Live Q&A Social Enterprise a Guide to Legal Structures - The Guardian: Social Enterprise Network

Live Q&A: Social enterprise - a guide tolegal structuresWhich legal structure best suits your new social enterprise? Does

it fit your long-term vision for the business? Ask our panel of

experts on 20 January

Eliza Anyangwe

Guardian Professional, Tuesday 18 January 2011 10.18 GMT

Live Q&A: Social enterprise - a guide to legal structures | Social enterprise network | Guardian Profes... http://www.guardian.co.uk/social-enterprise-network/2011/jan/17/liveq-a-legal-structures?showallc...

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What impacts can legal structure have on your social enterprise? Photograph: Sang Tan/AP

Which legal structure best suits your new social enterprise? Does it fit your long-term

vision for the business? Ask our panel of experts on 20 January

Just how much profit can a social enterprise make before it is no longer a social

enterprise? Can a limited company that starts a venture with a social or environmental

purpose then call itself a social enterprise?

The question of what exactly is a social enterprise is an age-old debate and there seem

to be few in the sector who are not exasperated with it. While you may share Jonathan

Jenkins' "ambivalence about which legal form any social venture takes," it is

nevertheless important that some sort of classification occurs: your legal structure has a

significant impact on your money and assets. How much of it you need to have; what

you can do with it and who manages those decisions.

Social enterprises can come under one of four legal structures as identified by the Social

Enterprise Coalition:


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Community Interest Company (CIC) - a regulated social enterprise with protected assets

Industrial and provident society (IPS) - member-controlled organisations such as

co-operatives

Companies limited by guarantee or shares - business with a social and/or

environmental mission written into its memorandum

Group structures and charitable status - for an organisation that needs to benefit from

tax breaks to fulfil its purpose

Given the predictions about the year made by experts in the sector, there could be more

opportunities that budding social entrepreneurs can capitalise on, and need an

understanding of which forms best suit their proposed venture, management style and

mission.

So join our panel online from 1pm to 4pm on 20 January to ask questions, seek advice

and share experiences about legal structures for social enterprises.

Anthony Collins Solicitors

We have three representatives from Anthony Collins, who will joining us throughout the

session:

Gayle Monk

Gayle works at Anthony Collins Solicitors, where she advises clients from the public,

private and third sectors on all aspects of UK and EU

public procurement law, State aid issues, and commercial contracts for

the discharge of public functions. Gayle has particular expertise in all

the issues relating to sustainable procurement, where she assists

partner Mark Cook."


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Gemma Bell

Gemma is a solicitor at Anthony Collins Solicitors LLP, specialising in advising housing

associations, charities and other third sector organisations on a variety of governance,

constitutional, regulatory and commercial issues. She has experience of setting up social

enterprises using a range of corporate vehicles.

Sarah Patrice

Sarah is an Associate at Anthony Collins Solicitors who provides support and advice in

relation to legal structures, governance and contractual arrangements for a variety of

organisations, including social enterprises. Sarah has significant experience in providing

and presenting detailed advice in a user friendly style and was the lead lawyer in the

completion of the community asset transfers that have been carried out by Anthony

Collins to date.

Bate Wells & Braithwaite

Alice Faure Walker

Alice is a solicitor in the charity and social enterprise department at Bate Wells &

Braithwaite. She frequently carries out training on legal structures for voluntary and

community organisations, and for social enterprises. She is co-author of Charities,

Trading and the Law, published by Jordans in March 2009.

Stephanie Biden

Stephanie is a solicitor in the charity and social enterprise department at Bate Wells &

Braithwaite. She works in the areas of establishing new charities and social enterprises,

mergers and restructuring, giving general company, commercial and charity law advice

to charities and social enterprises, including grantmaking international activities,

intellectual property and finance and advice to charities and registered social landlords

on regulatory issues.


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Ceri Jones, Social Enterprise Coalition

Ceri is head of policy and research at the Social Enterprise Coalition and leads on all

areas of policy development work including public service delivery particularly

focussing on health and social care.

