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Social enterprises on the up but legal issues still a major factor

Nick Branch
Nick Branch, posted on 16.10.12

The number of social enterprises is still rising, continuing what some economic commentators have called the remarkable trend towards social entrepreneurship. Yet despite the vast increase in numbers of social enterprises, and the popularity of the idea, there remain a good number of hurdles for those looking to get started in this budding sector.

One of the earliest hurdles a social enterprise faces is in the determination of the most appropriate legal form. Social enterprises are a business, but perhaps unlike a business social enterprises can be formed in a wide variety of ways including a Community Interest company and an unincorporated association as well as the usual incorporated company, partnership or sole trader setups. Many social enterprises are also registered as charities.

The best advice for any social enterprise is to select the legal form that suits your business and plans. You need to think about how this business will be run and by whom, how it will raise funds and how it plans to grow and expand. If you plan on fundraising then it may be that a charity status is appropriate but this of course is heavily regulated so be sure to take good legal advice before embarking on this particular route.

Getting going with your social enterprise

Having a solid idea and a good business plan is one thing, but implementing your dream is quite another. Social enterprises face many of the same issues as small businesses when it comes to everyday decisions such as hiring staff.

Any employees you take on will need to be employed in accordance with employment law, which includes health and safety at work, tax and national insurance contributions and of course matters such as providing pay slips and a contract for employment. A good employment lawyer can help your social enterprise with all these initial legal issues.

Of course any staff you employ will also be entitled to legal rights and protections from workplace bullying, harassment and discrimination and will be entitled to accrue holiday pay. Any social enterprise founder must consider all of these factors at the outset.


Trusts are legal devices used by many social enterprises and not-for-profit organisations to hold assets for the benefit of a particular cause. Trusts are not incorporated and their assets are managed by trustees. They provide an excellent way to maintain assets for the benefit of society and are extremely tax efficient. Setting up a trust is not necessarily daunting, but any social enterprise wishing to do so should consult a lawyer for legal advice on setting up and holding assets in trust.

Finance and growth

As with any business, social enterprises must raise funds and may intend to grow to fulfill a greater role in society or in order to achieve their primary goals. Obtaining finance from banks and managing the legal issues associated with growth, such as negotiating premises, handling changes in legal structure and employment issues requires expert legal advice. Social entrepreneurs do well to have access to specific legal advice from experts in their particular field, say an employment lawyer or social enterprise specialist to ensure they get the right advice as and when required.


Guest blogger Nick Branch works for Thomson Reuters;  the world's leading source of intelligent information for businesses and professionals.


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