What is a social business and what is a social enterprise?

What is a social business?

A social business is one which integrates two objectives:

• A commercial objective: To achieve and increase profits and realise growth (like any traditional business) and...

• A social (and ethical and environmental) objective: As set out in our list of social benefits, found in the search box on the company directory as well as in the resources & library section.

A social business can be large or small, a start-up or an established player, it can take any legal form (For Profit Corporations, Not-For-Profit Corporations, Co-Operative Corporations, and so on) and can operate in most industrial sectors.   

So do companies with grand corporate social responsibility (CSR) projects count as social businesses?

No.  A further test of social businesses is to think: does an investment into the business which advances commercial activity also increase its social impact? (i.e. is there a clear correlation between the two and are they of equivalent importance?). If the answer is yes, they are a social business; if the answer is no, then they are not. Investing in Kraft or Royal Bank will not increase their social impact so, despite their efforts, they are not social businesses. 

 What if a business fits the definition above but does not identify itself as social?

It is still a social business. We have identified two types of social business:

• Those where the social benefits are intentional and the business pro-actively integrates the two objectives (commercial and social).
• Those where the social benefits happen by virtue of its commercial objective. These do require a pro-active approach in integrating the social objective. It's a business that integrates commercial objectives (growth, profits) with a social, ethical or environmental one, but they may not refer to themselves as a social business.

Investment perspective:  Social businesses can, in the case of financial surplus, return all or a portion of it to investors (in the form of capital appreciation or dividends) as well as what is known as the ‘social return’.

There are many types of social business covering many sectors; you can explore them here.

Disagree? Email us your definition!

What is a social enterprise?

Social enterprises mix social, environmental and commercial objectives but, unlike social businesses, they place a clear emphasis on the former.  The other big difference between social business and enterprise lies in the treatment of financial surpluses, or profits. According to the Enterprising Non- Profits:

“The Enterprising Non-Profits Program uses the term "social enterprise" to refer to business ventures operated by non-profits, whether they are societies, charities, or co-operatives. These businesses sell goods or provide services in the market for the purpose of creating a blended return on investment, both financial and social. Their profits are returned to the business or to a social purpose, rather than maximizing profits to shareholders.”

The Social Enterprise Alliance defines social enterprise as an organization or venture that achieves its primary social or environmental mission using business methods.

Investment perspective: Social enterprises must ‘principally’ direct financial surpluses back into the business or the cause it serves, whereas social businesses can distribute dividends or create value through capital appreciation.

What about a charity?

The traditional vehicle for creating social or environmental benefit is a charity. However, an increasing number of charities are exploring and developing entrepreneurial activities to generate new sources of income in order to further their social objectives and create more sustainable business models. The Canadian Revenue Agency describes these profit-making activities as "related businesses". The CRA view of what constitutes a "related business" can be found in a Policy Statement on its website.

ClearlySo Canada wishes to hear from any organizations or professionals who are actively engaged in recommending changes to CRA policy on social enterprise activities or charities.

Email your recommendations and comments

Investment perspective: Charities in Canada typically receive donations, not investment. All returns are social, not financial. Any profits made through a trading subsidiary must be invested in addressing the charity's core cause.

What about CICs, social firms, and co-operatives in the UK?

The Community Interest Company (CIC) is a legal vehicle which was created in 2005, and was specifically designed for businesses with a social mission.  A CIC is a limited company established for community purposes which has passed a ‘community interest test’ (ensuring it is for the community and not just for profit), and undertaken an ‘asset lock’ (ensuring the company uses its assets and profits for the public good). CICs do not receive the same tax benefits as charities but face a lighter regulatory burden.  
Investment perspective: Dividends for investors are capped. The CIC is still, we would say, at an early stage of its development.
A social firm 'aims to create employment opportunities for disadvantaged people through the development and support of Social Firms'. Social Firms are market-led businesses that are set up specifically to create good quality jobs for people severely disadvantaged in the labour market.“ Social Firms UK

A co-operative is a company run and owned by its workers and/or consumers where each member has one vote; it often takes the form of an Industrial and Provident Society. There are many types of co-op, including worker or producer co-operatives, consumer or retail co-operatives, housing co-operatives, credit unions and secondary co-operatives.

ClearlySo sees CICs, Social Firms and Co-operatives as 'social' in nature.

Investment perspective: Outside investors (non-members) in co-operatives have no control and limited returns. 

Comments & Opinion

The Yunus Perspective

Muhammad Yunus, Nobel Laureate and founder of Grameen Bank, has a different definition for social business which closely resembles the UK government’s definition of a social enterprise.  We are holding to our definition because we believe that there is a clear difference between the two, particularly in terms of potential financial return on investment.

Reader comments

"As I understand it, what MY calls a social enterprise you call a social business, and what you call a social enterprise he calls a social business.

He says social enterprise is much wider, he would include Body Shop, for example, but he says you can't pay dividends on a social business, so I suppose he wouldn't include Body Shop.

He says it's difficult to 'mix' social and financial objectives, because in the current world the financial objectives would always come first.  That's why he doesn't include companies that pay a dividend.

A bit confusing for the moment, while Social Business is a fairly marginal concept.  I think I'll go with MY for the moment, because he's more famous than you are!! (sorry).

It's only words though, it's what you do that counts."
Mark Holdsworth

"I have to say, I couldn't agree more with your definition of what a social business is.  I also belive that investors and partners should be able to pull a "reasonable" return from socially minded business that they participate in.  It really comes down to picking the right investors and partners and setting the right expectations from the start. 
 
I particularly like how at the end you state that Muhammad Yunus's definition is not the same as what you and I believe.  While I greatly admire Mr. Yunus's work, I think there is still more innovation and deliberation to be done on the subject as a whole and that we will be able to change the world, make money, and be happy."
Thomas Stewart