Frequently Asked Questions about Social Enterprise

What is a social enterprise? According to the Social Enterprise West Midland web site, a social enterprise is a business that:

• Trades for social and/or environmental purposes.
• Reinvests profits back into the business or other related or unrelated activities.
• Has ownership and governance structures based on participation and not for personal gain.
• Competes in the market like any other business.

The Social Ambassadors web site describes social enterprise as: "Social enterprises are businesses. They need to make a profit to compete in the market, ensure their continued survival and be able to invest in their social or environmental aims. For many social enterprises, being sustainable – in every sense of the word – enables them to become more independent and reduce any dependency on public grants."

Venturesome have published a paper to try and bring clarity to the term Social Enterprise.

John Kingston - Venturesome director comments: “More and more people are talking about themselves as social enterprises but this means different things to different people.”

Venturesome have identified three models: The first model includes enterprises operating a profit-making trading activity that has no direct social impact but gives some, or all of their profit to a charity, for example the trading subsidiaries of charities, companies which promise to give a percentage of their profits to charitable projects, or a hedge fund which gives a slice of its profits to a charitable foundation, eg. the Children’s Investment Fund.

The second model includes enterprises operating trading activities that have a direct social impact but manage a trade-off between producing a financial return and social impact, such as fair trade businesses or microfinance funds.

The third covers enterprises engaging in a trading activity that not only has a direct social impact but also generates a financial return in direct correlation to the social impact created. This might include windfarms or farmers’ markets.

Some organisations state that to be a social enterprise a business needs to be earning 50% of its income from earned income. Other organisations say 60% and some 25%.