Linda Barlow, Coop UK

Linda has been a legal officer for Co-operatives UK for the last 5 years. In that time

Linda has advised and registered 100's of Charities, Co-operatives and other forms of

Social Enterprise

Penny Fell, Social Investment Business

Penny recently joined The Social Investment Business as head of new business. She has

held a range of roles in both civil society and the health and social care sector, having

previously worked in West London as the first cirector of Chelsea Care, a local authority

trading company, and in the North West of England as Chief Executive of Liverpool

Crossroads, director of corporate affairs at the Alternative Futures Group, and regional

consultant for children's charity Home-Start.

Sally Reynolds, Social Firms UK

Sara Burgess, CIC regulator

Sara was appointed regulator of Community Interest Companies in September 2007


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Comments in chronological order (Total 81

comments)Staff

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Steven Leach, UnLtd

Steven has 20 years in global IT included sales, marketing and reengineering

management. This was followed by a few years as an independent management

consultant firstly for private sector and latterly for the third sector. The last two years

he has been working with social enterprise at UnLtd.

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6 of 57 26/01/2011 17:23

adrianashton

18 January 2011 3:09PM

looking forward to reading this one (sadly will be locked away with client that

afternoon) - in my various guises I'm increasingly meeting social enterprises who have

adopted a legal form based on 'less than complete' information and so either aren't fully

aware of how to make best use of it, or, in some cases, actually have a completely

inappropriate legal form;

I was also involved with a social enterprise a few years ago who'd been rejected by a

national social enterprise loan fund because "they weren't a true social enterprise

because they had share capital" despite their winning acclaim from various sector

bodies both inside and outside of government for their innovative work as a recognised

social enterprise...

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JeffMowatt


There's another model not listed above which is known as the UK LLP. It's a shared

ownership investment structure, conceived after the collapse of Barings Bank with the

aim of providing limited liability in a partnership which would offer protection against

vicarious liability.

We faced this decision in 2004 when introducing our business model to the UK. In

essence this was a for-profit business with its articles modified to reflect a primary

social mission. At least 50% of profit would be re-invested in a community with the


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remained retained for growth and employee profit share. We had by then developed a

business plan for community broadband and the purpose was to serve a community

rather than a membership. For this reason the I&PS model was avoided, choosing

instead a guarantee company.

As with the organisation Adrian mentions above we then found ourselves rejected by

several loan funds. First was ICOF for the reason that we weren't an I&PS and they were

restricting loans for broadband project s to this model, then there was Triodos and the

Charity Bank who refused us on the grounds that we weren't a registered charity.

Finally we'd excluded ourselves from private investment by becoming a guarantee

company.

Like the model Mohammad Yunus describes as 'social business', ours is a non-loss

non-dividend distributing approach. Neither have a formal legal structure which

reflects the true nature of the model. .

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urbanmythos


I'd second Jeff's comments concerning LLP's. As a Co-operative support organisation we

have increasingly been using this structure with Co-operatives, particular small Worker

Co-ops and small Co-operative consortia.

The LLP is fundamentally collective in nature and combines the protections associated

with being a company with the tax efficiency of being a partnership.

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GayleMonk

20 January 2011 10:21AM

Looking forward to contributing this afternoon.

Adrian - it's a shame you're coming across too many examples of social enterprises that

have inappropriate structures. Perhaps this is something we need to tackle in the debate

- not just choosing the right structure, but what to do if it's gone wrong.

Gayle.

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athertonjohn

20 January 2011 11:29AM

HI i'm also looking forward to this Q&A one of Co-operatives UK legal officers will be

on hand. To answer questions specifically about co-operative legal forms, but also has

experiance with charities and other social enterprises.

Question:

Although the CIC exists in law, and their is a "traditional" legal form for co-operatives in

the form of IPS (agree point about company and LLP co-ops).

"Social Enterprise" isn't a protected or legally defined term (is it?). "Co-operative" is a

bit better, and I think "Mutual" is in a similar position. But none are as protected as

"Charity" in their use.

Do panelist think it would be more or less helpful to have these words more strongly


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defined and protected in the law, like "Charity" is.

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Bankzy


Hi everyone, looking forward to the Q&A session. I shall be popping and out as I have a

glut of mail to respond to - especially new IPS registrations around food, renewable

energy and creative co-ops - is there a trend there.

