What is a social enterprise?
Like a spin-out company, a social enterprise is a brand new legally independent company created to further develop research ideas and turn them into products or services.
What makes a social enterprise unique is that it is a business that is established to deliver a specific social and/or environmental mission. Social enterprises are a way for the impact of your research to be adopted and the desired change to be achieved. Maximising profits is not the primary goal as is the case with a traditional business.
However, regardless of whether a social enterprise is operating for profit or not for profit, the innovation behind the company must have the potential to generate sustainable revenues and be attractive to funders, including trusts, foundations or governmental and/or social impact investment funds.
As with any other business, the social enterprise will seek to make a surplus and maintain commercial viability. The distinction lies in the ways that the social enterprise operates, including who they employ, how they use any surplus, and the guiding principles of the organisation.
In Scotland, social enterprise has no legal definition, but it is defined using a Voluntary Code of Practice with accepted benchmarks. According to the Scottish Government, the Voluntary Code of Practice for Social Enterprises describes social enterprises as a community of organisations with the following characteristics:
- They trade in a marketplace with the primary objective of social or environmental benefit.
- Any profits are reinvested back into the business or for the benefit of the people it exists to serve, rather than distributed to shareholders or owners (an asset lock).
- On dissolution, any assets are reinvested in another organisation with similar aims and objectives (an asset lock).
- They aspire to financial independence through trading, which sets them apart from other charities and voluntary organisations.
- They operate outside of the direct influence or control of public authorities.
Social enterprises work in almost every sector of the UK economy, employing millions of people, and combine commercial success with their mission. They include larger organisations supplying goods and services to businesses and the public sector, as well as smaller organisations transforming communities and supporting the lives of disadvantaged people.
According to the Social Enterprise Census in 2019, there are over 6,000 social enterprises in Scotland, supporting more than 80,000 jobs and contributing £2.3bn (Gross Value Added) to the Scottish economy.
Depending on where you incorporate your social enterprise, the final legal form can be anything from charity to mission-driven businesses, but the model chosen will support the project’s mission as well as funding opportunities.
Why create a social enterprise?
The social enterprise business model offers you an enterprising approach to developing your research into an innovation project whilst keeping the social and/or environmental impact at the centre of its development. It also aims to ensure the longevity of an impact outcome, so the impact outcome doesn’t disappear when the research project ends.
What’s involved in creating a social enterprise?
The steps involved in creating a social enterprise are similar to a traditional spin-out venture, as illustrated below.
The journey to creating a social enterprise will be very similar to that of a spin-out. The main difference is that right at the start of the journey, we will work with you to shape and clearly define your social and/or environmental mission that will form the core of your social enterprise. This mission will be written into your company and business plan. It will inform everything that your social enterprise does, including who will form part of your team; what your products and services will be and how you will market them; your legal structure; and how you will measure, evidence, and communicate the impact of the company and its activities.
Is there an aspect of your research that you think could be turned into a social enterprise? Come and talk to us and we will help you to further explore your options.
What is the legal form a social enterprise company?
Social enterprise companies have a different legal construction to traditional companies. There are a wide variety of ways to legally construct a social enterprise, including hybrid models that incorporate trading entities with mission-driven entities. A common legal entity for a social enterprise is a private company limited by guarantee, which has a clearly defined social and/or environmental mission. Alternatively, a social enterprise can be a cooperative, a community interest company, or even a charity.
Two of the main legal entities used for social enterprises are described below.
- Limited by Guarantee: Companies limited by guarantee are often used for social enterprises. These companies have ‘members’ rather than ‘shareholders’. These types of companies are usually not-for-profit and retain any surplus within the company for the social enterprise purpose. The company’s Articles of Association and Members Agreement are drafted on this basis. These companies operate like a private company limited by shares with a Board of Directors and Members Agreement to control it.
- Limited by Share: Social Enterprises can be limited by share like a traditional company. These companies are similarly governed by Articles of Association and Shareholders Agreement, with a Board of Directors to run the company. The main difference with a social enterprise is that the primary purpose is not profit maximisation but the achievement of the social or environmental mission. These companies can also attract private investors, dependent on the proposition as well as the scale.
The IP & Commercialisation team will support you with resources and access to legal experts who can advise on these different company structures and what will work best for you and your team, your innovation, and your stated mission.
How are social enterprises funded?
Similar to spin-outs, there are different funding options to set up and support a social enterprise. Some of the main funding sources for social enterprises are outlined below.
- Grants: Researchers can access both internal and external grants to support a social enterprise, depending on the form of the social enterprise. Governmental bodies such as Firstport provide a range of grants and loans to support this work.
- Investors: Social enterprises can also access impact investment through a variety of mechanisms, depending on the eventual form of the social enterprise. Investors such as Social Investment Scotland or Big Society Capital can provide alternative routes for you to access impact investment.
What other support is there for social enterprises?
The University of Glasgow’s Innovating the Future is an initiative that promotes, develops, and sustains social enterprise as an alternative set of models for spin-out opportunities from University research.
We offer training, events, and space to support researchers to develop their innovation or intervention into a social enterprise. Our goal is to build an innovative social entrepreneurial ecosystem, delivering the benefits of world-leading research to the populations who need them most.
Get in touch us to find out more about Innovating the Future and how you can get involved.
The Social Enterprise Scotland website also contains a wealth of resources about social enterprises in Scotland.