Types of Social Enterprise — External Model

When your operations and impact don’t overlap

In a previous blog post we looked at the different types of social enterprise model, and this time we’re going to go one step further by discussing some examples of the external model.

The external model is very interesting because it actually means any business can jump straight into being a social enterprise without necessary having any social or environmental goals linked directly to their product or service.

This does not mean however that the company can have a negative effect on either. They should still meet all the other social enterprise requirements when it comes to governance, transparency, stakeholder involvement and employee satisfaction.

Moreover it usually means that while they are busy selling and maximising their profit, there will be another organisation focused on solving a need. The need doesn’t necessary have to be linked with the social enterprises main operation either, which has enabled the funding of hard-to-fund groups through this model.


Example 1 — Ginerosity

One example of the external model is Ginerosity, a gin distillery social enterprise based in Edinburgh, Scotland. They ultimately produce and sell delicious gin all over the world. What kind of social or environmental goals do you think ginmakers would have? Protect the juniper maybe, or create more gin-tasting tours?

Nothing like that. They partner with other social enterprises or nonprofits to finance and provide vulnerable young people the change to access education, training or jobs. The profit generated from the gin goes directly to this cause, which is why we call it an external model.

Example 2 — Thankyou

Another example is Thankyou, a social enterprise based in Australia who have now extended their operations to New Zealand too. This impressive social enterprise spends 100% of their profit on solving global issues and partners with the likes of Unicef and Oxfam.

However their products don’t directly target those causes like other social enterprises do, but instead there is an external connection between them. For example, they sell their own bottled water, from which the profits go towards water projects around the world. They sell their own line of nappies, the profits of which go to births and baby health all over the world.


These two examples of many external model social enterprises, go to show how no matter what you sell or offer, there is a way to be a social enterprise and have an amazing impact of society all over the world. Some people may argue that it would be hypocritical for certain sectors to operate in such a way and then claim to be having a positive impact.

We, on the other hand, believe that external models can provide a way for many companies to move into social enterprise, before aligning the rest of the operations accordingly.

How much profit should go towards your goal?

Reinvest, spend or share the wealth

A key element which puts the social into social enterprise is the way you spend your profits. Out with the idea that only shareholders or investors should benefit from the hard work of your company. Instead, it’s now time to invest in the wider community.

However as you navigate the literal world of social enterprise you will see a range of regulations or recommendations. Here we look at what exists in terms of asset locks, commitments and suggestions.

Legal structures, definition or certification

Community Interest Company (CiC), United Kingdom

Over in the UK, you can legally register as a social enterprise, locally known as a CiC. Once registered, the asset lock and dividend cap come into place. These ensure that the profit is either retained within the company or used to meet its social or environmental goals. This currently stands at 65%, meaning the rest can be paid out as dividends to the traditional shareholders or investors.

Social Traders definition, Australia

With no legal structure in Australia, things aren’t as clear cut as in the UK. Therefore many turn to the definition used by Social Traders in their FASES report, where it states that the majority of profit/surplus must be reinvested. Given that a majority can be 50.01%, any company that does this, either through reporting or constitutional locks can be classes as a social enterprise

Benefit Corporation, United States

Not to be confused with Certified BCorp, the Benefit Corporation is a legal structure with different rules on reporting per state. The main difference is that it gives the board the opportunity to make decisions based on both financial AND social reasons. This signifies a shift from the previous focus on a financial duty to shareholders. However there is nothing related to paying out dividends nor reinvesting profits.

What’s best for social business?

Three countries, three different set of rules. They do all protect the need for the triple bottom line, to ensure the organisation is able to make the social or environmental goal as important as the financial one. Which one goes far enough? There are arguments that dividend caps can share of investors, but this is why there is now a movement in the ‘impact investment world’.

Ultimately I would say, for trust purposes with both customers and stakeholders, having a legal requirement that a set percentage has to be committed, is better. You can build your business model around this, you can plan short, medium and long-term investment on it, and you can boast about it to the world.

What do you think is a reasonable percentage for reinvestment?

Originally published at https://medium.com/@michaelfreersplit/how-much-profit-should-go-towards-your-goal-167fe95a465a