Amongst the various models for charitable giving, there is a clear and growing trend towards social ventures and social entrepreneurs. In this article we outline why people may choose to set up social ventures rather than charities.
Partly, it is the flexibility social ventures offer for attracting 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.
A question of control
A social venture is essentially 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. The venture will need to be accountable through its impact reporting and possibly some other restrictions, but the founder retains the ability to guide 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 with 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. The founder’s control of the organisation would also be diluted by the involvement of additional, independent trustees, which would be 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, 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 involves removing restrictions and becoming deregulated. 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.
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. Social ventures also cannot use the ‘badge’ of charity when promoting their work or raising funds. However, many social entrepreneurs will be happy to accept this in return for that greater control and commercial flexibility.
Our Social Venture Handbook
If you're thinking of setting up a social venture, you can find further information on Mishcon de Reya's website:
Click here to contact the Charities and Social Venture Team.
Click here to download the Social Ventures Handbook.
Click here for more information on setting up a social venture [link to Embed product page]
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. Find out more.