Social Enterprise Mark

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Social Enterprise Mark

The Social Enterprise Mark is a kitemark scheme established in the UK to raise the visibility of social enterprises to customers and the general public. During development, the mark was envisaged as having three 'levels, but it was eventually simplified and in its final form recognises only one status. In June 2011 about 400 social enterprises have been awarded the mark (the Social Enterprise Mark website contains a directory of them). In January 2012 it was registered as a European Community trademark, entrenching the principles of semi-non-profit-distribution and altruistic dissolution.

Contents

SEC list of qualification criteria

The Social Enterprise Coalition sets out the criteria as follows:[1]

* Your company (sic) has social and/or environmental aims?
* Your company has its own constitution and governing body?
* The company earns at least 50% of its income from trading (or as a new start, you pledge to reach this within 18 months)?
* At least 50% of company profits are spent on socially beneficial purposes?
* Your company can demonstrate that social/environmental aims are being achieved?
* If your company ceased trading, remaining assets would be distributed for social/environmental purposes?
Answer ‘Yes’ to these questions and your business could achieve the Social Enterprise Mark.

RISE description

In 2009, RISE described the qualification criteria for organisations applying to access the Social Enterprise Mark as follows:[2]

Principles behind the Social Enterprise Mark qualifying criteria

The Social Enterprise Mark will change the place of social enterprises in the market place. The principles behind the qualification criteria are:

  • The Social Enterprise Mark is a label which tells customers that a product or service comes from a social enterprise. The Mark is a way for social enterprises to promote their values-driven business to customers. Those qualifying to use the Social Enterprise Mark will be established social enterprises who achieve a wider social outcome.
  • Social enterprises can be very different from one another. The Social Enterprise Mark should not dictate one legal form or one way of evidencing impact, so long as applicants fulfil the criteria below. The Social Enterprise Mark is the customer agent and is responsible for understanding the different approaches.
  • Social enterprises are often small organisations and as such joining the Social Enterprise Mark should not be too onerous. Therefore it will work with applicants to review and interpret documents and evidence as already in existence within the social enterprise.
  • Assessing applications to the Social Enterprise Mark is partly a technical process e.g. legal forms, what constitutes trading, etc. To ensure consistency and transparency a dedicated Social Enterprise Mark Impact and Assessment Manager reviews all applications.

The criteria

In order to be eligible for the Social Enterprise Mark, applicants must demonstrate that they are a social enterprise whose key driver is trading and that they operate for wider social/environmental benefit. Applicants will need to provide evidence in two key areas:

1. Show through their constitution that a sufficient proportion of the profit made by the business is spent on socially beneficial purposes, and that, on dissolution of the business, all residual assets are distributed for socially beneficial purposes.

2. Show by their activities and their accounts that trading is a key driver and that profit generated is used for social or community benefit –whether by the social enterprise itself or by another agency.

The guidance below gives more detail of the criteria and types of evidence that support these requirements.

Qualifying organisations will:

Be an eligible legal form

  • Some legal forms are designed solely to provide private profit and these are not eligible. Sole traders, partnerships and traditional profit distributing companies are not eligible; some co-ownership cooperatives and most Limited Liability Partnerships (LLPs) are unlikely to be eligible.
  • Unincorporated associations without charitable status are not eligible as there is insufficient legal and regulatory framework to dictate how they operate, particularly in relation to distribution of profits.
  • Other legal forms will be eligible if they meet all other criteria.
  • The Social Enterprise Mark is not primarily aimed at organisations that have/are aiming for charitable status ONLY. The lack of a company registration (e.g. co limited by guarantee) suggests that trading might not be a key driver. However if the charity meets the criteria and is trading, then it would be eligible, as would a separately constituted trading arm of a charity.

Eligible legal forms must provide their Company or Industrial & Provident Society (IPS) registration number or similar.

