What you need to know about legal structures for #socent

(without melting your brain...)July 2015

http://about.me/adrianashtont: @adrianashton2

f: adrianashtonconsultant

@UnLtd

In the next hour (or so...)

• Why we need to talks about legal forms• Regulators!• The 16 options...• Making sense of it all and where to go next

Some opening words of reassurance about me...

• Nationally reputed authority on social enterprise legal structures and governance

• Successfully challenged CIC legislation• Approved specialist consultant to Dept Health ‘right to

request’ programme• Part of Cabinet Office’s original ‘Mutuals Information Service’

• BUT...that doesn’t mean you should take everything you hear as ‘gospel truth’ (see last slide)

Legal forms are important because:

• Credibility• Ability to attract finance• Flexibility over trading activities• Protection of individuals’ risk• Protect original social mission• Things (people and markets) change over

time...

Different types

• Co-ops• Charities• ‘Social business’• Development Trusts• Social Firms• ...

But all (should) share common defining characteristics of #socent:

1. Trading to achieve social good

2. Limit on distribution of profits

3. Asset lock

Different Forms

• Charity• Company – with/without shares• CIC – with/without shares• Partnership• Co-op Society – small interest or wider benefit• (sole trader?)

Regulators

• Companies House / FCA– No prudential role (ie – can't tell you how you should act)– Ensure relevant records being kept– Receive annual returns– Has power to wind up and investigate– Has power to take actions against individual Directors

Regulators

• CIC Regulator / Charity Commission– Limited prudential role (can enforce decisions on governance or

trading)– Ensure relevant records being kept– Receive annual returns– Has power to wind up and investigate– Has power to take actions again individual Directors– Has power to replace Directors and appoint ones of own choice

– Power to sue other persons in your name (CIC only)

16 Options!• Companies (x6)

– Guarantee, Share, CIC• Charity (x3)

– unincorporated/company/CIO• Partnership (x2)

– ‘regular’/limited liability• Trust• Sole trader• Unincorporated association• Society (x2)

– Co-operative/Community Benefit

Companies

• Most commonplace

• Flexibility within rules allow for values to be 'entrenched' by members

• Register on-line, paper forms, agent

Community Interest Companies

• Based on pre-existing companies

• Visible 'brand' to encourage/support sector

• Additional legislation (financing)/ regulatory body

• Application process (paper-based) alongside company registration

Charities• 'doing good things' rather than 'doing economic things

• Paternalistic culture

• Generally recognised and trusted

• Larger charities trade most of their income

• Application process on-line (need basics first – bank account, etc)

Partnerships

• Ability to offer larger service• Single registration (and returns) with HMRC• Potential to share tax• High flexibility• High personal risk• Benefits of partnership agreement

Co-operatives

• The 'daddy' (and mummy) of social enterprise

• Origins in self-help and tackling unfair market practices

• Democracy = key defining characteristic

• Creation of dedicated legal form in 19th century (IPS), although can be incorporated in any form

Over-arching concerns

• C - credibility• R – relationships• A – accountability• M – money• P - power

SocialEnterpriseUK sector mapping

NCVO sector almanac 2012

NEVER PICK YOUR LEGAL FORM ON THE BASIS OF WHAT SOMEONE ELSE

SAYS YOU SHOULD BE!!