What is Social Enterprise?
Social enterprise is a dynamic and inspiring way of doing business. Social enterprises are innovative, independent businesses that exist specifically for social and/or environmental purposes.
Social enterprises trade in all markets, selling goods and services to individual consumers, local authorities, government and private businesses. Social enterprises exist to make a profit just like any private sector business. However, profits or surpluses are always reinvested into their social and environmental purposes. Social enterprises also have an "asset lock" on all their buildings, land and other assets. Without making a profit, social enterprises cannot meet their social and environmental objectives and they must be sustainable. The term "social enterprise" should not be confused with, for example, private sector businesses that operate in an ethical way, charities that do not trade or trade very little or public sector arms-length companies. To sign or support the Voluntary Code of Practice for Social Enterprise in Scotland click here.
What examples are there?
Diverse examples you may have heard of include: The Big Issue, The Wise Group, Divine Chocolate, Cornerstone, Kibble Education and Care Centre, Edinburgh Bicycle Co-op, Glasgow Housing Association, Isle of Eigg Heritage Trust, Link Group Ltd, the Eden Project in Cornwall, Capital Credit Union, The Grameen Foundation, Mondragon Corporation in the Basque Country and the Homeless World Cup.
Where can I see social enterprise in action?
There's probably a social enterprise running a shop, art gallery, sports centre or cafe in your local area - take a look at the Directory of Social Enterprise here or contact us. Elected members, the media, public officials, private businesses and others can also contact us to arrange visits. Watch Social Enterprise Scotland TV here.
What types of social enterprise exist?
Social enterprise is a diverse community and the more-than-profit approach is used by a huge range of organisations, of every size, operating in every corner of Scotland and in most sectors of the economy. A social enterprise can simply be a Company Limited by Guarantee with an appropriate "asset lock" and social mission etc, it could also be a registered charity. Below are some of the common types and a social enterprise is often one or more of these.
Co-operatives and Mutuals Co-operatives and Mutuals are democratically-owned businesses which give employees, customers or members a stake in the business. There are now almost 600 co-ops in Scotland, with a turnover of more than £4bn a year and employing 28,600 people. Co-operation & Mutuality Scotland.
Social Firms Social Firms are commercial businesses that provide integrated employment for people with disabilities or other disadvantages in the work place. Social Firms Scotland.
Community Interest Companies CICs are limited companies created for the use of people who want to conduct a business or other activity for community benefit, and not purely for private advantage. Community Interest Company Association and the CIC Regulator.
Development Trusts Development Trusts are community run organisations that are concerned with the economic, social, environmental and cultural needs of their community. They are owned and managed by the local community and aim to generate income through trading activity that enables them to move away from dependency on grant support. Development Trusts Association Scotland.
Credit Unions Credit Unions are a distinct type of co-operative that provide financial services to members. Many operate in areas of social and financial exclusion, but more employers are now offering credit union membership and the largest offer a competitive range of mainstream financial products. There are over 100 credit unions operating across Scotland with over 280,000 members and assets of over £300m. Association of British Credit Unions Ltd (ABCUL Scotland) and the Scottish League of Credit Unions.
Housing Associations (aka Registered Social Landlords or RSLs) Housing Associations are voluntarily-managed companies providing affordable housing for rent and for sale. They give priority to those in greatest need and reinvest any surplus income in maintaining or adding to their housing stock. Many Housing Associations also support other forms of social enterprise through 'Wider Role' community regeneration activity. There are over 200 Housing Associations in Scotland. Scottish Federation of Housing Associations.
Defining Social Enterprise: The Scottish Criteria
There is currently no legal definition of "social enterprise". The criteria below was formed in 2010 by members of Scotland's social enterprise community as an alternative. To sign or support the Voluntary Code of Practice for Social Enterprise in Scotland (that is based on this criteria) click here.
1 – Social Enterprises have social and/or environmental objectives.
As one of its defining characteristics, a social enterprise must be able to demonstrate its social mission. This will be evidenced in its constitutional documents but the production of other (externally verified) evidence is encouraged - to provide transparency of purpose and accountability to stakeholders. Tools and techniques to measure social and environmental impact are becoming more effective and user friendly.
2 - Social Enterprises are trading businesses aspiring to financial independence.
This second defining characteristic is demonstrated by an enterprise earning 50% or more of its income from trading. This will be evidenced by the accounts of the business over a reasonable period. A high level of income from the public sector is acceptable in the form of contracts - but not grants.
Criterion 2 is intended to mark the boundary between social enterprise and much of the voluntary sector. (Many Voluntary orgs trade over 50% without calling themselves social enterprises)
3 – Social Enterprises have an ‘asset lock’ on both trading surplus and residual assets.
Whether or not it’s a charity, a social enterprise re-invests all its distributable profit for the purpose of its social mission. Where the business has shareholding investment (very few in Scotland) no more than 35% of profit may be distributed in dividends (*) In addition, the constitutional documents of a social enterprise must contain a clause to ensure that, on dissolution of the business, all residual assets go to social/environmental purposes.
Criterion 3 is intended to mark the boundary between social enterprise and the private sector.
4 – A Social Enterprise cannot be the subsidiary of a public sector body.
Whilst a social enterprise can be the trading subsidiary of a charity, it must be constitutionally independent from the governance of any public body. Additional evidence of this would be required from Public Sector externalisations.
Criterion 4 is intended to mark the boundary between social enterprise and the public sector.
5 – Social Enterprises are driven by values – both in their mission and business practices.
Social enterprises operate in competitive - often fierce – markets but there is an expectation that their dealings will be ethical and that they will offer their people satisfactory wages, terms and conditions. Enterprises of a reasonable size are expected to have clear human relations and environmental policies. Transparency would be achieved through the voluntary adoption in the sector of a maximum ratio between highest and lowest paid – of say 1:5 – investing a culture of equality.
Source: Senscot, June 2010
