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Social Enterprise in East Lothian

Social enterprises are innovative, independent businesses with a social and/or environmental purpose. If you’d like to know more about what they entail and how they work, we’ve got the information you need.

What is a Social Enterprise?

Social enterprises trade for the common good rather than unlimited private gain. Typically set up to address social needs, their objectives include strengthening communities, improving people’s life chances, enhancing culture and protecting the environment.

Like any other business, they aim to make profit, but then invest 100% of this in social purposes. In Scotland, social enterprises are “asset locked” which means all their property, money and resources can only be used for a social mission with social impact.

If you’re interested in this ethical and sustainable way of doing business, or think your organisation may already have the key characteristics of a social enterprise, you may find the following helpful.

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Setting Up a Social Enterprise

Legally speaking, there’s no such thing as a ‘social enterprise’ – this is just an umbrella term covering many different types of organisations. However, to be defined as a social enterprise, an organisation needs to meet the common criteria set out in the Voluntary Code of Practice which can be summarised as follow:

  • They have social and/or environmental objectives

  • They take an enterprising approach and minimise grant dependency by generating income through trading

  • They reinvest their surpluses into improving and increasing their activities

  • Ownership of their assets (e.g. buildings, land and resources) are locked and would be returned to the community should the organisation dissolve

  • They are distinct from the public sector (government) and are not a subsidiary of a public body

  • They are a good employer, promoting fairness and not paying executives excessively

  • As one of its defining characteristics, a social enterprise must be able to demonstrate its social purpose/impact. 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.

  • Social enterprises trade in all markets, selling goods and services to individual consumers, local authorities, government and private businesses. An enterprising approach 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)

  • Social enterprises exist to make a profit just like any private sector business. However, all its distributable profit or surpluses are reinvested into their social and environmental purposes.

    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 (Buildings, land and other assets) go to social/environmental purposes. Criterion 3 is intended to mark the boundary between social enterprise and the private sector.

  • The term “social enterprise” shouldn’t be confused with private businesses that operate in an ethical way, charities that don’t do business (or trade very little) or public sector arms-length companies (ALEO’s), i.e. it must be constitutionally independent from the governance of any public body. Criterion 4 is intended to mark the boundary between social enterprise and the public sector.

  • Practical Considerations

    For those looking to enter the world of social enterprise, make sure your enterprise is a viable business in its own right. Be clear on your social mission and how your business will achieve it. Ensure you can demonstrate the social impact you are seeking to have.

    Our team at Third Sector Dumfries and Galloway can help you develop a plan and signpost you to relevant organisations for further support and funding opportunities – see Support for Social Enterprises.

    What is meant by Social Impact?

    Social impact/purpose can be:

    • Improving health and wellbeing

    • Providing a place where people can meet

    • Regeneration of neighbourhoods

    • Promoting a sense of belonging

    • Helping people to build confidence

    S• upporting people to live independently

    • Encouraging learning and education

    • Creating employment Opportunities

Practical Considerations

Firstly you need to make sure your enterprise is a viable business in its own right, be clear on your social mission and know how your business will go about achieving this. You also need to be able to demonstrate the social impact you plan to have.

Social impact/purpose can be:

  • Improving health and wellbeing

  • Providing a place where people can meet

  • Regeneration of neighbourhoods

  • Promoting a sense of belonging

  • Helping people to build confidence

  • Supporting people to live independently

  • Encouraging learning and education

  • Creating employment opportunities

Why choose to be a social enterprise?

Social enterprise suits those who want to make their organisation more sustainable and be entrepreneurial in achieving social or environmental change - and where personal profit is not the business objective.

Often set up by existing organisations or charities wanting to fund their work through trading rather than a reliance on donations. They’re also set up by businesses which have social aims but don’t want to restrict their activities under charity law.

As a social enterprise, the business can still clearly communicate its social purposes and assure clients, customers and supporters regarding how profits and assets are applied. However, depending on the legal structure chosen, you can have greater freedoms regarding payments to company directors, a wider range of acceptable purposes and (limited) options regarding payments of dividends.

What are the benefits of being a social enterprise in Scotland?

  • Less dependent on fundraising and grants

  • More financially independent which can lead to greater flexibility

  • Seen as a positive model both by Scottish and UK Governments

  • More attractive to funders who are keen to support more sustainable projects

Types of Social Enterprise

Social enterprises are diverse and their more-than-profit approach is used by a huge range of organisations. As a result they use a wide variety of legal forms and structures.

