Every Contract a Social Enterprise Needs in the UK (2025)
Last updated: February 2025
Legal Requirements for a Social Enterprise
UK social enterprises can take various legal forms including CIC, CIO, CBS, CLG, or standard Ltd with social objects. The legal structure determines specific requirements. Social enterprises receiving public funding must comply with the Public Contracts Regulations 2015 and the Social Value Act 2012. Those with charitable status must follow Charity Commission regulations. All forms must comply with UK GDPR and employment law.
Essential Contracts
Must include an asset lock and community benefit statement, tailored to the specific legal structure chosen
Most social enterprises rely on grant funding — a clear agreement defines deliverables, reporting requirements, and clawback provisions
Defines the quality and scope of services delivered, particularly important for public sector contracts governed by the Social Value Act 2012
Clarifies that volunteers are not employees — important to avoid unintended employment obligations under the Employment Rights Act 1996
Recommended Contracts
Formalises collaborations with other charities, social enterprises, or public bodies for joint service delivery
Documents the methodology for measuring social impact, increasingly required by funders and commissioners
For social enterprises taking on social investment or community shares, documenting the terms and social return expectations
Common Legal Risks for a Social Enterprise
- Grant clawback due to failure to meet deliverables without clearly documented outcomes
- Volunteers claiming employment rights without proper volunteer agreements in place
- Mission drift if governing documents do not include robust asset lock provisions
- Public procurement challenges without understanding Social Value Act 2012 requirements
- Loss of charitable or CIC status due to non-compliance with regulatory requirements
Industry-Specific Notes
Social enterprises should consider which legal structure best protects their social mission. CICs have a statutory asset lock, while CLGs can apply for charitable status for tax benefits. The Social Enterprise Mark and Social Enterprise UK membership can enhance credibility with commissioners and funders.
FAQ
What is an asset lock and do all social enterprises need one?
An asset lock is a legal provision that prevents a social enterprise's assets from being distributed to members or shareholders for private gain. CICs have a statutory asset lock under the Companies (Audit, Investigations and Community Enterprise) Act 2004. Other social enterprise forms should include an asset lock in their governing documents to protect the social mission and satisfy funders. It is not legally required for all forms but is considered best practice.
Can social enterprise volunteers claim they are employees?
Yes, if the arrangement has the characteristics of employment. The key factors are mutuality of obligation (must the volunteer turn up?), control (does the organisation direct their work?), and payment (are expenses more than genuine out-of-pocket costs?). A well-drafted volunteer agreement that makes clear there is no obligation on either side and no payment beyond genuine expenses is essential protection.
What contracts does a social enterprise need for public sector commissioning?
For public sector contracts, you typically need: a response to the tender specification, a signed contract based on the commissioner's terms, a service level agreement with KPIs, data processing agreements under UK GDPR, DBS check documentation for staff, insurance certificates, and evidence of policies (safeguarding, health and safety, equality). The Social Value Act 2012 also requires you to demonstrate social value in your tender.
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