Choosing between the different social enterprise structures in the UK starts with understanding what you want the organisation to achieve.

A social enterprise combines business activity with a social, community or environmental purpose. However, social enterprise is not one single legal structure.

You could operate through a Community Interest Company, a co-operative or community benefit society, a conventional limited company, a charity structure or another suitable model.

In this episode, we look at the main options and the questions that should guide your choice.

About this episode

Social enterprises are a significant part of the UK economy. When this episode was recorded in 2023, we referred to around 100,000 social enterprises contributing about £60 billion and employing roughly 2 million people.

More recent Social Enterprise UK figures still put the number at around 100,000, with collective turnover of about £78 billion and a workforce of around 2.3 million.

The numbers have moved, but the point of the episode has not. Social enterprises are businesses. They generate income, employ people and address social or environmental issues at the same time.

The structure you choose matters because it affects ownership, control, funding, reporting, tax treatment and what can happen to profits or assets.

What is a social enterprise?

A social enterprise is a business with a social, community or environmental purpose.

It generates sustainable revenue rather than depending entirely on donations. Where it differs from a conventional private business is what sits at the centre of the organisation and how its profits or surpluses are used.

A conventional business may primarily exist to create returns for its owners. A social enterprise puts social or environmental purpose at the heart of the organisation and uses its business activity to support that purpose.

That does not mean profit is a dirty word. Profit helps the organisation survive, invest and continue creating impact.

For the wider principle, see Social Enterprises Are Businesses.

Start with the purpose, funding and route map

The episode makes one thing very clear: do not choose a legal structure just because the label sounds right.

“What is the outcome? What are the objectives? How are you looking to raise funding?”

Those questions should drive the structure.

• What social or environmental outcome are you trying to achieve?
• Where will the income come from?
• Will you trade with customers?
• Do you expect grants or donations?
• Will outside investors put money into the organisation?
• Do founders expect dividends or other financial rewards?
• Do you need charitable status?
• How important is democratic member control?

Tax benefits may matter too, but they should not be the first decision.

If donations and Gift Aid are central to your income model, a charity structure may be relevant. If that is not how the organisation will be funded, another structure may fit better.

You can sometimes change structure later, but starting with the model that fits your intended route is usually much easier.

Community Interest Companies

One of the best-known social enterprise structures in the UK is the Community Interest Company, usually shortened to CIC.

A CIC is a special type of limited company designed for businesses operating for community benefit rather than purely for private advantage.

When setting one up, you need to explain how the company's activities will benefit the community.

CICs also have an asset lock. This restricts how assets can be transferred and helps keep them focused on community benefit.

A CIC can be limited by guarantee or limited by shares.

A CIC limited by guarantee does not have shareholders in the normal sense and can suit organisations where distributing profits to investors is not part of the model.

A CIC limited by shares can have investors and may pay dividends, subject to CIC rules and the asset-lock framework.

That flexibility is one reason the CIC model is attractive to many social enterprises.

For a broader introduction, see Social Enterprise and Community Interest Companies.

CIC reporting and the asset lock

CICs are still companies, so they have company filing responsibilities.

They file accounts with Companies House and also submit the relevant Community Interest Company report.

The report helps show what the CIC has done for the community and provides information about areas such as payments, transfers and distributions where relevant.

The asset lock is one of the defining features of the model. It does not stop a CIC from trading, making a surplus or paying people properly. It places restrictions on how assets can be used or distributed for private gain.

Our guide to the asset lock in Community Interest Companies looks at that in more detail.

Can a CIC later become a charity?

The episode refers to CICs sometimes acting as an intermediate step towards charitable status.

There are routes for some CICs to convert to a charitable company or a Charitable Incorporated Organisation, but the process depends on the existing structure and should not be treated as automatic.

If becoming a charity later is part of the plan, think about that before incorporation rather than assuming every CIC can simply change form later.

Co-operative societies

A co-operative takes a different approach.

Instead of concentrating ownership and control in a small group of investors, co-operatives operate around member participation and democratic control.

Members could be employees, customers, producers or people from the local community.

This model can work well where transparency, shared decision-making and member benefit are central to the organisation.

Co-operatives typically operate around collective decision-making, shared benefits and the well-being of their members.

Community benefit societies and the old IPS terminology

The episode also refers to Industrial and Provident Societies, or IPSs.

That terminology is now historic for new organisations.

Under the current framework, the FCA registers co-operative societies and community benefit societies.

A co-operative society principally exists for the benefit of its members. A community benefit society operates for the benefit of the wider community.

These societies are registered with the Financial Conduct Authority rather than Companies House.

Again, the distinction comes back to purpose. If the organisation exists mainly for its members, the co-operative model may fit. If it exists for the wider community, a community benefit society may be more appropriate.

