Legal Framework, Funding, and Procurement Polices to Accelerate the Growth of the Social Enterprise Ecosystem

Legal Framework, Funding, and Procurement Polices to Accelerate the Growth of the Social Enterprise Ecosystem

DOI: 10.4018/978-1-5225-2770-1.ch003
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The purpose of this chapter is to provide an outline and overview legal framework for social enterprises, including funding and procurement policies to accelerate the growth of social enterprise ecosystem. The legal framework specifically designed for UK social enterprises is known as Community Interest Company (CIC). The internal governance rules, the permissibility of direct economic activities and the rules governing profit distribution for a CIC are discussed. The chapter explains procurement policies introduced in the United Kingdom to ensure deliver and accountability for services provided by social enterprises. Procurement is increasingly seen as the key to delivering desired outcomes for government funded programmes and it provides the link between policy and delivery. The chapter also discusses a number of funds and loans structures established by the government such as: Future Builders, The Social Enterprise Investment Fund, and Big Society Capital (BSC) to encourage the development of third sector social enterprises.
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Appropriate legal frameworks can be useful for many reasons, including capturing their specific needs, to govern access to public procurement, and to define the beneficiaries of other forms of public support for the organisation, to open up opportunities for fiscal relief and incentive. Fiscal incentives can contribute to overcoming some of the difficulties confronted by social enterprises when working with disadvantaged groups (such as, requirement for intensive support, etc.). Social enterprises usually chose the legal form that they believe will best serve their social and environmental purpose. Some are limited companies just as for-profit enterprises, and are regulated by Companies House. Others with strong co-operative roots often register as an Industrial and Provident Society. A social enterprise could also be private joint stock or limited liability companies insofar as they are established to pursue social goals, rather than generate profit for owners and shareholders. A social enterprise can be a sole trader who has decided to donate the majority of generated profit to social purposes (good cause), a partnership or it may take an unincorporated legal form, such as an unincorporated association or a trust (or a combination of the two). Several social enterprises in the UK are registered as Community Interest Companies (CIC) which means they are regulated both by Companies House and the CIC Regulator (Regulator of Community Interest Companies, 2007). The legal structure available to social enterprise in the UK is displayed in Table 1 below.

Table 1.
Legal structures and key features
Legal StructuresKey Features
Sole TraderA business owned and managed by one individual
Unincorporated AssociationAn organisation with no separate legal identity other than its members.
Company Limited by Guarantee(CLG)A limited company with no share capital where members act as guarantors (usually for a nominal amount) if the company is wound up.
Company Limited by Shares (CLS)The standard structure for a for-profit company. The liability of the shareholders to creditors of the company is limited to the capital originally invested.
Industrial and Provident Society (IPS)A legal form of co-operative regulated by the Financial Conduct Authority and adopted by Credit Unions among others.
Public Limited Company (PLC)A company limited by shares which can be traded publicly on a stock exchange.
Community Interest Company (CIC) Limited by Shares or Limited by GuaranteeA limited company whose social purpose is enshrined and where there is a limit on the amount of profit that can be distributed other than for its social purpose.

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