the business

Expert Eye: Law

25 August 2009
Catherine Rustomji is head of third sector north at Hempsons

Catherine Rustomji is head of third sector north at Hempsons

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Catherine Rustomji says that there are so many social enterprise legal structures that people are confused. Make sure you know which is best for you

There is no single legal structure that confirms that an organisation is officially a social enterprise, which can be somewhat baffling to the general public.

Previously, a deciding factor in choosing your legal structure, may have been the ability to pay the board. The community interest company (CIC) allows this while providing legitimacy through its asset lock and community benefit provisions. They are subject to lighter touch regulation but do not have the tax advantages of being a charity.

For organisations with charitable objects, charity status tax advantages come with additional regulation. While the principle of charity trusteeship is that it should be unpaid, the Charities Act 2006 allows payment of trustees for providing services and associated goods and the Charity Commission has recently become more willing to authorise this.

A private company, either limited by shares or by guarantee, can mirror many of the CIC provisions such as asset lock and limitation of distribution of profits to members.

These companies are often described as 'not-for-profit' companies, but they do not have the added 'kite-mark' of being a CIC or charity.

If you are looking to raise share capital from the local community an option would be an industrial and provident society, particularly a co-operative society. These are exempt from certain Financial Services Authority regulations if the public share offer is structured right.

Then, in July, the Charity Commission announced a new type of charity, the corporate foundation, which could potentially create more confusion. Corporate foundations are charities established by commercial companies and there are already more than 100.

While they are not social enterprises themselves, they may well be operating in the same marketplace.

Promoting your social enterprise and making sure that it is understood by funders, supporters and the general public may become more of a challenge as you seek to distinguish yourself from others in the same arenas. If challenged could you talk about the ins and outs, and, in particular, the advantages of your legal structure? Could you answer questions about the difference between your legal structure and other legal structures?

At the end of the day, this all comes down to selling your vision and your social enterprise and so it is well worth thinking about now.

Catherine Rustomji is head of third sector north at Hempsons

www.hempsons.co.uk

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Comments

Failure to communicate

Submitted by Jeff Mowatt on 19 September 2009 - 8:59am.

Just a few days ago, through the Skoll Forum for Social Enterprise, I linked through to Idealist.org who were soliciting participation in Mozilla Service Week. They rejected my contribution as I hadn't declared us as a nonprofit. We aren't, we're a business which renders our surplus revenue to deliver social outcomes. Some call this social enterprise.

We realised there was a problem of definition ourselves at the beginning of last year. It was at the point when Bill Gates decided to join us, after describing his vision of Creative Capitalism at Davos.

http://www.p-ced.com/info/se/

We make the point that there's a social dimension to most forms of enterprise, with perhaps exception of organised crime. What really matters is, whether we're prepared to help each other achieve common goals.

The heart of the matter, I believe is that there's far too much effort being invested in distancing from each other in the clamour for recognition.

In the context of the model, the vision of a business for social purpose has become reality since 1996. First in the UK with the CIC form and more recently in the L3C model in the US.

Jeff Mowatt
People-Centered Economic Development

p-ced.com
people-centered.net

Catherine Rustomji is right

Submitted by Geof Cox on 17 September 2009 - 10:41pm.

Catherine Rustomji is right about people being confused about social enterprise legal structures.
I was involved a few years ago in a research project for Social Firms UK that revealed that over half of all the social enterprises surveyed were disatisfied with their legal structure.
To quote myself, "we have 49 questionnaires full of misconceptions that demonstrate confusion before they tell us anything else."
The problem is that there is NO proper advice/support infrastructure for this - social entrepreneurs have to rely either, on the one hand, on local solicitors - who know the structures but usually do not really understand social enterprise - and crucially lack the experience to advise on how reshaping a business model can make a better choice of legal structure possible - and on the other hand development workers who know social enterprise well enough but usually have a limted understanding of legal structures, especially options less used in the third sector like share companies.
Yet it would be relatively cheap and simple to develop a clear, structured discussion and development process to take an individual or group from their broad vision and business planning through a series of logical steps to the right organisational structure.
A written methodology, with supporting case studies and
background knowledge materials could, in the hands of a very small network of selected regional facilitators, provide a properly structured organisational structure development process for social enterprises, and sweep away much of the current confusion.

www.geofcox.info