A conventional private company can also be a social enterprise

A social enterprise does not have to be a CIC, co-operative or charity.

A conventional private company limited by shares can also pursue a genuine social or environmental mission.

Social enterprise describes the purpose of the business rather than prescribing one compulsory legal form.

A private company limited by shares may suit an organisation that wants a familiar structure for raising external capital from investors.

However, it does not automatically come with the CIC asset lock or charitable status. If protecting the social purpose is important, governance and shareholder arrangements need careful thought.

What about EIS and SEIS?

The episode also mentions the Enterprise Investment Scheme and Seed Enterprise Investment Scheme.

These can potentially make investment more attractive by offering tax relief to qualifying investors.

However, eligibility should never be assumed simply because an organisation calls itself a social enterprise.

The company, its activities, the shares issued, its size and age, and the way the investment will be used all matter.

If EIS or SEIS is important to your funding plan, check eligibility before choosing the structure around it.

Charitable Incorporated Organisations

The final structure discussed in the episode is the Charitable Incorporated Organisation, or CIO.

In England and Wales, a CIO is an incorporated legal structure specifically designed for charities.

It registers with the Charity Commission rather than Companies House.

A CIO can provide limited liability for members and trustees while allowing the organisation to operate within the charity framework.

Because it is a charity, it must have exclusively charitable purposes and operate for public benefit.

That makes it different from simply setting up a business that happens to do socially useful work.

Why charitable status may matter

If donations are important to the funding model, charitable status can bring advantages that other social enterprise structures do not automatically receive.

Qualifying charities can potentially benefit from Gift Aid on eligible donations and other charity tax reliefs.

However, charitable status also brings restrictions, governance responsibilities and regulatory duties.

A charity or CIO is therefore not automatically the best choice simply because the organisation does good work.

A practical way to choose your structure

The central message of the episode is that there is no single best social enterprise structure.

Work through the decision in this order:

1. Define the mission. Be clear about the social or environmental change you want to create.
2. Build the business model. Understand how the organisation will generate sustainable income.
3. Map the funding. Decide whether revenue will come from customers, grants, donations, investors or a mixture.
4. Think about ownership and control. Decide whether founders, investors, members or the wider community should hold influence.
5. Consider financial rewards. Work out whether dividends or investor returns need to be possible.
6. Review tax and regulation. Understand which reliefs, filings and regulators come with each option.
7. Choose the structure. Select the legal framework that best supports the route you have planned.

“Think about the objectives. Think about the route map that you're going to be taking in your social enterprise.”

Common mistakes when choosing a social enterprise structure

• assuming every social enterprise should be a CIC
• choosing charity status without checking whether the purposes are legally charitable
• ignoring how the organisation intends to raise money
• failing to think about whether founders or investors need financial returns
• using outdated IPS terminology for a new organisation
• assuming EIS or SEIS will automatically be available
• focusing on tax before understanding the business model
• choosing a structure before deciding who should control the organisation

Most of these problems can be reduced by doing the planning before incorporation.

FAQs

Is social enterprise a legal structure in the UK?

No. Social enterprise describes the purpose and way a business operates. Different legal structures can be used, including CICs, companies, co-operatives, community benefit societies, charities and CIOs.

Can a CIC be limited by shares?

Yes. A CIC can be limited by shares or limited by guarantee. A shares structure may be relevant where investor capital and dividends form part of the model, subject to CIC rules.

What is an asset lock?

The asset lock places restrictions on how CIC assets can be transferred or distributed and helps keep them focused on community benefit rather than unrestricted private gain.

Do Industrial and Provident Societies still exist?

The term is now mainly historic. New societies register with the FCA as co-operative societies or community benefit societies.

Can a normal limited company be a social enterprise?

Yes. A conventional limited company can pursue a genuine social or environmental mission. Social enterprise is about purpose rather than one compulsory legal form.

What is a CIO?

A Charitable Incorporated Organisation is an incorporated charity structure. In England and Wales it registers with the Charity Commission rather than Companies House.

Can a social enterprise qualify for EIS or SEIS?

Potentially, but not simply because it is a social enterprise. The organisation and the investment must satisfy the relevant scheme conditions.

