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What are the differences between charities and social enterprises?

02/02/2023

A group of hands high five each other to represent the teamwork involved in charity work

Charities, social enterprises, not-for-profits…they all do the same thing, don’t they? Help out, raise funds, make the world a better place.

If only it were that simple. In fact, there’s a world of difference in how third-sector organisations are set up, structured, and run.

And – unsurprisingly, given you’re here – those differences extend to the risks they face when doing all that good work.

But let’s look at those differences, as well as the similarities, between charities and social enterprises in more detail.

The power of good

A charity, social enterprise, or non-profit can have the same mission: let’s say for the sake of argument here, that it’s to help the homeless.

Exactly how they go about fulfilling that mission is what separates Adam from Eve.

A charity may raise money by applying for government grants and running fundraisers. They’ll then use that money to help others e.g. by investing in employment support programmes for the homeless.

A social enterprise acts like a business – one with an ethical twist. For example, a social enterprise might run a chain of cafes staffed by homeless people. Most of their revenue will be invested back into their business. The rest might be donated to a homeless charity.

A not-for-profit is a catch-all term for an organisation that has charitable aims but doesn’t privately profit any one individual or board. It’s a harder term to pin down as it can include many different types of organisations, including social enterprises.

What a not-for-profit isn’t, though, is a legal structure in itself. And structure is important…it sets out the framework for how charities and social enterprises can operate. We’ll look at exactly what that means next.

The differences between charities and social enterprises

Because charities and social enterprises are run differently, the guidelines for setting them up are different. They’re also differently regulated and taxed.

Registration

Legally, all charities in England and Wales must be registered with the Charity Commission if their annual income tips over £5,000 (for Scotland, it’s the Scottish Charity Regulator OSCR).

Social enterprises are set up as businesses and so are registered at Companies House.

Regulation

All Charities are subject to charity law, as set out by the High Court. They’re regulated by either the Charity Commission or OSCR, and, for those set up as charitable companies, also by Companies House.

Social enterprises aren’t charities, even if they have charitable aims or work closely with charities. They’re solely regulated by Companies House.

Structure and leadership

Charities come in all shapes and sizes – with most of them structured depending on what they do and what benefits they’d like to access. Setting up as a Charitable Incorporated Organisation (CIO), for example, means your key decision makers – your board of trustees – won’t be held personally liable if your charity’s finances come into question.

A social enterprise can be structured as a limited company, a co-operative, a sole trader, or a business partnership, among others. They tend to be led by their directors and so are well-placed to make quick decisions.

Red tape and hoops to jump

Both charities and social enterprises are accountable for what they do. They must be seen as acting lawfully and in good faith. If they don’t – by breaking the law or breaching their mission statement – they can be investigated and, ultimately, prosecuted or fined. Putting a quick stop to any payoff for all that good work.

Charities, especially, are legally bound to their constitution (or 'governing document'), which sets out their purpose and how they should be structured and run.

Social enterprises have fewer hoops to jump through. But you do have to be clear about your social mission. You have to be able to prove your profits are being used ethically. And you should make sure your business is run in an environmentally sustainable way.

Companies with a conscience

Both charities and social enterprises have the same duty of care towards their volunteer staff and employees. This means hiring them appropriately and under contract, providing them with adequate training and facilities, and taking responsibility for their health and safety.

Both have a duty to protect their donor and customers’ data. And to deliver services (if that’s what they do) that are of a sufficient standard.

Having the right charity and not-for-profit insurance helps both charities and social enterprises out. It protects your people and your assets from the kind of damage that could put a stop to all your activities.

What insurance do charities and social enterprises need?

Trustee insurance protects the people who are legally responsible for your organisation’s activities from being personally liable if something goes wrong. It extends to officers, governors, directors, and committee members, and so is suitable for both charities and social enterprises.

Both charities and social enterprises need employers’ liability insurance if they hire anyone. It’s a legal requirement and carries heavy fines for those who don’t have it (to the tune of £2,500 per day). It covers your employees as well as your volunteers.

Thanks to the digital age we live in, cyber insurance is vital for both charities and social enterprises. Both organisations tend to hold large amounts of donor or customer data. Cyber insurance helps you get back on your feet quickly. It works to restore the damage if your data’s stolen or held to ransom in a cyber-attack.

Last but not least, if you’re holding fundraisers, have clients visit your office, or do any kind of community work, you need public liability insurance. It covers you if someone gets hurt or their property is damaged, whether that’s on your premises or theirs.

To discuss your charity or social enterprises’ insurance needs with us, call us on 0345 222 5391. Or check out our charity & not-for-profit insurance hub for more info.

Image used under license from Shutterstock.

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