I like John A's question - even though I think it would be difficult to define such an

"ever-shifting concept" of co-operation without it becoming meaningless.

What I am really interested to find out is that seeing that LLPs are being used more and

more by co-operatives, LLPs are not required to have a governing document - how can

we then monitor that they are abiding by teh co-operative values and principles??

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KevinSEWM


Social Enterprise West Midlands, funded by our RDA until March, will become a CIC in

the next few weeks. Anthony Collins are helping us with that. But Is anyone aware of

sources of financial support that we can promote to other organisations looking to


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become a social enterprise but who are put off by some of the initial legal costs they

have to pay for.

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cicregulator


Hi - re: defined terms - I really don't know how we resolve this one. Charities have had

hundreds of years to be established in the public psyche. Social Enterprise is a relatively

new descriptor. Co-operatives have had longer so the term is more familiar although the

concept may not always be appreciated.

It's a bit like everything- for those of us in the club these terms have meaning. I still get

stopped in my tracks when talking to people outside the loop who simply don't know

what I'm on about.

Even CIC with it's legal structure and message is still relatively unknown to wider

society

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cicregulator


11 of 57 26/01/2011 17:23


Kevin you should not need to spening a lot of money on legal costs to set up your CIC.

all the information,forms and model mem and arts are available on the cicrgulator

website. It is more complicated if you are setting up a CLS and is probably wise to take

additional advice.

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GayleMonk


John A / CIC Regulator,

Do we actually want "social enterprise" to be a defined term for a particular legal

structure? What social enterprise does at the moment is refer to a state of mind and

purpose.

As you know, there are various legal structures that may serve different purposes and

needs, while still being a "social enterprise". Perhaps defining social enterprise means

limiting its scope?

Gayle.

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Dizzel


12 of 57 26/01/2011 17:23


Hello,

I run a social business run on a not-for-profit basis, but choosing the right legal

structure is a real challenge. We're currently set up as a company limited by shares,

having trusted our accountant's advice. We've since found that this structure can be

somewhat restrictive when applying for grant funding. We're an early stage start-up, all

shares are owned by the co-founders and any income is spent on running costs or goes

back into the business. What would be the best legal structure to choose for our social

business to reflect its not-for-profit ethos? Also, is there anything here in the UK that

indicates that you are running your business as a not-for-profit?

I look forward to hearing your thoughts, thank you!

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KevinSEWM


Gayle - may need some more time to tyhink of this but there are real issues with social

enterprise being defined too loosely. The Social Enterprise Mark has as one of its criteia

that the social/environmental benefits are written into the mem and arts of the social

enterprise. The CIV legal model has an asset lock as part of the legal structure which is

crucial i9n defining the model as a swocial enterprise.

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Bankzy


Kevin, regarding sources of financial support -

Co-operative Enterprise Hub - http://www.co-operative.coop/Enterprisehub

Unltd - http://www.unltd.org.uk/

Co-operative and Community Finance - http://www.co-opandcommunityfinance.coop/

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GayleMonk


Kevin - I agree. We need to find a way of defining social enterprise more tightly - so that

people know what it means and what it stands for.

At the moment though no one structure is right for everybody (although there are some

clear contenders). While this may change over time, I think the Social Enterprise Mark

is crucial in helping to define a social enterprise.

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StevenLeach


hello everyone, a lively debate already, I thought I could get a cuppa without missing

much...

Anyway, to the point about defining Soc ent; I would suggest this is virtually impossible.

We are getting so many different models from straight CLS to Charities and all in

between. It seems to be a value judgement we feel we need a set of rules for and that

rarely works.

I suspect, however, there will be the emergence of "classes" of soc ent types, in the same

way we see ethical and or green businesses.

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JeffMowatt


'Social enterprise' is or has become a weak branding for a collection of discrete models,

with differing perceptions of what is valid in terms of social investment.

@KevinSEWM prior to incorporation in 2004 one of the first things we'd attempted to

tackle was funding for social enterprise. Our answer was a franchise profit-for-purpose

business model which would invest in the seed funding of social enterprise, through the

vehicle of CDFIs. A franchisee community adopting this 'community interest' approach

would be required to invest at least 50% of profit in a CDFI to fund localised economic

development, bottom up.

