The Social Enterprise Mark: qualification criteria
This document sets out the qualification criteria for organisations applying to access the Social Enterprise Mark.
As the Social Enterprise Mark goes ‘live’ other information and leaflets will be available for each different audience, including application guidance for social enterprises, and an information leaflet to funders and policy-makers.
This document should be read in tandem with “The Social Enterprise Mark: an overview” which provides the context.
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 will say to customers – “If you trade/buy here you are achieving a wider social outcome”.
Those qualifying to use the Social Enterprise Mark will be established social enterprises who achieve a wider social outcome.
Achievement of the Social Enterprise Mark will be a ‘destination’ and will be inspiring for emerging groups who are aiming to become members. Although the Social Enterprise Mark itself is essentially customer focused, the initiative will be linked with business development programmes that are being run in parallel to enable social enterprises to build their capacity as a business.
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 consumer 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.
Identifying social enterprises is partly a technical process e.g. legal forms, what constitutes trading, etc. To ensure consistency and transparency a dedicated Social Enterprise Mark staff member will review all applicants. They will make recommendations to the Social Enterprise Mark panel for consideration and approval. When established, this will be made up of independent people/agencies who have knowledge of the sector.
In order to be eligible as a member, applicants must demonstrate that they are a social enterprise and that they operate for social/community benefit.
Qualifying organisations will :
a. Be an eligible legal form
§ Sole traders, partnerships, unincorporated associations and traditional profit distributing companies are not eligible; some co-ownership co-operatives and most Limited Liability Partnerships (LLPs) are unlikely to be eligible.
§ Other legal forms will be eligible if they meet all other criteria.
§ The Social Enterprise Mark is not primarily aimed at those organisations that have/are aiming for charitable status as this is already an effective signifier of their social impact. However, if trading is a key driver and if the charity meets the other criteria, then a charity would be eligible.
Eligible legal forms must provide their Company or Industrial & Provident Society (IPS) registration number or similar
b. Adhere to certain shareholders restrictions
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
c. Have own constitution and governing body
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.
d. Only provide any distributable profit to individual and/or organisational members that are socially beneficial.
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.
§ 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.
There is a cap on the level of interest investors can earn, contingent with that of the regulations for CICs
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.
e. Have traded for a minimum of one year and earn 50% or more of its income from trading
Trading – Audited accounts or an abbreviated balance sheet
§ The organisation must confirm that it earns more than 50% or more of its income through trading.
§ The organisation must confirm as at the end of the last financial year:
– Total income generated through trading activities
– % of income generated through trading activities
– Page where evidenced in accounts
§ Evidence should be provided in the form of either audited accounts, or abbreviated balance sheet, as submitted to the Registrar of Companies/FSA. If the organisation does not have these documents it must state why.
§ 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.
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 a Public Authority contract is under £150,000 the organisation needs to decide whether the contract is really a contract, or classed as a grant from a Public Authority (see Operator’s Manual for further details).
Regarding VAT, a number of social enterprises attempt to keep their trading activity below the current VAT registration threshold of £64,000, 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.
f. Be able to provide evidence that social objectives are being achieved.
The social objects from the governing document must be provided, together with a minimum of one externally verified piece of evidence that demonstrates social benefit is being achieved. The evidence they should produce should be at an appropriate scale to reflect their social objectives in full. It should also reflect the size of the organisation and the likely resources they will have to collect this information.
This could be achieved through the following tools:
– Social Accounting – Social Return on Investment (SROI)
– Local Multiplier 3 (LM3) – Prove It!
QUALITY STANDARDS (Externally verified quality standards)
– Investors in People – AA1000 Assurance Standard
– Matrix (advice and guidance) – SIGMA Sustainability Guidelines
– Eco-Management and Audit Scheme (EMAS) – Global Reporting Initiative (GRI) Guidelines
– Star Social Firm
– EFQM Excellence Model, European Foundation for Quality Management
– ISO 14000 Series, International Organisation for Standardisation
– ISO 9000 Series, International Organisation for Standardisation
– Practical Quality Assurance System for Small Organisations (PQASSO)
– External evaluations of your work
– Annual Trustee’s Report
– Sector specific regulatory requirements, e.g. Ofstead inspection; Waste management standards;
Food hygiene certificates
– General regulatory requirements, e.g. Health and Safety Certificate.
– Evidence you have produced in order to win public sector contracts
– Any other documented evidence which is not mentioned above
• 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 their application.
g. Be based in or operational in the South West
The business must have an address in the South West region or be able to demonstrate that it is currently operational in the region. This can be evidenced by contracts to deliver services in the region or evidence of supplying goods within the region.
** More information regarding the context and vision of this work is s available in “The Social Enterprise Mark: an overview” document.
** Also available is a more detailed version of the membership criteria. If you would like to see this please email firstname.lastname@example.org and we will email it to you.