Limited companies have limited liability and are distinct legal entities from their members. A social enterprise could elect to be constituted as either a company limited by shares or a company limited by guarantee – the former can technically pay dividends to shareholders (although if these were substantial it would obviously be questionable to refer to such an entity as a social enterprise).

Accounts for limited companies must be submitted to Companies House, usually prepared in accordance with UKGAAP (UK Generally Accepted Accounting Principles) and the directors need to consider whether the entity legally needs an annual audit.

A social enterprise set up as a limited company may also be established as a charity, if its goals are solely charitable and for public benefit, in which case registration with the appropriate charity regulator(s) is needed – the Charity Commission if in England or Wales. It would then need to abide by applicable charity laws, such as the Charities Act 2011 and 2022 in England and Wales, and annual returns need to be filed with the regulator.

However, the advantages of being a registered charity could well offset the additional compliance obligations, as several tax exemptions on gains and income and on profits generated from activities are available, which are well known – for example the ability to claim gift aid on donations received, the exemption from corporation tax on surpluses generated from primary purpose trading, amongst others.

A type of structure that was introduced as a legal option in the UK in 2005, due to a lack of legal structures available for social enterprises and similar entities – a CIC is a specific type of limited company that provides benefits to the community or that furthers a local or social cause.

The ‘community interest test’ needs to be passed by the enterprise prior to it being permitted to register as a CIC, and the CIC regulations need to be complied with – one requirement of which is the ongoing demonstration of community impact through submission of an annual community interest report, similar to the production and filing of the trustees’ annual report for charities for the demonstration of public benefit. Note that CIC’s cannot be registered charities.

An existing company can be converted to a CIC however, and like trusts, an ‘asset-lock’ is created which restricts profit distribution and ensures assets cannot be diverted away from their intended use for the community. All assets must be transferred to another similar asset-locked body should the CIC ever wind-up.

A key advantage of a CIC (over a charity) is that the directors of a CIC can be remunerated (charity trustees generally are not remunerated, and often need to seek Charity Commission approval). CIC’s are also not as heavily regulated – there is more of a ‘light touch’ regime, however they don’t enjoy the same tax advantages that registered charities do.

CIO’s are essentially incorporated charities which are not companies – up until relatively recently the only way to incorporate a charity in the UK was for it to also become a company limited by guarantee; that ‘charitable company’ form is probably still the most abundant form of UK charity (particularly for those who have been around a while). Having said that, since its introduction in 2013 and after an initial slow up-take, the CIO option has become much more popular approach for new entities, which is understandable given the advantages.

If a social enterprise sets up as a CIO it benefits from limited liability due to the entity having a legal identity of its own, it benefits from tax advantages such as the claiming of gift aid and corporation tax exemption on primary purpose charitable trading, and need only register (and hence submit accounts and keep its records up to date) with the Charity Commission, and not also Companies House.

Trusts are unincorporated entities - they don’t distribute profits, and are instead set up usually for the purpose of holding assets or property, allowing trustees to manage them for the good of the community. They are governed usually by a trust deed, the purpose of which is to protect the trust’s objectives, and the use of assets for the desired community benefit and not another purpose. There is the option of including an ‘asset-lock’ in a trust deed which secures assets within the entity.

A key characteristic of trusts however is that they do not have a distinct legal identity – therefore, the liabilities of the entity are borne by the trustees themselves. This could be a substantial drawback and potential area of risk for a new social enterprise entity with ambitions to become anything more than a simple, straight-forward operation.

Trusts can also be registered charities, in the same way as limited companies can – the same considerations apply regarding registration with the regulator and the required compliance.

An unincorporated association is the most basic way of establishing a social enterprise – essentially it’s a group of people gathered and looking to further a shared social objective (although commercial activities can still also be carried out). A management committee is chosen to oversee the organisation on behalf of all of its members, and there is autonomy for the committee and members to establish the entity’s rules and internal ways of operating.

There aren't many formalities involved in setting up an unincorporated association, which can be a significant benefit. However, as in the case of a trust, a notable downside is that the entity has no legal identity, and so any liabilities are borne by the trustees and not the enterprise. Clearly therefore, this approach isn’t suitable if the entity wants to employ staff, enter into contracts of reasonable value, bear liabilities of any sizeable quantum, obtain lending, enter into leases, apply for grant funding etc.

Unincorporated associations can also be registered charities, in the same way as limited companies and trusts can – the same considerations apply regarding registration with the regulator and the required compliance.

Probably less common or well-known forms of social purpose entity, community benefit societies (known as ‘BenComs’) are incorporated registered societies which operate for the benefit of the community in which they operate. They pay a fee (which is variable and determined based on a number of factors) to register with the Financial Conduct Authority, and need to show and continue to demonstrate they’re meeting their social aims.

BenComs are different from co-operatives, as those operate primarily for the benefit of members. Depending on the manner in which profits are distributed, and the activities undertaken, a co-operative could present a good fit for a social enterprise.

These are relatively niche entities - specialist advice should be sought if there’s any uncertainty as to whether one of these routes is the best approach.