The third way? So what are the other two ways? The first is traditional business for profit, whereby the proceeds of trade are usually distributed to shareholders, owners or investors, where there is little or no profit reinvested for the direct benefit of the community/environment.
The second way is based on the charitable institution model whereby goods and services are by and large given free of charge in order to address a social or environmental issue. For their funding these organisations have traditionally relied upon gifts (money or in kind) from individuals and/or organisations and private/public grants.
So what happens if you combine the two? When you take the entrepreneurship needed to build a business that seeks to be self-sustaining and mix it with the compassion that drives giving with no expectation of a return. The answer: A Social Enterprise: The Third Way.
The Voluntary Code of Practice for Social Enterprise
This code defines the essential criteria that define a social enterprise. In summary, social enterprises are:
Businesses that operate in markets and whose primary objective is to achieve social or environmental benefit; their governing documents must contain an “asset lock”; they must aspire to financial independence through trading and they must be distinct from the public sector.
The code aims to provide a benchmark for the way social enterprises develop and are operated. It outlines a set of criteria, values and behaviours that help to define what social enterprises are:
- Social enterprises are businesses whose primary objective is to achieve social and environmental benefit
- Taken together the following two provisions are referred to as the ‘asset lock’ – this is:
- The defining characteristic of a social enterprise, distinguishing them from the private sector
- Regardless of its legal form, the constitution of a social enterprise will include the requirement that profits are reinvested in the business or in the beneficiary community – and not distributed to owners/shareholders/investors
- The constitution will always require that on dissolution, the assets of the social enterprise are redirected appropriately – this could include social enterprises with similar aims and objectives
- Social enterprises are differentiated from those charities and voluntary organisations in the third sector which do not aspire to financial independence through trading
- Social enterprises are distinct from the public sector and cannot be the subsidiary of a public body