To me, social enterprise in general is a bottom-up approach which seems somewhat


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incongruent with the typical application of investment, top down via foundations,

government and European grants. We're trying to pretend that some of it is business yet

propagation remains dependent largely on hand outs.

So, may answer would be no, but I know how we could create our own support.

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Bankzy


CIC Regulator

The model articles provided by the CIC Regulator are certainly a template, but

organisations need to talk around the idea of a CIC before setting one up and often this

is where legal advisors can help. After all choosing the correct legal structure at start-up

is very important for the future of the organisation.

Dizzel I sympathise. It is a tricky situation and accountants only know of one legal form

- company limited by shares which is the traditional form for companies. You could try

looking at converting to a CIC limited by shares - in which the shares are subject to a

dividend cap. Or if you are not sure you wish to convert to a CIC, Co-operatives

UkKcould (for a fee) work with you to revise what the articles currently say to make it

palatable to funders that support not for profits.

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cicregulator


I agree that the "social enterprise" is most effective as an all embracing term which has

the various structures as a means of delivering the concept. But capturing the real

meaning to ensure it is not being abused or misunderstood needs more time so it can

evolve as did the concept of charity. Of course it needn't take a few hundred years for

this one!

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adrianashton


given that 'charitable company' is the most prevelant form taken by social enterprises

(as identified by the SEC's mapping of the sector), its a shame that its not been able to

get anyone from the Charity Commission on today's panel;

but perhaps they're caught up with managing how they'll maintain their role during a

period of reducing resourcing and also having to launch the new legal form of

Charitable Incorporated Organisation (CIO) - which leads me into my thought for

sharing: what role do/should the regulators play in respect of legal forms adopted?

For example, the CIC regulators' powers are perhaps the most far reaching of all the

regulators, which makes sense in the context of a future (and potentially small - 1

person) membership of the enterprise going awry so needing to step in to get it back on

track and protect the social enterprise 'brand'.

But do social enterprises take account of the respective regulator (powers, monitoring,


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etc) when choosing a legal form?

and do we need to have clearer guidance and stories told of when said regulators would

and do step in to help social enterprises better understand the 'boundaries' - for

example, the Charity Commission publishes reports of investigations it makes into

charities where they have a concern of inapproprite actons and behaviours.

And picking up on Gayle's points about 'nailing the jelly' in defining social enterprise -

there's a lot to be learnt from how the co-op movement explored and agreed this (it's

not that long ago that the international definition of a co-op business was first agreed...);

but it raises perhaps a more pertinent question: social enterprises are identified and

driven by social values - how are those values manifest in the legal strauctures of the

legal forms they adopt?

I was commissioned to write an article on this question from the perspective of

faith-based social entrepreneurs a while back, but to date have seen very little

discussion or material that helps a social enterprise to enshrine its values in it legal

form (governing docs - with the exception of co-operatives UK's legal team)

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StevenLeach


I have wrestled for 18 months to find ways to bring finance into social businesses. On

one side the commercial lenders see social business as "charities" and not a good risk.

Conversely some of my clients are judged by the likes of Venturesome to be "too


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bankable" and thus not for them.

At a dinner for angel investors hosted by UnLtd yesterday, it was clear they want social

businesses to be businesses first and social second. So, there is a ready investment

market for social businesses which can show real returns (for equity or quasi-equity,

say).

Some businesses are more marginal and require the odd top up (or more) from grant

sources, particularly for growth, usually as the business profit will not service a loan.

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SarahPatrice


Hello,

I think the key to creating any legal entity is for the organisation to take a step back

initially and identify what the new organisation is to do and how it is going to do it,

considering key aspects such as how it intends on raising funds in the future. Deciding

what the organisation wishes to do to and creating an appropriate structure around that

(as opposed to putting a structure in place that the organisation then needs to try and

work within the constraints of) should hopefully prevent some of the issues raised

above.

I am sorry to hear that some organisations feel 'stuck' with inappropriate structures;

there may be ways of moving around this, depending upon the nature of the

organisations created. There are some really useful guidance tools available also on the

web, including the CIC regulator website that may help organisations such decisions on


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an informed basis.

