Among the various models for social and environmental projects, there is a clear and growing trend towards social ventures. Why do people choose to set up social ventures rather than charities?
Partly, it is the flexibility social ventures offer for attracting a wide range of funding and avoiding the full, complex administrative process of registering a charity. Mainly, it’s because entrepreneurs and founders wish to make a positive impact, have a powerful idea and want to retain control of delivering it. That’s easier to achieve with a social venture than with a charity.
Our charities and social ventures team helps innovative charities, social ventures and philanthropists deliver their strategic and operational plans locally and internationally. As a result, we are heavily involved in helping individuals and teams set up ventures that have a mission beyond profit.
A question of control
A social venture is usually a form of company. The founder can be the sole director and sole shareholder; they can be paid, work on it full time, receive a salary and even some profits if the company can make them. To deliver on its social mission, the venture will need to be accountable, often through impact reporting, and possibly navigate some other restrictions, but overall the founder retains the ability to steer it and realise their vision.
By comparison, charities will often have a split in their governance between the unpaid, voluntary trustee board and the paid, executive staff. Trustees have responsibility for strategic decision-making, whilst the executive team will be responsible for day-to-day operational management, under delegated authority from the trustee board. Whilst a founder can straddle trustee and executive roles, it can be difficult to manage the ongoing conflicts of interest this creates and will invite considerable scrutiny from the Charity Commission, especially if the founder is paid. The founder’s control of the organisation would also be diluted by the involvement of additional, independent trustees, which is invariably a requirement for charity registration.
As such, where an individual founder wants to maintain their strategic oversight for the direction and actions of their venture, and be paid for running it, establishing a social venture is likely to be preferable to setting up a charity.
A greater freedom
There is a great deal more flexibility with a social venture, which enjoys much the same freedom to adapt its operations as most company structures. In contrast, setting up a charity generally ties you to that model. A charity can’t directly convert to being a social venture, because it would involve removing restrictions that are imposed by charity law. There isn’t an easy pathway to do that. The assets of the charity are effectively “locked in” and may only be used in furtherance of the organisation’s particular charitable purposes (and only sold for market value).
There is also additional regulatory scrutiny for charities from the Charity Commission, and particular legislative and accounting requirements unique to charities that – while they exist for a good reason to protect charities – can be seen as administratively burdensome for entrepreneurial new ventures.
Drawbacks?
The obvious trade-off here is that social ventures do not enjoy the same tax breaks as charities – they will be subject to corporation tax just like any other trading business, and donors don't receive charity tax breaks. Social ventures also cannot use the ‘badge’ of charity when promoting their work or raising funds. However, many social entrepreneurs are happy to accept this in return for that greater control and commercial flexibility.
These are some of the main factors why many of the organisations combatting grand global challenges are not set up as charities. Conventional charities still have their place and can be a powerful force for good. Nevertheless, the social venture is proving to be a popular model for those determined to realise their own vision of societal and environmental impacts.
We can help you achieve your purpose – whether as a social venture or a charity. To discuss your idea and find out more, please get in touch.
Our Social Venture Handbook
Our Social Ventures team has created a handbook to guide you through the key stages of setting up and running a Social Venture, from initial funding right through to maturity and sustainable delivery.