job opportunities
Why Choose to Be a Social Enterprise?
A social enterprise is ideal for those aiming to make their organisation more sustainable and entrepreneurial in driving social or environmental change, where personal profit is not the primary goal.
Social enterprises are often established by existing organisations or charities seeking to fund their work through trading rather than relying on donations. They are also set up by businesses with social objectives that prefer not to be constrained by charity law.
As a social enterprise, you can clearly communicate your social objectives and reassure clients, customers, and supporters about how profits and assets are utilised. Depending on the chosen legal structure, you may have greater flexibility regarding director payments, a broader range of permissible activities, and (limited) options for dividend payments.
What Are the Benefits of Being a Social Enterprise in Scotland?
- Reduced dependence on fundraising and grants
- Greater financial independence, leading to increased flexibility
- Recognition as a positive model by both Scottish and UK Governments
- Enhanced appeal to funders interested in supporting sustainable projects
In Scotland there is a Voluntary Code of Practice for Social Enterprises a copy of which is available in the Social Enterprise page.