  • Co-operatives and Mutuals

  • Credit Unions

  • Housing Associations

  • Social Firms

  • Community Interest Companies (CICs)

  • Development Trusts

  • Democratically-owned businesses which give employees, customers or members a direct stake in the business.

  • A co-operative that provides financial services to members, typically operating in areas of social and financial exclusion.

  • Voluntarily-managed companies providing affordable housing with priority given to those in greatest need. They reinvest any surplus income in maintaining or adding to their housing stock.

  • Commercial businesses that provide integrated employment for people with disabilities or other disadvantages in the workplace.

  • CICs are limited companies created for use by people who want to conduct a business or other activity for community benefit, and not purely for private advantage.

  • Community run organisations concerned with the economic, social, environmental and cultural needs of their community. Owned and managed by the local community they generate income through trading activity to fund their service delivery.

Practical Considerations

Legally, there is no such thing as a ‘social enterprise’ - this is just an umbrella term. In addition to the six legal forms above, a social enterprise can also be a:

  • Company Limited by Guarantee* (CLG)

  • Trust*

  • SCIO (Scottish Charitable Incorporated Organisations)

  • Community Interest Company (CIC)

  • Co-operative Society

  • Community Benefit Society* (BenCom)

*these may or may not have charitable status

How to choose the right legal structure

Each legal form or structure brings its own benefits, restrictions and reporting requirements.Deciding on how you’re going to fund your enterprise and what you plan to do with any profit, will dictate which particular legal structure is most appropriate for your business. 

Other deciding factors include whether you want to take advantage of tax breaks and how much control you want to retain over your social business.

Support for Social Enterprise

Find information here on the support available for social enterprises.

Practical business support

VCEL Funding
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Sign-up for our regular funding
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Social Investment Scotland (SIS)

Provides business loans to Third Sector organisations

Legal

Senscot Legal

For affordable legal advice for social enterprises

Marketing, media, promotion and PR

Social Enterprise Scotland TV

Take a look at social enterprises in action

Social Enterprise Networks (SENs) and networking forums

Co-ops

Co-operative Development Scotland

Other business support

The Scottish Business Portal

The Scottish Government

Education and Social Enterprise

Yunus Centre for Social Business and Health

Young Enterprise Scotland

Supporting those aged 5 - 25

Education and Social Enterprise

Firstport

Development Trusts Association Scotland

Local community-led regeneration organisations

CIC Regulator

UK regulator for all CICs

Scottish League of Credit Unions

Supporting small to medium sized Credit Unions

Scottish Council for Voluntary Organisations (SCVO)

The Big Lottery

Find the latest funding opportunities

Community Shares Scotland

Innovative ways to fund social enterprises

Pioneers Post

Publishes social enterprise news stories

Bright Idea Scotland

Scottish Institute for Enterprise

Developing student entrepreneurship and social enterprise

The Business School

Part of Edinburgh Napier University

Social Enterprise UK

Equivalent to Social Enterprise Scotland

Association of British Credit Unions Ltd

(ABCUL Scotland) Trade association for credit unions

Offices of the Scottish Charity Regulator (OSCR)

Just Enterprise

A consortium of 10 specialist sector organisations, with a wealth of experience in launching and developing social enterprises across Scotland.

Starbright

Resource for practical start-up advice and support

Business Gateway East Lothian

Offers all general business support

Social investment & funding

Funding News

Read our latest news and updates on funding across the third sector

Community Development Finance Institutions

(CDFIs) A source of social investment funding

The Guardian - Sustainable Business

Publishes social enterprise news stories

Scotland’s Social Enterprise Community

Co-operative Development UK

Skills Development Scotland

Interface

The “knowledge connection” between business and academia

The Hunter Centre for Entrepreneurship

Part of the University of Strathclyde

Social Enterprise Scotland

The national membership, support, policy and campaigning body for all social enterprises in Scotland

School for Social Entrepreneurs

Supporting social entrepreneurs with personal and organisational development

Financial Conduct Authority

Regulating the financial conduct of over 70,000 businesses

Scottish Federation of Housing Associations

Leads, represent and supports Scotland’s housing associations & co-operatives