Social Enterprise Mark - Six Key Criteria

There are six key criteria which together demonstrates that they are a social enterprise whose key driver is trading and that they operate for wider social / environmental benefit. These are explained below with a commentary on what evidence is required to support an application.

	Criteria	Rationale	Test/Evidence	Commentary
A	Have social and/or environmental objectives	Transparency of purpose is a vital element of being a social enterprise.	Constitutional documents	Social and environmental purpose will be evidenced by the legal objects of the business.
B	Be an independent business	Independence and self-governance distinguishes businesses from the public sector and from projects within larger organisations.	Constitutional documents Additonal evidence required for externalisations from the public sector.	The public sector often plays a role in social enterprise, however applicants must be able to demonstrate they are independent businesses. 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. Projects within other larger organisations are not eligible as are not independent businesses with their own constitutional documents.Externalisations from the public sector may still retain some level of public sector involvement or control.  In such cases, assurances will be required regarding the autonomy of the applicant.
C	Earn 50% or more of its income from trading	50% traded income is currently accepted as a way of distinguishing a business from a grant reliant organisation.	Accounts in the public domain	Typically annual accounts that have been submitted to Co House/FSA/Charity Commission will be required. These are generally available c15 months after trading begins and a) use standard accounting practices, b) are usually in the public domain, and c) indicate the level of trading over a reasonable period (trading levels can fluctuate). However alternative sources of financial evidence will be considered where these factors are demonstrated. Where an applicant has a high level of income from the public sector, a closer assessment may be required to confirm this is from contract/s and not grant/s. If you are unsure whether payments received from a public body are grants or fees (trading), you may wish to consider your response to the following questions: Are the services provided those a payer is statutorily obliged to provide?  If yes, it is likely to be a fee, if no, then: Does the payer benefit directly from the services provided?  If yes, it is likely to be a fee, if no Payment is probably a grant. If this is the case, but you still feel your income may qualify as trading, then please contact us for further advise. Additionally to the evidence required in the online application process, 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 an applicant is on the cusp of 50% trading, or if an applicant receives a one-off grant (e.g. capital) then trading levels in previous years and plans for future years are reviewed.
D	A principal proportion (50%+) of any profit made by the business is dedicated to social/environmental purposes	Social enterprises are driven principally by social and environmental objectives rather than the maximising of profit for private gain.	Constitutional documents and cross reference to accounts	The relevant clauses must be quoted that relate to how the organisation distributes profits. 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. Donated to other organisations for social benefit, e.g. a trading arm of a charity donating profits to the charity, or to another member of a group trading for social purpose. The restriction applies to profit distribution to shareholders, members or owners unless proven to be socially beneficial. Regarding distributions to investors (shareholders or members) as distinct from a nominal payment for membership: where investors receive a share of profits, there is a cap on the level of interest that can be earned, contingent with that of the regulations for CICs. The total profit distributed for purposes other than social or environmental, should not exceed 49%.
E	On dissolution of the business, all residual assets are distributed for social/environmental purposes.	As for (d) above. A commitment on residual asset distribution demonstrates a commitment to social/environmental objectives.	Constitutional documents	An appropriate dissolution clause that ensures distribution for social/environmental purposes is essential. The Mark is not limited to Charities, CICs and IPS Ben Coms (whose asset locks are statutory and regulated). Other legal forms may also be eligible if they have the appropriate dissolution clause and restrictions on profit distribution. The Social Enterprise Mark Company will be completing more work into: a) whether a social entrepreneur should, in any circumstances, be able to benefit from the sale of their social enterprise, and b) social enterprises that have raised funding through a public share issue.
F	Can demonstrate that social/ environmental objectives are being achieved Applicants must agree a statement that as a Mark holder they would strive to maximize social impacts and minimize environmental damage.	Social enterprises exist to produce social and environmental benefit as well as a financially sustainable operation.   Achievement of mission needs to be demonstrated	A range of evidence can be provided. One must be from a source external to the applicant or externally verified.	Flexibility with regard to scale of the operation and sector in which the social enterprise operates is important. A test phase revealed that more stringent criteria here would prevent the Mark from achieving any viable scale. Tools and techniques to measure social and environmental impact are becoming more sophisticated and user-friendly. At an appropriate stage the Social Enterprise Mark may ‘raise the bar’ in terms of requirements.

http://www.socialenterprisemark.org.uk/apply/criteria

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