Topic 1 What a Social Enterprise is and how to set up a business

A social enterprise is an operator in the social economy whose main objective is to have a social impact rather than make a profit for their owners or shareholders. It operates by providing goods and services for the market in an entrepreneurial and innovative fashion and uses its profits primarily to achieve social objectives. It is managed in an open and responsible manner and, in particular, involves employees, consumers and stakeholders affected by its commercial activities.  The European Commission’s Social Business Initiative definition incorporates three key dimensions of a social enterprise that have been developed and refined over the last decade or so through a body of European academic and policy literature:

■ An entrepreneurial dimension, i.e., engagement in continuous economic activity, which distinguishes social enterprises from traditional non-profit organisations/social economy entities which pursue a social aim and generate some form of self-financing but are not necessarily engaged in regular trading activity.

■ A social dimension, i.e., a primary and explicit social purpose, which distinguishes social enterprises from mainstream (for-profit) enterprises.

■ A governance dimension, i.e., the existence of mechanisms to ‘lock in’ the social goals of the organisation. The governance dimension, thus, distinguishes social enterprises even more sharply from mainstream enterprises and traditional nonprofit organisations/social economy entities.

Figure 1. Three dimensions of social enterprises (Wilkinson 2015)

The following core criteria were established from the three dimensions in the above illustration, and reflect the minimum conditions that an organisation must meet in order to be categorised as a social enterprise under the EU definition:

■ The organisation must engage in economic activity: this means that it must engage in a continuous activity of production and/or exchange of goods and/or services.

■ It must pursue an explicit and primary social aim:  a social aim is one that benefits society – for who the social or societal objective of the common good is the reason for the commercial activity, often in the form of a high level of social innovation.

■ It must have limits on distribution of profits and/or assets: the purpose of such limits is to prioritise the social aim over profit-making – profits being mainly re-invested to achieve social objectives.

■ It must be independent i.e., organisational autonomy from the State and other traditional for-profit organisations.

 ■ It must have inclusive governance i.e., reflecting the enterprise’s mission using participatory and/or democratic decision-making processes and/or focusing on social justice.