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StevenLeach


Can I be provocative with my friend Adrian and suggest that the charity model (usually

good if donations are a major source of income) is not one for social business?

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StevenLeach


Can I echo Sarah's point. The advice I get from the legal people consistently is don't

think about the incorporation structure think about what you want to do; how you will

trade (with whom and on what sort of contract) and how you will raise finance for

development and growth (grant, equity, etc.) being the main considerations.

Do our learned friends on this conversation have more questions for this checklist for

social business?

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cicregulator


If concerns are raised the CIC Regulator has and does look into them. We have a policy

not to publish the results because we do not wish to jeapordise the business of a trading

company by announcing the issues raised. We do keep an eye on this policy though and

it is always open to review.

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NickPetrie


Hi guys,

thanks for all your input so far - i just wanted to highlight Dizzel's question again -

before it gets lost in the thread

What would be the best legal structure to choose for our social business to reflect its

not-for-profit ethos? Also, is there anything here in the UK that indicates that you are

running your business as a not-for-profit?

Does anyone have any specific advice?


21 of 57 26/01/2011 17:23

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CeriJones


Hi,

I am going to be in a meeting for a little while, but completely agree with Sarah's point

about legal form.

I would also say that much of the problems we put down to legal form but could actually

be addressed by greater understanding of social enterprise amongst funders,

commissioners, etc etc so that legal form stopped being seen as a barrier. this is

particulalry important as organisations will need different things at different stages of

their life cycle - They could need grant funding initially but as they evolve and decide to

grow need a different form of finance. it would be difficult at present for any legal form

to be able to do this alone - it has to come from investors, grant makers etc etc

understanding social enterprise and therefore be willing to see beyond legal form and

measure outcomes or returns in different ways.

Apologies am about to go off to a meeting but will be back shortly.

Ceri

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22 of 57 26/01/2011 17:23

JeffMowatt


@ Bankzy, In the paragraph below published online in 1997 after the white paper had

been delivered to the White House, P-CED proposed how the conventional share

business might migrate:

"If a corporation wants to donate to its local community, it can do so, be it one percent,

five percent, fifty or even seventy percent. There is no one to protest or dictate

otherwise, except a board of directors and stockholders. This is not a small

consideration, since most boards and stockholders would object. But, if an a priori

arrangement has been made with said stockholders and directors such that this

direction of profits is entirely the point, then no objection can emerge. Indeed, the

corporate charter can require that these monies be directed into community

development funds, such as a permanent, irrevocable trust fund. The trust fund, in turn,

would be under the oversight of a board of directors made up of corporate employees

and community leaders. "

The concept was embedded in the business plan we presented to ICOF, the then

cooperative funding body in 2004. This was rejected for loan funding on the grounds

that community broadband projects were only being supported for I&PS registered

coops.

It could still be done, we retain copyright.

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cicregulator


It is really important to think very carefully about what it is you want your organisation

to do what you want to get out of it and where you would like it to be in the future,

before you start to look at which structure will best suit your needs.

There are lots of sources of information on the various structures. I know some people

think it old hat but I think it is crucial to have a good strong business plan with a

financial strategy. and a marketing strategy. It's not as scary as some people think to put

this together and it is invaluable in helping with your thinking about your type of

business. Most importantly think about where the money is going to come from. There

are some fantastic ideas and innovations around but I do wonder sometimes how on

earth the anticipated results will be achieved because I cannot see how the finance is

going to work.

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JohnMulkerrin


The four legal structures described by the SEC as social enterprise (I would also include

LLP myself) above include CIC, but then why do they support and fund a definition of

social enterprise via the Social Enterprise Mark that excludes Charities, Co-ops and

CICs? By their own definition we're not necessarily Social Enterprise, something I found

hard to accept.

over a million pounds has been given to this project, .........whilst practical development


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of badly needed infrastructure has been ignored.....to some extent we collectively have

to blame ourselves for the confusion.

Most people cite a problem with the legal structure they have chosen when they fail to

secure the funding/investment they were targetting, most of the problems arent with

the legal structures themselves, rather the infrastructure and business advice

surrounding them.