Episode Timecodes

• 00:00 - The scale of social enterprise in the UK
• 00:25 - Social enterprise models and structures
• 01:18 - What a social enterprise is
• 01:43 - Why choosing the right structure matters
• 02:08 - Objectives, funding and personal reward
• 02:28 - Tax benefits, donations and Gift Aid
• 02:48 - Business planning before choosing a structure
• 03:09 - Community Interest Companies
• 03:42 - Community purpose and CIC reporting
• 04:01 - CICs limited by guarantee or shares
• 04:38 - Co-operative structures
• 04:59 - Member ownership and democratic control
• 05:23 - Co-operative principles and the old IPS model
• 05:48 - Community benefit societies and FCA regulation
• 06:09 - Funding and structure decisions
• 06:33 - Private companies limited by shares
• 06:54 - Social purpose within a conventional company
• 07:20 - External investment, EIS, SEIS and CIOs
• 07:50 - Charitable Incorporated Organisations
• 08:17 - Charitable status and public benefit
• 08:50 - Choosing the structure that fits your purpose
• 09:08 - Final thoughts

Related episodes and guides

• Social Enterprises Are Businesses
• Social Enterprise and Community Interest Companies
• Community Interest Companies and Tax
• Asset Lock in Community Interest Companies

Key takeaway

The different social enterprise structures in the UK give you different ways to combine business activity with social impact.

A CIC may suit an organisation that wants a recognised community-purpose company structure. A co-operative can work where member ownership and democratic control matter. A community benefit society can put the wider community at the centre. A conventional limited company may offer more flexibility for external equity investment. A CIO can suit an organisation whose purposes are genuinely charitable.

The structure should not come first.

Start with the mission, the business model, the funding route and the people who should benefit. Then choose the structure that supports that route.

Further Support

If you are setting up or developing a social enterprise and need help choosing the right structure, you can contact us for an initial chat.

We can also help with CIC and social enterprise accounts, tax, budgeting, financial planning and the systems needed to run the organisation properly.

You can use our free online business calculators to support your wider financial planning.

For more practical finance and tax guidance, visit the I Hate Numbers YouTube channel, or listen and follow on Apple Podcasts.

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Welcome to this week's episode of I Hate Numbers, and in today's podcast episode, I'm going to be diving into the world of social enterprises. Now, before you switch off, thinking this is all about fluffy feelings, charity tea dances, and about doing good stuff, just hold on a minute. I'm going to be talking about businesses,

yep businesses, that make money i.e. profit and actually make a difference. So grab yourself a drink of choice, put on those headphones if you're out running, keep those hands on the steering wheel if you're driving and let's crack on.

Now, did you know there are over a hundred thousand plus social enterprises in the United Kingdom alone? They contribute humongous amounts of money to the economy. They employ an immense amount of people here, and they are sectors, they are businesses in their own right, from generating several thousand to several million pounds worth of profit and turnover.

That's not a small change, that's an immense impact that's being made. So yes, social enterprises do matter both financially, socially, and economically. Now, in today's episode, I'm going to be focusing on understanding what social enterprises actually are, how they differ from traditional businesses or charities for that matter.

And the types of business models and legal structures that exist that you may wish to adopt. Now, this episode is essential if you're thinking of starting one, working for one, or advising one, and I've been very fortunate in my 30 years plus in business of working with organisations of various types, from social enterprise

to charities, to private businesses as well. Now firstly, what is a social enterprise? It's very often misunderstood. It's not just about being good and doing good stuff. It's a business that exists to solve a social or an environmental or a community problem, while at the same time making money. Those two go hand in hand.

Yes, it makes money and it's the profits that are generated that are there to support the mission, not just in somebody else's pocket. Think of it like this. If a private business says, how much profit can we make? A social enterprise will say, how much good can we do with the profits that we generate?

Social enterprises sell goods and services just like any other business. They have the same challenges. They adopt business practices, but it's what they do with the money is where things change. Profits are reinvested into their course, whether that is supporting vulnerable people, protecting the planet, or creating fair work and opportunities for others.

Now it's important to emphasise charities are not necessarily social enterprises. Charities, a great deal of them, will rely predominantly on donations or grants to operate. They don't necessarily, all of them operate commercially, but they operate in ethical lines. The monies that they generate are going towards a charitable purpose here.

But a charity is not necessarily a social enterprise, and a social enterprise is not necessarily a charity. Let me have a look at the main models that are currently used in the United Kingdom. Model number one is a Community Interest Company or a CIC for short. Now this is one of the most popular social enterprise models operating in the United Kingdom, and it's designed for businesses that want to make a profit but use it for community

good. I've personally seen a growth in the use of CICs over the last 10, 15 years. They still represent a small proportion of the overall companies that are incorporated the United Kingdom. They are a growing model. Now these are designed for businesses that make profits, want to make a profit and should be making a profit, but use those profits of community

good. So what makes a CIC different? Well, from the beginning, when you create a CIC, you have to show a clear community purpose. You have to file a community interest statement when you register and you commit to something called an asset lock, meaning those assets and profits that the organisation has

must go to another beneficiary organisation. Those assets and resources are not to be used for the benefit of the individuals. If your CIC ceases to exist, then typically, and certainly what we would recommend is those assets that you built up go to another beneficiary organisation. But the resources are there for the benefit of the community,

not for the individuals who run the CIC. Now in itself there are two types of CICs. You will encounter more of this in next week's podcast, but for now, let me give you a brief overview. You either have a CIC that's limited by guarantee, or you have a CIC that's limited by shares, which means you can attract private investment and that means it's possible to distribute profits by way of dividends

to those individual investors or corporate investors. A CIC is a bit of a hybrid, a halfway house between a charity and a private company. It's not unusual, by the way, for a charity to actually have a separate subsidiary or an entity that's constituted as a CIC to run their trading commercial activities.

