Are social enterprises charities?

Social enterprise is a way of describing a business with mainly social or environmental objectives. It might be a charity, or a private company.

In a social enterprise, profits from the business are principally reinvested for social objectives, rather than being used to maximise owner or shareholder value.

Charities can and often do operate as social enterprises, getting some or all of their income from running a business. (Read more about this.)

But private companies can also run as social enterprises, choosing to dedicate some or all of their profits to a social aim, or running in a way that creates added social benefit, such as charging low prices rather than making more profit. When charities run as a social enterprise, they don’t have this choice: because they’re charities, they can’t make a private profit – all the proceeds must be reinvested in making a difference to their cause.

Community Interest Companies

Community interest companies (CICs) are a relatively new legal structure that straddles the traditional boundaries between charities and businesses, specifically designed to make it easier to run a social enterprise. They allow for private investors to support a new enterprise and get their money back when it is successful.

But unlike a traditional company, there are limits on how much private profit can be made and its main purpose must be to benefit its cause.

This has been a popular form for social enterprises because it allows them to seek private investment while also guaranteeing that their main aim remains helping their cause. Because they can pay dividends to private investors, CICs can’t be charities.

There is a body called the CIC Regulator that determines whether organisations can be CICs.