Legal Structures for Social Enterprise Nicola Dickins Make it Happen Consultancy

About Make it Happen Stockport Income Generation & Social Value Specialists 78 Start Up Social Enterprises £100 million income Qualified and Experience in Social Enterprise Social Accountants

Types of Legal Structures

Where are you now?

For Profit Not for Profit Private Ltd Company Private PLC Private Partnership Not for Profit Ltd Company Community Interest Company Industrial & Provident Society: Bona Fide Co-operative Society for the benefit of the Community Limited Liability Partnership (not for profit) Trade for personal profit – shareholders receive Dividends Regulated by Companies House Charitable Trade for the benefit of ‘Social Aims’ Various Regulatory Bodies Trust Society Association Charity Foundation Limited Trading Has Charitable Aims Can register with Charities Commission

Unregulated Organisations Most community groups are unregulated and thus are classed as an association of people. As soon as money is given to an unregulated organisation for a particular purpose it becomes a virtue of ‘Trust’ which is governed by Trust Law. If the unregulated organisation has charitable objects it can become registered with the Charities Commission. A majority of small registered charities are not incorporated, thus remain an association of people. In this case the charity/organisation does not have any legal identity

Unincorporated Charity/Trust/Association/Society Management Committee / Executive Committee / Board of Trustees Governing Document: Constitution Trust Deed Set of Rules Trustees are liable Income generated mainly through fundraising activities Democratic Membership Charitable Aims If the organisation has Charitable Aims as set out by Charity Law then the organisation can register with the Charities Commission. The Organisation will receive a Charity Number – and must uphold Charity Law.

Incorporation Incorporated organisations (companies) register with Companies House. Companies house is only a filing system not a regulator. A not-for-profit limited company is registered by Companies House but has no regulation. A Community Interest Company is registered with Companies House but also has to register with the CIC Regulators. A charity may become incorporated by registering as a limited company but this can be a complicated task. Charitable Incorporated Organisation. Incorporation as a Limited company establishes the organisation as a legal entity and protects it’s members for a limited liability. Directors are responsible by law for the effective management of the Company.

Charitable Incorporated Organisation (CIO) A charitable incorporated organisation, or CIO, is a new legal form for a charity. A CIO: is an incorporated form of charity which is not a company only has to register with the Charity Commission and not Companies House is only created once it is registered by the Commission can enter into contracts in its own right and its trustees will normally have limited or no liability for the debts of the CIO The CIO was created in response to requests from charities for a new structure which could provide some of the benefits of being a company, but without some of the burdens.

Charity Benefits Reduction in Business Rates – 80% - 100% Exempt from Corporation Tax Gift Aid Preferential Rates Exempt from VAT (in most cases) Public Trust

Charity Trading Primary Purpose Trading (to meet objects) Trade carried on by the charity’s beneficiaries (as a result of charitable activity) Ancillary trading (for beneficiaries comfort) The sale of donated goods. Small-scale trading (less than £50k or 10% of turnover) Income from property Raffles and lottery Fundraising events

Social Enterprise

Definition of Social Enterprise Social Enterprises are businesses with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners. DTI (2002)

Private ‘For Profit’ Companies Trades a Product or Service Net Profit Shareholders Registers with Companies House – receives Company Number Pays Corporation Tax Company House Fees VAT Only one Director needed, from October 2008 – no Company Secretary needed. Governing Document: Memorandum & Articles of Association Limited Liability

‘Not for Profit’ Companies Trades a Product or Service Net Profit Community Benefit Registers with Companies House – receives Company Number Pays Corporation Tax Company House Fees VAT Only one Director needed, from October 2008 – no Company Secretary needed. Governing Document: Memorandum & Articles of Association Limited Liability Flexible structure that can be adapted ‘as needed’

Industrial & Provident Societies Bona fide co-operative -Member benefit -Profit distribution to members permitted Society for the benefit of the community -Must benefit “other than it’s own members” -No profit distribution allowed -May qualify for charitable status

Co-Operatives A co-operative is an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a joint owned and democratically controlled enterprise. It is member led and members are jointly responsible for the management of the organisation.

Community Interest Companies Limited Company regulated by CIC regulators based at Companies House. Does not have charitable objectives and cannot register as a charity. All profits must be invested for the benefit of the community. Does not receive benefits that charities can – operates as a private limited company. Second highest level of regulation. Regulators have power to freeze bank accounts, remove directors and intervene if they do not feel the CIC is operating for community benefit. Fastest growing social enterprise sector. Over 6,000 CIC’s now registered throughout England & Wales. Only one director required/one member to register Flexible governance Limited liability £1 Asset Locked Body Costs £35 to register

Company Regulators Charities CommissionRegistered Charity Charitable Incorporated Organisation CIC RegulatorCommunity Interest Company (CIC) FSA RegulationIndustrial & Provident Society Companies HouseLimited Companies UnregulatedCommunity Group Society Association

What we believe... At Make it Happen, we believe that the most basic definition of social enterprise is; ‘An enterprise that achieves social value’ But where does the enterprise and social bit fit? Does it Matter?

What effects do Legal Structures have on Social Enterprise?

Income GenerationTax Governance & Democracy Public Trust

Income generation Considerations Trading Charities have restricted trading under Charity Law. Charities cannot hold large amounts of unrestricted funds. Commissioning Unincorporated associations do not have any legal entity so individuals must enter into contracts. Charities have complicated governance and can tend to resist change and innovation. Member led organisations can take a long time to make decisions. Funding The public know and trust Charities. Many Trust giving bodies will only fund charities.

Any Questions?

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