Risk taking is permitted without putting the charity assets at risk. The second model is the cooperative model, and again, I've seen a growth in the cooperative model over time, and this model puts the power in the hands of its members, not just an individual group of directors, or the boardroom. It’s based on democracy and the quality.

Each member has a say as to how those profits are distributed and shared. Members can be staff, customers, or the community. Those popular example of a cooperative society, surprising enough is the Co-Op supermarket, fair trade businesses, energy cooperatives, community pumps. They all follow these rules, and the core principles are: one member, one vote, shared ownership, and collective benefit.

It's perfect if you want that idea of shared control and a strong ethical backbone. Another model is the Community Benefit Society. It's a type of industrial providence society or an IPS. An IPS or Community Benefit Society is regulated by the financial conduct authority, not Companies House, which is the regulator for most corporate bodies.

Now, a Community Benefits Company can raise money through community shares, apply for charity-like tax benefits. Typically, it can be exempt from corporation tax on any surpluses that are generated, and it embeds this idea of community democracy in its structure. So if you're thinking of setting up a shop in your village, your town, a renewable energy project, or a sports club, then this model might be ideal for you.

Now, one other model I need to mention here is that a private company itself can actually be a social enterprise. You don't actually have to be a CIC, a charity or a co-op to be a social enterprise. Even a standard limited company can be one, but it's the commitment, not just words for the sake of it where it commits to social aims and reinvest the profits accordingly.

You need to have a clear mission statement and ethical practices and a transparent way of showing what you do. Now, private companies in themselves, lots of people use that phase where you know, we have good intentions. We are social enterprise in nature, but you actually have to show and demonstrate a proportion of those profits are going towards social good.

You need to build trust with funders and audiences. There's no asset lock or legal obligation to reinvest profits unless you say so. My personal preference is, is that if you are taking social enterprise seriously, then do not do a private company. Now, there is also the idea of a CIO, all these acronyms floating around, a Charitable Incorporated Organisation.

Now, a charitable organisation has the benefit of any accounts that are submitted only go to the Charity Commission as opposed to a lot of charity companies will submit documents and accounts to Companies House as well as to the Charity Commission itself. One filing is all that's needed. Now, the CIO is a structure that's only for charities.

It's regulated by the Charity Commission. It gives that legal status, limited liability, the ability to access things like Gift Aid, business rates, relief. Profits if they're used for charitable purposes are exempt. Now, this is a more complex model in the sense of the time it takes to get incorporated.

There's a much longer lead time between submitting an application and getting that charity status. There's more obligations placed on the individual trustees and directors compared to other social models that we've outlined. You've got her charitable aims, public benefit, and trustees. You can't just set one up willy-nilly overnight and the time taken

can range anything from a few weeks to several months between submitting the application and getting approval. Now, how do you decide which model you should choose? Now, for me, it's this idea of substance follows form. You always have got to consider what you are planning to do. Start with your purposes, what your objectives are over the, say, next two or three years. What's your main goal?

Who are you helping? How are you going to raise money? Do you want outside investment? Do you want restrictions placed on you and your fellow trustees? Have a business and a financial activity plan, and then decide the structure that best suits. Now, it's not unusual, by the way if you think charitable status is your long-term goal, you might set up a CIC to begin with, and then you can convert that to a charity down the line. Get the model wrong, and that might deny you opportunities.

It might have an impact on tax. And it might have an impact on accessing funding and other such matters as well. Now, social enterprises are not soft, fluffy, or weak. They are businesses. Their objective is to make profits, but it's what those profits are used for that differentiates them from their private sector

Cousins. They're smart, impactful and essential. They run schools. They create jobs. They build communities. They clean oceans. They have an environmental impact, and yes, they pay wages, they file taxes, and they grow. Now, whatever your choice is, what matters fundamentally is your mission and how you use those profits.

So if you are ready to blend purpose with profit, a social enterprise model could be for you. Now, final thought, if you are running or planning a social enterprise, maybe you worked with one or want help with setting one up, well speak to your advisor or speak to us. We have dealt with social enterprises for nearly three decades here.

Check out the show notes, book a call. We'll help you choose the right structure, build a sustainable plan, and stay compliant while staying true to your mission. Until next week, folks, plan it, do it and profit.