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The difference between a not-for-profit, charity, community group & social enterprise
"There are better things ahead than any we leave behind" - C. S. Lewis
Just a quick update before this week’s article:
I really appreciate all the enquiries about working with me directly and I genuinely love to try to help as many groups as I can. However, I have recently started working with two new charity clients and so am now fully booked for 1-1 support until early 2024. The only exception to this are those groups referred to me by Kirklees TSL as I hold a small number of consultation slots open for these clients each month. For all other enquiries, and if you can't find the information you're looking for in my existing resources, please feel free to email me and I will point you in the right direction, or recommend another consultant.
Many thanks, Rachel.
The information in this article is taken from my workbook & mini course ‘Starting a Not-for-Profit’ – written for those of you who are at the stage of creating a platform for your cause and looking for some help around starting up and structure.
What is a Not-For-Profit?
There is a lot of confusion about what a not-for-profit organisation is and does, which can be confusing if you’re trying to research how to start one.
The term ‘not-for profit’ is not a legal structure. Instead, a not-for-profit organisation is a business that aims to do something other than make a profit for its owners.
It is independent, meaning it is not owned by the government or any statutory services. It also means it is not owned by shareholders.
A traditional business that is for-profit seeks to make a profit for its directors, members or shareholders.
However, one of the most common misperceptions I hear is that if you run a not-for-profit organisation you can’t make a profit.
That’s not actually what not-for-profit means. It doesn’t mean you can’t or shouldn’t make a profit, instead it’s a way of doing business that dictates what you do with your profit.
These articles are free to access, but if you find value in this content, please consider supporting my work through a voluntary contribution. In doing so, you will also get access to the PDF versions of all of my workbooks.
What is a Charity?
Just as the term ‘not-for-profit’ is not a legal structure in itself, neither is the term ‘charity’.
If you want to start a charity in the UK, you need to consider two key things:
Whether your organisation will be charitable according to the government guidelines.
Which legal structure your ‘charity’ will take.
Will your organisation be charitable?
Here, we are asking whether your organisation meets the government definition of having a ‘charitable purpose’, for which there are two legal requirements. It must:
1. fall within the descriptions of purposes in the Charities Act. There are 13 of these descriptions:
the prevention or relief of poverty
the advancement of education
the advancement of religion
the advancement of health or the saving of lives
the advancement of citizenship or community development
the advancement of the arts, culture, heritage or science
the advancement of amateur sport
the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity
the advancement of environmental protection or improvement
the relief of those in need, by reason of youth, age, ill-health, disability, financial hardship or other disadvantage
the advancement of animal welfare
the promotion of the efficiency of the armed forces of the Crown, or of the efficiency of the police, fire and rescue services or ambulance services
any other purposes currently recognised as charitable or which can be recognised as charitable by analogy to, or within the spirit of, purposes falling within (a) to (l) or any other purpose recognised as charitable under the law of England and Wales
2. be for the public benefit – this means it’s purpose must be beneficial to the public in general, or a sufficient section of the public.
To recap, it’s important to remember that a ‘charity’ is not a legal structure in itself, but rather an organisation that meets the legal requirements outlined above.
A charity can adopt one of several legal structures, including:
A charitable incorporated organisation (CIO)
A charitable company limited by guarantee
An unincorporated association
A charitable trust
A Community Benefit Society
What is a community group?
When people talk about a community group, or they ask me how to start one, they are usually referring to a local group that either:
Aims to fix or address a problem, need or issue in the local community
Seeks to add something that’s missing
Creates an outlet for friendship & togetherness
Therefore, a community group is a group of people working together with a common aim.
Whilst you might start out as an informal group, if you want to gain real traction and make an impact on your local community, you might want to take a step towards formalising your group.
A community group is usually unincorporated. Very briefly, here’s what that means:
An unincorporated organisation is seen in legal terms as a collection of individuals, meaning that the people who set up the group are themselves the group. Therefore, all financial obligations are the direct responsibility of that group of individuals.
To keep things simple, most people will start off by creating an unincorporated association. This can be a great place to start because it allows you to create some structure for your group, but it’s easy to then move to a different (incorporated) structure if and when you grow.
What is a Social Enterprise?
The term social enterprise has become widely known and used increasingly over the last 15 years or so since the introduction of a new type of company, a Community Interest Company, was founded in the UK in 2005.
Now, the terms ‘social enterprise’ and ‘community interest company’ are often used interchangeably, but they’re not actually the same thing.
Let’s start with social enterprise.
A social enterprise is not a legal structure. Instead, I like to think of it as a way of doing business.
A social enterprise is a business that has a clear social or environmental aim – in other words it is set up to prioritise the social good it can do.
A social enterprise generates some, and in some cases, most of its income through sales, rather than grants, unlike many charitable organisations.
A social enterprise reinvests its profit back into the community it was set up to serve.
Now because ‘Social enterprise’ isn’t a recognised legal term, but rather an approach to doing business, many different types of organisations can class themselves as a social enterprise, including limited companies, sole traders and charities. You may not even be aware that some well-known brands in the UK such as The Big Issue and The Co-op are social enterprises.
But, if you are thinking about starting a social enterprise, then the most common legal structure that is used is the Community Interest Company model, also referred to as a CIC.
In all honesty I am a big fan of the CIC. Here’s why:
The way I describe the CIC is that it’s like a hybrid business model, giving the best of both the ‘charitable’ and the ‘business’ approaches. I see them as offering a really flexible way to deliver on your mission or social aim. For many people, myself included it provides the perfect vehicle for turning a passion into a living, and doing so in a way that feels authentic and ethical.
The main thing to note is that none of the terms ‘not-for-profit’, ‘charity’, ‘community group’ or ‘social enterprise’ are actually legal structures in themselves, but the definitions of them can help you to decide what kind of platform you need in order to do the good work you plan to do in the world.
If you have any questions, please feel free to ask in the comments below,