What are they?
Social enterprises are businesses that trade in the market “with a social purpose”.
There is no one structure or vehicle for a social enterprise and they can exist in a variety of business structures, including:-
unincorporated associations;
trusts;
companies limited by shares;
companies limited by guarantee;
industrial and provident societies (“IPR’s”);
co-operatives; (“Co-op’s”) and
community interest companies (CIC’s).
Governance
Where the social enterprise is a corporate entity, general company law will apply to what the directors can and cannot do. For example, the directors’ powers and remit will be limited by the terms of the constitutional documents (memorandum and articles of association) and the Companies Act 2006.
Where the social enterprise is an unincorporated entity (such as an unincorporated association or a trust), the terms of the governing document will set out how the social enterprise is to be managed and operated, who the property of the social enterprise is vested in (as the incorporated entity will not have its own separate legal identity) and who has authority to act on behalf of the social enterprise.
One characteristic which is slightly unusual about social enterprises is the extent of “stakeholder” involvement sometimes found in the governing documents. Some social enterprises can require the consent of stakeholders (such as an NHS Primary Care Trust) to certain actions.
Therefore, a review of the relevant constitutional documentation for each social enterprise would normally be required to determine who has authority to bind the social enterprise, whether there are any restrictions on those powers and what the precise terms of any stakeholder involvement may be.
Charitable status?
Social enterprises can acquire registered charitable status, but do not have to. Where a social enterprise is a registered charity the Charities Acts will also apply and will need to be considered in addition to those points referred to in the governance section above.
Benefits of a particular structure?
Unincorporated associations or trusts benefit from relative flexibility in set-up and operation. Members or trustees can, however, face personal liability if things go wrong and may face difficulty with certain transactions (i.e. contracting, or lending) because of their lack of legal status as an organisation or entity;
Limited companies benefit from separate legal personality. A social enterprise will therefore be able to enter into contracts, and/or lease property in its own right. Those contracting with company social enterprises will have to perform due diligence in respect of that company’s register entry, its shareholders and potential guarantors to ensure it is good for any obligation incurred. Directors still retain their duties to the company, even as a social enterprise, and the main drawback of this structure is the increased regulatory burden in respect of company filings;
CIC’s are companies limited by shares or guarantee which provide a benefit to a community. The same general points apply as to limited companies (above), with additional filing requirements imposed by the CIC Regulator. A CIC must also adopt a “lock” on the use of its assets. This limits flexibility but can also encourage authority support as the CIC is required to apply its funds for a narrow community benefit purpose. A CIC, however, cannot be a registered charity;
Co-op’s and IPR’s are societies set up to benefit their members and communities respectively. They do not have company status. They are used to give large groups an interest in the running of the society itself. Both structures must comply with Financial Services Authority registration and filing requirements;
All of the above structures except CIC’s can also apply for charity registration. This may facilitate fundraising and eligibility for certain grants or may be favourable from a tax perspective, but can pose major problems if the social enterprise will be trading or conducting business.
The suitability of a particular structure will ultimately depend on what the social enterprise wants to achieve, the sector it operates in and the wishes of its members and stakeholders.
Set up - general
If you are interesting in setting up a social enterprise you will need to consider what the “objects” of the social enterprise will be, who will be involved in the management/day-to-day running of the social enterprise, and certain other operational requirements, such as whether the social enterprise will hold property or leases, whether it have any employees and whether the social enterprise would consider applying for registered charity status in the future. Consideration can then be given to the most appropriate structure or vehicle for the social enterprise.
The NHS and social enterprises
In 2006 the government published a policy document (“Our health, our care, our say”) aimed at:-
providing “health and social care services [in] new and different ways, making them more effective and convenient for patients and service users”; and
bringing the commissioning of services to a “local level”.
Despite the change in government in 2010, policy is still to change Primary Care Trusts into “commissioners of services” at the local level, and there is also further provision for devolved commissioning by GP boards: the intention is that, by converting services into a social enterprise, health care professionals get to run their own service and spend money in ways which suit the delivery of that service in that area.
Set Up – NHS social enterprises
All NHS staff can make a request to deliver services via a social enterprise. The request is made to the local Primary Care Trust, who are obliged to consider any such proposal but not to support it. The proposal will generally need to show:-
What services the social enterprise will provide;
Added value to the delivery of the particular service(s);
Innovation in the delivery of the particular service(s);
Meeting of local health priorities - does the provision of the service fit with the PCT’s five year strategic plan?
Funding; and
Sustainability (once initial set up and transfer contract has been completed).
The social enterprise can also obtain a revenue grant from the Social Enterprise Investment Fund of up to £30,000 for legal, start up or staff costs before the contract starts to generate income and can apply for capital grants to meet the needs and costs of tangible resources such as property, vehicles and/or other equipment.
Can we help?
For more information or advice about social enterprises, or if you wish to set up a social enterprise, whether in the health sector or elsewhere, please contact Mark Lewis on 01926 880700.
