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:
- Define the mission. Be clear about the social or environmental change you want to create.
- Build the business model. Understand how the organisation will generate sustainable income.
- Map the funding. Decide whether revenue will come from customers, grants, donations, investors or a mixture.
- Think about ownership and control. Decide whether founders, investors, members or the wider community should hold influence.
- Consider financial rewards. Work out whether dividends or investor returns need to be possible.
- Review tax and regulation. Understand which reliefs, filings and regulators come with each option.
- 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.
📘 Book
https://www.ihatenumbers.co.uk/i-hate-numbers-book/
🎧 Podcast
https://www.ihatenumbers.co.uk/simplifying-accounting-and-tax-i-hate-numbers-podcast/
🌐 Website
https://www.ihatenumbers.co.uk