Keeping legalit a guide to legal forms for social enterprises The Social Enterprise Coalition Bates, Wells and Braithwaite The Social Enterprise Coalition is an Bates, Wells and Braithwaite is widely alliance of social enterprises from across regarded as one of the leading social the UK. It is the voice of social enterprise enterprise law firms in the country and is bringing together all types of social passionate about working with and for the enterprises through its membership. sector. We act for a large number of social The Social Enterprise Coalition works to enterprises, from national and interna- influence the fast-moving social enterprise tional organisations to start-ups. We can agenda by: advise and assist on: •Building capacity and quality through •Legal forms, including joint working and information sharing partnership arrangements •Encouraging co-operation •Finance arrangements •Promoting the social enterprise sector •Intellectual property •Providing a strong voice for the sector •Property •Employment •Immigration •Dispute resolution Social Enterprise Coalition Southbank House Bates, Wells and Braithwaite Black Prince Road 2-6 Cannon Street London SE1 7SJ London EC4M 6YH Tel: 020 7793 2323 Tel: 020 7551 7777 Fax: 020 7793 2326 Fax: 020 7551 7800 Email: [email protected] Email: [email protected] Web: www.socialenterprise.org.uk Web: www.bateswells.co.uk Contents 2 What is this guide for? 4 What is social enterprise? section 1 5 Before setting up your social enterprise section 2 11 Working out the organisational model section 3 23 Incorporation section 4 29 Legal forms section 5 49 Charities and social enterprises 61 Useful information Copyright © 2005 Bates, Wells and Braithwaite and Social Enterprise Coalition. Published by the Social Enterprise Coalition June 2006 ISBN 0-9546076-2-7 what is this guide for ? Choosing a legal form is an important part of establishing a social enterprise, which should rank equally with finding finance, developing a business plan and finding the right staff. Your legal form provides the framework for your business, and it is important to set the rules correctly in order to make it as easy as possible for your social enterprise to be successful. This guide to social enterprise This guide is designed for the structures and legal forms is designed information of readers. Whilst every to take you through some of the main effort has been made to ensure issues you need to consider when accuracy at the time it was written, setting the rules and regulations that information contained in this guide govern your business. may not be comprehensive and may become out of date. It starts by outlining some of the things to consider when setting up a new Readers should not act upon the organisation or operation. It will then information contained in this guide take you on to questions about how to without seeking professional advice. develop the organisational model We cannot accept any liability for through which your business will actions arising from the use of the operate, including questions about information in this guide. how to involve the various stakeholder A glossary is provided in the back of groups in the enterprise, whether you this guide to explain some of the more should set up as one organisation or as complicated terms. Further resources, a ‘family group’ of organisations, and including full case studies, can be how you should control the business. found on the Social Enterprise Finally, it will go through all the Coalition website: possible legal forms that your business www.socialenterprise.org.uk/legal. could use, briefly describing each and giving you information to decide whether they are appropriate for your business. KEEPING IT LEGAL 3 What is a social enterprise? stakeholder groups (eg. employees, users, clients, local community groups and social Social enterprises are businesses that trade in investors) or by trustees or directors who the market with a social purpose. A social control the enterprise on behalf of a wider enterprise is not defined by its legal status but group of stakeholders. They are accountable to by its nature: its social aims and outcomes; the their stakeholders and the wider community for basis on which its social mission is embedded their social, environmental and economic in its structure and governance; and the way it impact. Profits can be distributed as profit- uses the profits it generates through trading sharing to stakeholders or used to the benefit activities. Social enterprises share a number of of the community. common characteristics: The UK Government defines social enterprises Enterprise orientation—they are directly as: ‘Businesses with primarily social objectives 1involved in producing goods or providing whose surpluses are principally reinvested for services to a market; that purpose in the business or in the community, rather than being driven by the They have explicit social aims such as job need to maximise profit for shareholders and 2creation, training or the provision of local owners.’ services. Their ethical values may include a commitment to building skills in local For more information, visit: communities. Their profits are principally www.dti.gov.uk/socialenterprise reinvested to achieve their social objectives; Social ownership—many social enterprises For more information on the social enterprise sector you can visit the Social 3are also characterised by their social Enterprise Coalition’s website and in particular, ownership. They are autonomous organisations see There’s more to business than you think: whose governance and ownership structures a guide to social enterprise, available on are normally based on participation by the website. www.socialenterprise.org.uk 4 KEEPING IT LEGAL section 1 before setting up your social enterprise Before setting up your social enterprise, you should consider the following factors, which may affect your choice of legal form. In this section Safeguarding the social mission and allowing entrepreneurship • Safeguarding the social mission Social enterprises are driven by their social and allowing entrepreneurship mission. As a result, they will often seek to protect the social mission through their choice • Managing risk of legal form. However, the choice made must • Financing still allow the social enterprise the freedom to •Tax take advantage of any business opportunities that arise. Regardless of the legal form adopted, some protections can be written into the social enterprise’s constitution. However, without additional safeguards these can be amended at any time. By using particular legal forms you can take advantage of the additional intrinsic protections that they provide. See Chapter 4 for more detailed information on the different types of legal form. social enterprises are driven by their social mission. As a result, they will often seek to protect the social mission through their choice of legal form 6 BEFORE SETTING UP YOUR SOCIAL ENTERPRISE TREES IPS community benefit society, set up as an ‘ethical holding company’ Business Safeguarding the social mission TREES (Training Regeneration Education Employment TREES’ constitution makes explicit its aims to support Sustainability) is an ‘ethical holding company’, set up to regeneration, which helps to focus the business be an engine of sustainable regeneration. It is the sole activities of its subsidiaries. Any new business has to shareholder with a number of wholly-owned justify whether it fits with the core values of TREES as subsidiaries, which trade to support the social and well as make a strong business case. environmental mission of TREES. TREES IPS Community Benefit society L L L LL Newlife Highpoint Ground Regeneration Thorpete Events Ltd Control N-Vision Construction Associates Ltd Ltd Conference Landscaping Regeneration Gas fitting facilites and minor consultancy Construction management works and local training Contact: [email protected] Website: www.lha.org.uk/social_enterprise.htm BEFORE SETTING UP YOUR SOCIAL ENTERPRISE 7 The Big Life Group CLG with separate charity, ‘family’ structure Business The Big Life Group creates chances for people to change their lives for the better. It works with people who have I The mission is also protected and embodied in the been excluded from mainstream society – due to chief executive as the sole member, and the social discrimination, health, housing, education or skill. It entrepreneur who set up the organisation originally. provides a wide variety of opportunities and services, There is a succession plan that allows the board to from employment to health services to childcare. choose future members. Safeguarding the social mission See page 8 for more details on the CLG legal form. I The Memorandum and Articles of Association stipulate the purpose of the organisation and protect the organisation’s social mission. Contact: [email protected] Website: www.thebiglifegroup.com The Big Issue in the The Big Life Company Big Life Services North Trust CLG Independent charity Independent charity Chief executive is sole guarantor L L LL Big Issue in the North Northern Solutions Aisha Childcare Big Life Employment CLG CLG CLS CLS Wholly owned by Wholly owned by Wholly owned by Wholly owned by The Big Life Company The Big Life Company The Big Life Company The Big Life Company 8 BEFORE SETTING UP YOUR SOCIAL ENTERPRISE Managing risk foundations, government or European funds. Any legal form is able to accept a grant If your business is to be successful you will