Adhere to certain shareholders restrictions

If it can be shown that the shareholder group promotes social or community benefits, then the business may be eligible. Applicants that have shareholders must state who they are. This could include:

  • A shareholder that is a registered charity
  • Where surpluses distributed to members constitute a social benefit

Have own constitution and governing body

Eligible organisations must be independent businesses and not part of the public sector. Therefore in all cases, if the governing body is a public authority, such as a local authority, college or health trust, then this is not an independent social enterprise. If the governing organisation is a charity or other voluntary group and the social enterprise is part of a separate trading organisation then it may qualify to use the Social Enterprise Mark

Profit is predominantly used and/or distributed for social/environmental purposes

Distribution of profits restrictions – must provide Constitutional document (and possibly further documentary evidence). The relevant clauses must be quoted that relate to:

  • how the organisation distributes profits; and
  • how any residual assets are distributed if the business is wound up.

The business may distribute its profits in a number of different ways that have a positive social/community benefit:

  • If the trading activity of the social enterprise is, in itself, socially beneficial, then direct reinvestment is eligible.
  • Distribution to individual members. Some social enterprises earn income through commercial trading activity specifically to make profits, which are redistributed, to another organisation or to shareholder(s). If the income is distributed to individual and/or organisational members then there needs to be some interpretation of whether providing income to these recipients is socially beneficial.

For example, a workers co-operative that employs people who are otherwise disadvantaged in the labour market can be seen as providing social benefits. If distribution to members cannot be shown to be socially beneficial, then such distribution should not exceed the current Community Interest Company (CIC) caps.

  • Where investors receive a share of profits, there is a cap on the level of interest that can be earned, contingent with that of the regulations for CICs.
  • Donated to other organisations for social benefit, e.g. a trading arm of a charity donating profits to the charity.

Limited Liability Partnerships (LLP) must provide evidence from its LLP Agreement of:

  • Its social aims, what its trading activities are, how reasonable remuneration is agreed and how it is to be reinvested into the organisation’s social aims.

Have traded for a minimum of one year and earn 50% or more of its income from trading

  • The organisation must confirm that it earns more than 50% or more of its income through trading; as evidenced in the form of either audited accounts, or abbreviated balance sheet, as submitted to the Registrar of Companies/Financial Services Authority (FSA). If the organisation does not have these documents it must state why.
  • Trading is defined as; ‘the direct exchange of goods and services’ and replicates the means by which most “traditional” businesses trade and make money.
  • The definition trading excludes government grants, grants or donations.
  • If you are unsure whether payments received from a public body are grants or fees (trading), you may wish to consider your response to the following questions:
    • are the services provided those a payer is statutorily obliged to provide? If yes, it is likely to be a fee, if no, then:
    • does the payer benefit from the services provided? If yes, it is likely to be a fee, if no
    • payment is probably a grant (see Finance Hub VAT briefing, VAT made simple when working in partnership). If this is the case and the income stream affects your eligibility in respect of trading levels, we suggest you seek further advice from the Impact & Assessment Manager, or ask for details of the guidance on trading contained in the Operators Manual.
  • The organisation must confirm as at the end of the last financial year:
    • Turnover
    • Total income generated through trading activities
    • Total profit made at the end of the last financial year
    •  % of income generated through trading activities
    • Page where evidenced in accounts
  • Additionally internal directors’ financial records and/or financial plans would be helpful as they will be more likely to show how profits are distributed and how the business invests time and money in its social purpose.
  • If the organisation is considered on the cusp possibly because they are awarded a single large grant, for example for capital investment, then this might affect the trading income shown in a single year’s accounts. If this is the case then they can submit other year’s accounts as well, ideally the past 3 years, with two out of three showing more than 50% trading income.
  • If the business is within 5% of the 50% threshold and is within the first three years of trading, then this can be acceptable as long as the drivers of the business are clearly trading rather than seeking grants. This should be interpreted from answers to other questions.

