The first thing that hits you with the voluntary sector is the confusion of terminology: charities, voluntary sector, third sector, not-for-profit, civic sector, social sector, civic society, social enterprise … it all gets very confusing, and this list is not exhaustive!
Here’s my attempt at explaining these terms.
There are three sectors:
- the public sector: the government and government provided services, including in the UK healthcare
- the private sector: business and enterprise which exists to make a profit for private individuals, partnerships or shareholders
- the voluntary or third sector: charities and social enterprises that provide services for the community but not for private profit
Charities and social enterprises
The fundamental difference between a charity and a social enterprise is that a charity provides services for free, or if it charges for any services it does not make a profit.
A social enterprise is run more like a business, but:
- its services are provided for the benefit of the community
- any profit it makes goes back into the social enterprise to fund and/or subsidise the services it provides
There are certain tests that make it clear whether an organisation is a charity or social enterprise, but beyond that it is often not always clear cut.
A charity must be registered with the Charity Commission which is a non-ministerial government department which registers and regulates charities in England and Wales (Scotland and Northern Ireland have similar arrangements).
To be registered the charity must set out its charitable objectives, which must meet strict criteria laid down by the Charity Commission. What makes a charity, produced by the Charity Commission, explains in more detail what the legal definition of a charity is.
Where it can get confusing is that charities are often also registered as companies with Companies House (but that does not mean that they are in the private sector).
There are four main types of charity structure:
- charitable incorporated organisation (CIO):
- association CIO
- foundation CIO
- charitable company (limited by guarantee)
- unincorporated association
Read more about charity structures on the Charity Commission website.
Charities that also want to raise money by trading will often also set up a separate, arms-length social enterprise which will pay back all or part of its profits to the charity. So a charity will often have a group structure, with a holding operation at top level controlling a charity and one or more separate social enterprises beneath it.
If the charity operates across the whole of the UK it will also need separate charities/companies for Scotland and Northern Ireland. So even quite a small sized charity can have a quite complicated structure.
Here’s a definition from Social Enterprise UK
Social enterprises are businesses that trade to tackle social problems, improve communities, people’s life chances, or the environment. They make their money from selling goods and services in the open market, but they reinvest their profits back into the business or the local community. And so when they profit, society profits.
The key thing to remember is that a social enterprise may exist in its own right, without any parent charity, or it may be part of a wider charity group.
Community Interest Company (CIC)
A CIC is a special type of limited company which exists to benefit the community rather than private shareholders. This is a relatively new kind of social enterprise that allows limited liability status as well.
Other structures that some people would include in the third or voluntary sector include:
Read more on Gov.uk about social enterprises and company structures.
Useful charity links
I have included a set of useful charity links on this site. These will appear in your sidebar or at the bottom of the page, depending on the device and screen size you are viewing the site on.