Understanding the Difference Between a Charity and a Social Enterprise

In the realm of social impact and community improvement, two terms often pop up: charity and social enterprise. These types of organisations represent distinct approaches to addressing societal issues and bringing about positive change. Our Charity and Social Enterprise Insurance experts have discussed the difference between these two types of entities, exploring their definitions, objectives, and methods below.

Charity

Charity, in its traditional sense, refers to the act of giving help, typically in the form of money, resources, or services, to those in need or to organisations dedicated to addressing various social issues dedicated to public benefit.  

Key characteristics of charities include:

  1. Mission-driven: Charities are guided by a specific mission or cause, whether it’s providing food and shelter to the homeless, supporting medical research, or promoting education in underserved communities.
  2. Reliance on donations: Charities often depend on donations, grants, and funding from individuals, corporations, and government entities to sustain their operations and carry out their charitable activities.
  3. Volunteers: Many charitable organisations rely on volunteers who contribute their time, skills, and efforts to support various initiatives and programmes.
  4. Tax-exempt status: Non-profit charities typically enjoy tax-exempt status, meaning they are not required to pay income tax on the donations they receive or the revenue generated from their activities.
  5. Profits: Charities are generally prohibited from distributing profits to members or shareholders, and their assets are dedicated to furthering their charitable objectives.
  6. Legal Structure: These include Charitable Companies, Charitable Incorporated Organisations (CIOs), Charitable Trusts, and Unincorporated Associations. Charities must register with the appropriate regulatory body, such as Charity Commission in the UK, and adhere to specific reporting and governance requirements.

Examples of well-known charities include the Red Cross, UNICEF, Oxfam, and the Salvation Army. These organisations focus on addressing immediate needs, alleviating suffering, and providing essential services to vulnerable populations around the world.

Social Enterprise

In contrast to charities, social enterprises are businesses that operate with the primary purpose of creating positive social or environmental impact. While they aim to generate revenue like any other business, their profits are reinvested back into the organisation to further their social mission.

Key characteristics of social enterprises include:

  1. Hybrid model: Social enterprises blend elements of traditional business models with a strong focus on social or environmental goals. They strive to achieve financial sustainability while also maximising their impact on society.
  2. Innovative solutions: Social enterprises often develop innovative solutions to address pressing social or environmental challenges, leveraging market forces and entrepreneurial approaches to create lasting change.
  3. Measurable impact: Social enterprises prioritise measuring and evaluating their social impact alongside their financial performance, using metrics such as the number of lives improved, environmental benefits achieved, or communities positively affected.
  4. Diverse revenue streams: While social enterprises may receive donations or grants, they also generate revenue through the sale of goods or services, contracts, or other business activities. This diversified income helps ensure their sustainability and scalability.
  5. Profits: Some social enterprise structures, like CICs, have specific regulations regarding the use of profits and assets to ensure they benefit the community or specific social causes.
  6. Legal Structure: They may register with various bodies depending on their structure and objectives, but they typically have more flexibility in terms of profit distribution and governance compared to charities. This can include Limited Companies, Community Interest Companies (CICs), Co-operative, Sole Trader or Business Partnership.

Examples of social enterprises include TOMS, a shoe company that donates a pair of shoes for every pair sold, and Grameen Bank, which provides micro-loans to empower entrepreneurs in developing countries. These organisations demonstrate how business principles can be harnessed to drive social change and create a sustainable impact.

What insurance do charities and social enterprises need?

Both charities and social enterprises share a common responsibility to ensure the well-being of their volunteer staff and employees. This entails suitable hiring procedures with contractual agreements, provision of adequate training and facilities, and a commitment to maintaining health and safety standards.

Both entities are obligated to safeguard the data of their donors and customers, as well as to deliver services (if applicable) of high standards.

Securing suitable Charity and Social Enterprise Insurance is essential for both charities and social enterprises. Such insurance serves to safeguard both personnel and assets against potential damages that could disrupt their operations.

Depending on the nature of their activities, charities and social enterprises may require bespoke cover, such as the size of the organisation, whether there are volunteers, international operations, or specific risks related to their sector (e.g., environmental liability for non-profits involved in conservation efforts).

  • Business Interruption: Covers damage or loss of property owned or leased by the organisation, including buildings, equipment, and inventory.
  • Trustee Indemnity or Directors and Officers Insurance: Provides financial protection to board members and officers in case they are sued for alleged wrongful acts while managing the organisation.
  • Employer’s Liability: Protects you against claims from full and part time employees, as well as volunteers and work experience.who make a claim against you for an injury or illness caused by the work they do for you.
  • Public Liability/Events Insurance: Whether you hold a one-day event for thousands or dozens of people such as fundraisers or community gatherings. it can take just one customer tripping over to result in a public liability insurance claim. This insurance can cover the costs of legal expenses or compensation claims should a member of the public suffer loss or injury due to the event.
  • Cyber Liability: If you suffer a cyber breach, this protection won’t just cover your financial losses, it will also give you access to cyber security experts who can help to recover your systems and help you understand what caused the breach.
  • Motor and Fleet: Covers vehicles owned or used by the organisation for business purposes.

If you would like to find out more information, contact the team or you can download our Charity Insurance Guide or Social Enterprise Insurance guide.

About WRS

At WRS Insurance Brokers, we are specialists in Charity Insurance and Social Enterprise Insurance and our experienced team is passionate about the charitable sector. As a business with a strong social conscience, we’re passionate about helping support the work of organisations that make a difference. 

Our specialists have helped many charities and not-for-profit organisations achieve the peace of mind and the insurance protection they need so that they can focus their efforts on achieving their social ambitions.

WRS is proudly part of the Benefact Group, a charity-owned, international family of financial services companies that gives all available profits to charity and good causes.