Social enterprises are businesses that trade to tackle social problems, improve communities, or protect the environment. Unlike traditional businesses, profits are primarily reinvested for social purpose rather than distributed to shareholders.

Choosing the right structure

The right legal structure depends on your goals, funding needs, and the level of regulation you're comfortable with.

Social enterprise legal structures

Legal structure options for social enterprises trading for community benefit.

Community Interest Company (CIC): Most popular structure - asset lock, 35% dividend cap, regulated by CIC Regulator. Formation £65-86.
Company Limited by Guarantee (CLG): No shareholders or share capital, members' liability limited to nominal amount (often £1). Surplus reinvested. Popular for non-profit trading.
Charitable Incorporated Organisation (CIO): Registered with Charity Commission, tax advantages, but must have exclusively charitable purposes. Cannot distribute profits.
Community Benefit Society (BenCom): Registered with FCA, one member one vote, asset lock mandatory, can issue community shares. Withdrawal terms limited.
Co-operative Society: Registered with FCA, owned and run by members, one member one vote. No automatic asset lock (unlike BenCom).
Unincorporated Association: Simple to set up, no registration required, but members have unlimited personal liability. Suitable only for small, low-risk activities.

Social enterprise guidance

Detailed structure comparison

Community Interest Company (CIC): Asset lock, 35% dividend cap, CIC Regulator oversight. Formation £65-86. No special tax treatment. Best for trading social enterprises wanting to attract investment.
Company Limited by Guarantee (CLG): No share capital, surplus reinvested, members' liability typically £1. Can add asset lock in articles. Popular for non-profits, social enterprises, charities.
Charitable Incorporated Organisation (CIO): Registered with Charity Commission, tax advantages (Gift Aid), but strictly charitable purposes only. Cannot pay dividends.
Community Benefit Society (BenCom): FCA registered, mandatory asset lock, one member one vote, can issue community shares. Best for community ownership models.
Co-operative Society: FCA registered, owned by members, democratic control. No automatic asset lock (unlike BenCom). Various models (worker, consumer, etc.).

Key decision factors

Do you need an asset lock?

An asset lock prevents assets being distributed to members except for community purposes. Required for CICs and BenComs. Optional for CLGs (can add to articles). Not automatic for co-ops.

Do you want to raise share capital?

Only some structures allow share issuance:

CIC Limited by Shares: Can issue shares, 35% dividend cap
Community Benefit Society: Can issue withdrawable community shares
Co-operative Society: Can issue shares to members
CLG/CIO: Cannot issue shares

Do you want tax advantages?

Only charities (including CIOs) have significant tax advantages:

Generally exempt from Corporation Tax
Gift Aid on donations (25% extra)
Potential business rates relief

CICs, BenComs, and co-ops pay tax like ordinary businesses.

What level of regulation are you comfortable with?

Lower regulation: CLG (Companies House only), Co-operative (FCA registration)

Medium regulation: CIC (Companies House + CIC Regulator), BenCom (FCA)

Higher regulation: CIO (Charity Commission - strictest governance requirements)

Community shares for social enterprises

How community benefit societies and co-operatives can raise funds through withdrawable community shares.

Eligible structures: Community Benefit Societies (BenComs) and Co-operative Societies registered with FCA
Maximum individual investment: £100,000 per person per society
Share value: Shares cannot appreciate - maximum return is original investment amount
Interest payments: Societies can pay interest on shares, typically 3-5% depending on performance
Withdrawal: Withdrawable at society's discretion (not tradeable like company shares)
FCA exemption: Registered societies exempt from FCA authorisation for share offers
Prospectus exemption: Community share offers exempt from FCA prospectus requirements

Community shares

Define your primary purpose

Clearly articulate the social/community benefit you aim to achieve. This determines which structures fit.
Assess if charitable status applies

If your purposes are exclusively charitable, consider CIO or charitable CLG for tax advantages.
Decide on asset lock requirement

If assets must be protected for community use, CIC or BenCom provide automatic protection.
Consider funding needs

If raising share capital from investors or the public, CIC (shares) or BenCom (community shares) allow this.
Evaluate governance preferences

Co-ops and BenComs have democratic 'one member one vote' structures. CICs and CLGs have more flexible governance.
Seek professional advice

A social enterprise lawyer or specialist accountant can help match structure to your specific circumstances.

Business Context Testing

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Guvnor

Social enterprise structures

Choosing the right structure

Detailed structure comparison

Key decision factors

Do you need an asset lock?

Do you want to raise share capital?

Do you want tax advantages?

What level of regulation are you comfortable with?

Define your primary purpose

Assess if charitable status applies

Decide on asset lock requirement

Consider funding needs

Evaluate governance preferences

Seek professional advice

Compliance Assistant

🧪 Business Context Testing

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Choosing the right structure

Detailed structure comparison

Key decision factors

Do you need an asset lock?

Do you want to raise share capital?

Do you want tax advantages?

What level of regulation are you comfortable with?

Define your primary purpose

Assess if charitable status applies

Decide on asset lock requirement

Consider funding needs

Evaluate governance preferences

Seek professional advice

Related guides in Business Finance

Business Context Testing

Content Graph