Most Limited Liability Partnerships (LLP) are not eligible. If this is the organisational form of the applicant then the following is needed:

  • LLP Agreement includes a statement of the social aims of the partnership, what its trading activities are, how reasonable remuneration is agreed and how profit is to be reinvested into the partnership’s social aims.
  • The challenge with this model is in the way the accounts of an LLP are written. The remuneration of the partners is shown in the accounts as profits, which can look misleading if the organisation is presenting itself as a social enterprise which reinvests its profits, after reasonable remuneration is paid out to the Partners for the work undertaken, back into its social aims. Therefore the accounts must be examined alongside the LLP Agreement.

Regarding VAT, a number of social enterprises attempt to keep their trading activity below the current VAT registration threshold of £67,000, as this would mean charging individual clients an additional 17.5% (for example for the provision of home care services), which they are reluctant to do to people on limited incomes. This can lead to them interpreting income from public authorities as non VAT-able grants. However, even if this is happening, it would not affect the nature of the relationship – if it is genuinely a contract it should be treated as a trading activity.

Be able to provide evidence that social/environmental objectives are being achieved

The social/environmental objects from the governing document must be provided, together with a minimum of one externally verified piece of evidence that demonstrates social/environmental benefit is being achieved. The evidence you produce should be at an appropriate scale to reflect these objectives in full. It should also reflect the size of the organisation and the resources you have to collect this information.

This could be achieved from the following sources:

  • Evaluations which are financially significant to your organisation and where the evaluation has been completed by an external body/agent
  • Reportage arising from Impact and Assessment activities, e.g. C3 Perform)
  • Quality assurance and performance improvement standards met (e.g. Investors in People and ISO 9001)
  • Sector specific reports, e.g. Ofsted
  • Other: anything else you think provides suitable evidence, e.g structured feedback from stakeholders.

Many social enterprises offer additional social/economic/environmental/educational benefits, above and beyond their primary objects. The ability to show additional benefits is not obligatory, but it will assist in assessing your application.

Registration as European Community trademark

On 18 Jan 12 Third Sector Online ran the following story by David Ainsworth:

Social enterprise mark made available internationally

Social enterprise mark has been registered as a community trademark in the EU.

The social enterprise mark will be available internationally, the company that awards it has announced. The mark, which guarantees that a company has social objectives and a strict asset lock, was yesterday registered as a community trademark in the European Union. Lucy Findlay, managing director of the Social Enterprise Mark Company, said any social enterprise in the EU could now apply for the mark. She said that work was continuing to register it in the US, Australia, India, Canada and South Africa.

"Setting an international standard for a common understanding of social enterprise is crucial to the development of the sector across the world," she said. "This is an important step in developing a worldwide position where genuine social enterprises are recognised. We are thrilled that the process is now concluded in the European Union. We are continuing to work with key partners around the world to investigate the mark’s applicability in their local circumstances."

A social enterprise mark has been launched in Finland by the government, however the Social Enterprise Mark Company said it "has reservations about its practical implementation". The Social Enterprise Mark Company has said it will continue to support the local social enterprise body, Syfo, which is not connected to the mark.

The Social Enterprise Mark Company recently became independent after the closure of its owner, the regional social enterprise umbrella body Rise. It has also launched a campaign that asks companies to buy from social enterprises – the 50 in 250 campaign is supported by KPMG, the City of London Corporation and Wates Construction.

The mark was launched in early 2010 and has been awarded to 462 organisations.

Notes

More information regarding the context and vision of this work is available at http://www.socialenterprisemark.co.uk.

Also available is a more detailed version of the qualification criteria, the Operators Manual. If you would like to see this please email mailto://katl@rise-sw.co.uk and we will email it to you.

If you have any further queries about the eligibility criteria, please see the ‘FAQ’ section of the website or contact the Impact and Assessment Manager, Sue Bladon, on +44 7813 151234, mailto://sueb@rise-sw.co.uk.

  1. http://www.socialenterprisemark.org.uk/the-mark/what-is-social-enterprise/
  2. http://www.socialenterprisemark.co.uk/webfm_send/45 (28 July 2009). Copyright © 2008 Regional Infrastructure for Social Enterprise (RISE) Issue 3 January 2009