Legal Structures Workshop

1
STRUCTURING YOUR SOCIAL ENTERPRISE
UDAY THAKKAR
2
INTRODUCTION

• What is Social Enterprise?
• No legal definition
• Anyone can call themselves a social enterprise
  and many do
• Value driven commercial sector
• Not for profit voluntary sector

3
GENERAL CHARECTERISTICS - 1

• Social Enterprises are businesses that trade in
  order to fulfil social aims.
• Thy bring together people and communities for
  economic development and social gain
• There are usually 3 common characteristics
• Enterprise oriented
• Social aims
• Social ownership - controversial

4
GENERAL CHARECTERISTICS - 2

• Social Enterprises generate income through some
  form of trading or service delivery (Enterprise)
• Surpluses/profits generated are used for the
  benefit of the community (Social Aims)
• This could be that surpluses/profits are used
  directly for the community
• Or
• Reinvested in the business to grow it

5
GENERAL CHARECTERISTICS - 3

• Ownership is wide spread, (participation by
  stakeholder groups), or indeed there is no
  ownership, but control of the business is under
  the Stewardship of individuals or organisations
  as representatives of the wider community,
  (Community Ownership) this could be your church
  or your faith body

6
COMMERCIAL TRANSACTION
7
S E TRANSACTION FLOW
8
ORGANISATIONAL TRANSITION
9
INTRODUCTION

• Stop and think
• What is it you are trying the achieve?
• Is it a short term or long term project?
• How do you see your own future involvement?
• How are you going to finance your project?
• Planning!!! Remember PPPPPP!

10
Considerations - 1

• Need to consider
• Ownership
• Personal liability
• Management
• Succession
• Transparency
• Governance

11
Considerations - 2

• Need to consider (Cont.)
• Constitution
• Operations
• Branding
• Funding
• Scalability
• Treatment of profit/surpluses

12
Company Limited by Shares

• Formed by members (owner/shareholders) need
  only 1
• Members can be individuals or organisations
• Governing rules set out in Memoranda and
  Articles of Incorporation (Mem Arts)
• Register with and report to Companies House
• Liability limited to unpaid portion of share
  capital
• Profit Asset distribution?

13
Company Limited by Guarantee - 1

• Most common structure for Social Enterprises
• No physical shares issued
• Do not pay to be a member, (subscription?)
• Members give a guarantee instead, (1)
• Each member has only one vote
• Members can be individuals or organisations

14
Company Limited by Guarantee - 2

• Have to request changes in objects so that
• No profit distribution by dividend
• Declare what happens to profits
• No asset distribution to members on dissolution
  (Asset Lock) specify who to
• Objects can be changed by special resolution
  75
• Governing principle is No personal gain

15
Community Interest Company, (CIC) - 1

• Registration as a CIC commenced July 2005
  approx. over 1,200 now in existence
• Could be ltd. by shares or ltd. by guarantee
• Community interest statement need to satisfy
  regulator
• Community can mean employees
• Not a charity/ no tax advantages

16
Community Interest Company (CIC) - 2

• To encourage investment CICs limited by shares
  will be able to issue tradeable fixed or capped
  rate shares (PLC status to do this)
• Max dividend will be 5 above base rate and
  restricted to 35 of distributable profit,
  (unless dividend paid to another CIC or Charity)
• The dividend rate can be varied by the regulator

17
Community Interest Company (CIC) - 3

• Investors not allowed to participate in any
  capital growth cannot sell shares at more than
  the cost of purchase, even if market value is
  higher (unlike normal investments)
• There is no protection of capital investment
• Investors in CICs will not be allowed to have
  control over company (limited voting rights)

18
Community Interest Company (CIC) - 4

• Assets will still be locked in case of
  dissolution
• Cannot change Asset Lock and Profit Distribution
  objects (compare to standard CLG or CLS)
• Can only transfer assets, at less than market
  value, to another asset lock company, I.e. CIC or
  Charity

19
POLITICAL IMPERATIVE

• Government push towards social enterprise as a
  delivery mechanism
• Government push for voluntary and community
  organisations to reduce grant dependency
• Government support for Faith Groups, (if not at
  local authority level)
• Grant making trusts also looking for Exit
  strategies

20
LONG TERM

• Currently a lot of free support
• Many people jumping on the band wagon
• Will have to learn to pay for support
• Will have to work hard at being competitive not
  only commercial organisations but large charities
  and indifference poor knowledge from procurement
  officers
• BECOME SUSTAINABLE

21
Contacts

• Uday Thakkar at Red Ochre
• W www.redochre.org.uk
• T 020-7785-6295
• E uday_at_redochre.org.uk