1.2.3 - Types of For-Profit Social Enterprises

What is a social enterprise ?

It is a business or organization that aims to generate revenue and achieve social, environmental and cultural objectives

What do social enterprises combine ?

It combines the principles and practices of traditional business with a focus on addressing social issues and creating positive social impact

What do social enterprises do ?

They typically reinvest a significant portion of their profits back into their mission rather than maximizing profit for shareholders

Characteristics of social enterprises in the private sector 

• Look to make a profit whilst improving one or more aspects of society 

• Aim to create jobs 

• Aim to improve social mobility 

• Aim to provide opportunities for marginalized groups 

• A proportion of profits is invested into achieving these social aims 

Characteristics of social enterprises in the public sector

• In the public sector a range of organizations provide socially-focused services with the aim of making a profit or surplus

• Services are often provided to other public sector organizations, communities or government departments

Advantages of social enterprises

• Social enterprises often develop creative and innovative solutions to social challenges

• Be generating revenue social enterprises can become financially self-sustaining

• This financial independence reduces their reliance on donations and grants, making them less vulnerable to political and economic change

• Social enterprises create jobs which supports economic development particularly in developing communities

• They often provide training and employment which social mobility and better quality of life

• Social enterprises work with a wide range of stakeholders

Disadvantages of social enterprises 

• Achieving financial stability can be difficult, especially during the initial stages 

• Balancing a social mission with making money can be a delicate balancing act 

• Social enterprises have to navigate complex legal frameworks and tax structures 

• It may be difficult to quantify and measure the success of social enterprise activities 

• Social enterprises may find it difficult to grow 

• Obtaining addiitonal finance to expand into new markets or reach a larger audience is likely to be difficult 

What are cooperatives ?

They are form of for-profit social enterprise that are owned and run by their members with the principle that working together means more power

Characteristics of cooperatives

• Each members owns one share and has one vote on key decisions

• Profits are either shared equally between members or reinvested for their benefit

Advantages of cooperatives 

• Cooperatives are democratically controlled, with each member having one vote regardless of investment size, promoting equality and fairness 

• Members are often more motivated and committed because they share ownership and decision-making power

• Profits and surplus are shared fairly among members, often based on participants or using rather than investment 

• Cooperatives often pursue social and ethical objectives, benefiting communities and building strong reputations 

• Operate with limited liability, protecting members’ personal assets 

Disadvantages of cooperatives

• Raising finance can be difficult as cooperatives have limited access to external capital and cannot sell shares on the stock market

• Decision-making can be slow due to the democratic process and the need for consensus among members

• Lack of managerial expertise may limit efficiency and competitiveness compared to private terms

• Conflicts of interest may arise between members with different priorities or expectations

• Limited profit incentives can reduce entrepreneurial drive and discourage investment

What are the 6 types of cooperatives ?

1. Employee cooperative

2. Community cooperative

3. Retail cooperative

4. Producer cooperative

5. Financial cooperative

6. Housing cooperative

Explain employee cooperative

Owned equally by workers within the business 

Each employee has a vote in business decisions 

Profit is shared equally between employees 

Explain community cooperatives

Owned by members of a local community

Members usually contribute time as well as finance to the cooperative

Profit is commonly reinvested to continue providing socially valuable products

Explain retail cooperative

A group of independent retailers come together and operate under one brand name

Buying power is increased and marketing costs are shared

Explain producer cooperatives

Groups of manufacturers work together during the production process 

Sharing and maximizing the use of expensive capital equipment is often a key aim 

Producer cooperatives are common in agriculture 

Explain financial cooperatives

Organizations that provide financial services to individuals that may not otherwise qualify for standard banking products

Often focused on a particular community

Social aims take precedence over profits

Explain housing cooperatives

Organizations that provide housing for members

Members collectively own and benefit from socially cohesive and lower cost dwellings

What are the 2 types of for-profit social enterprises ?

1. Social enterprises 

2. Cooperatives