Social Enterprise in the North East

Between conventional business and charity sits a third model: organisations that trade commercially but exist to deliver a social or environmental purpose, with profits reinvested rather than distributed.

The North East has a long history in this territory, from the co-operative movement and miners' welfare institutions through to a contemporary social enterprise sector that is consistently reported as among the strongest in the country.

Here is how it works.

The defining feature is purpose.

A social enterprise trades in the market like any other business, selling goods or services and generating revenue.

What distinguishes it is that the business exists to achieve a social or environmental objective, and that the majority of profits are reinvested in that purpose rather than distributed to owners or shareholders.

It is not a legal form in itself. Several different structures can be used, and the choice depends on how the organisation intends to operate and raise money.

Several legal structures are available.

A community interest company, introduced in 2005, is a limited company with an asset lock preventing assets and profits being distributed except for community benefit. CICs are regulated by the CIC Regulator and must file an annual community interest report.

A company limited by guarantee has no shareholders and is commonly used by organisations that do not need to raise equity.

A community benefit society is a co-operative form owned by members on a one member, one vote basis, and can raise money through community share offers.

Charities can and frequently do trade, either directly where the trade furthers their objects, or through a wholly owned trading subsidiary which gift aids profits back to the charity.

The right structure depends on funding plans, governance preferences and whether the organisation wants charitable status and the tax advantages that come with it.

The regional history runs deep.

The co-operative movement had substantial strength across the North East coalfield, with co-operative stores central to the economy of pit villages across Northumberland and Durham.

Miners' welfare institutions, working men's clubs, building societies and mutual insurance all reflected the same underlying idea: collective ownership serving members rather than external investors.

That inheritance is frequently cited as part of why the region has a comparatively high density of social enterprise today, alongside the practical reality that areas with entrenched social need generate organisations attempting to address it.

What they actually do.

Regional social enterprises operate across a wide range of activity: employment support and training, care and support services, recycling and reuse, catering and hospitality, arts and culture, sport, transport, childcare, housing and energy.

Many exist specifically to employ people who face barriers to work, including people with disabilities, care leavers, people with convictions and people in recovery from addiction. The business exists partly to create the jobs.

Others trade to fund a service, using surpluses from commercial activity to subsidise provision that could not be sold at cost.

Funding is a mix.

Social enterprises typically combine trading income with grants, contracts and social investment.

Social investment means repayable finance from investors seeking social as well as financial return, available from specialist lenders on terms that mainstream banks generally do not offer.

Community share offers allow community benefit societies to raise capital from local supporters, and grant funding remains significant for start-up and development.

The balance matters. An organisation dependent entirely on grants is not really a social enterprise, and one with no social funding may struggle to serve the people who cannot pay.

Public sector procurement is a route to market.

The Procurement Act and the social value framework require public bodies to consider social, economic and environmental benefit alongside price when awarding contracts.

That has opened opportunities for organisations that can demonstrate genuine local social impact, though contract sizes and bidding requirements can still favour larger providers.

Consortium bidding, in which several small organisations bid jointly, is one response, and regional support bodies help with that.

Support exists regionally.

Social Enterprise UK represents the sector nationally and publishes research, and regional networks operate across the North East connecting organisations and running events.

Business support organisations, universities and the combined authority all run programmes that social enterprises can access, and several are specifically aimed at the sector.

Co-operatives UK provides guidance on co-operative and community benefit society structures, and the CIC Regulator publishes guidance on that form.

Practical advice for anyone starting one.

The most common failure is treating a social enterprise as a charity that happens to sell things. It has to work commercially, which means understanding costs, pricing, cash flow and customers.

Choosing the legal structure before the business model is another frequent error. Establish what you intend to do and how you will fund it, then select the form that fits.

Governance matters more than in a conventional small business, since the board carries responsibility for protecting the social purpose, and funders and commissioners will scrutinise it.

Share your thoughts.

Have you used a social enterprise in the North East without realising it?