The Entrepreneurs are stepping up, and the Investors are out there, lets build pathways,

not man gateways.

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cicregulator


The CIC model is often used as a not for profit structure, and this can be included in the

articles of association. Most funders view the CLG form of CIC as not for profit. I would

prefer them to be thought of as not for private profit because these are businesses which

need to thrive and be strong in order to achieve their objectives. I don't think they can

do that without achieving a profit. In the CIC CLG no individual makes any money out

of the company the assets must legally be used for the purpose of the company i.e the

community interest. Directors can be paid a reasonable rate for the skills they bring the

assets can be used to secure loans, the company can use its funds to grow and develop

but in the end the profit is for the benefit of the identified community.

Charities also make profit they call it something else.

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StevenLeach


On Nick's reminder of Dizzel's question

What would be the best legal structure to choose for our social business to reflect its

not-for-profit ethos? Also, is there anything here in the UK that indicates that you are

running your business as a not-for-profit?

A social business is "not for profit", at least not in my world view. It is possible to have

not for profits operating to business rigour and so they should, but a social business

needs to make money to be viabvle and to invest in its future.

There is a real risk of bunching the whole contiuum of different for social impact

models as one entity and calling these "social enterprise"; I don't believe this is helpful.

The question of what is social enterprise is best seen as "being in the eye of the

beholder". Thus Dizzel can look at the probable customers and other stakeholders and

ask what they would like to see. I think "one size fits all" is impractical and not helpful

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DaveKilroy


Further to Dizzel's question, I have been in a co-operative Limited Liability Partnership


26 of 57 26/01/2011 17:23

that did not last - and towards the end when things were getting messy it would have

been really useful to have had some rules as to what could and could not be done. If we

had been in an ISP or Company Limited By Guarantee things at the end would have

been much more straightforward.

LLPs are fantastically easy to set up but I would encourage those thinking of using them

to make sure the Limited Liability Agreement does not remain silent on too many topics

and deals explicitly with the kind of issues found in, for example, the Mem & Arts of a

Company Limited by Guarantee as produced by Co-ops UK.

I have a feeling that Co-ops UK produce a set of model rules or fact sheet on LLPs -

John could you confirm/deny this?

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GayleMonk


Dizzel - sadly there's no single answer to your question. There's already some

suggestions above about converting to a CIC limited by shares structure, or altering your

articles of association so that, while you are still a share company, your company's rules

might be more palatable to the average funder of not-for-profit organisations.

In terms of "badging", there is the Social Enterprise Mark or, if you would be eligible,

there is the "Social Firms" option (but I'm not sure from what you say whether this

would be relevant).

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StevenLeach


There are two key questions about social business; what happens to any profit and what

happens to any assets? For the social business the profit is the fuel for sustainability, a

rainy day and growth; its assets are important for running the business and as collateral.

Most of this debate is around grant finance and gaining contracts using the social

enterprise tag. So, one at a time:

- the grant finance part is easy. If the social business is looking to raise finance (now or

future) via a grant it needs a structure and associated lock demanded by the funder it

will approach (waiting for them to change is not really a tyactical option, more a long

term strategic goal). This usually means CLG or CIC. Both are simple and would give

options in the future. I work with social businesses that have had no or very little grant

finance as they grow via profits; they are still CIC or CLG as they feel this is the right

message to send their supporters and custonmers.

- on looking like a social business I suppose that is Social Enterprise Mark territory but I

prefer people to ask their customers what they would require as there are options to be

a CLS (and pull in equity finance unavailable to say Local Government) and still qualify

as a social business.

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28 of 57 26/01/2011 17:23

GemmaBellACS


Dizzel - I agree with Gayle that there's no single answer - it depends on the nature of the

work you're carrying out and also the people involved in your organisation and how

they want to work together and what they're seeking to 'take out' of the business.

In relation to 'badging', a CIC can give reassurances to external stakeholders that assets

are locked in for a particular community purpose. However, depending on the sector

you're operating in, there can be particular familiarity with certain types of other

structures, such as companies limited by guarantee or community benefit industrial and

provident societies which are seen as a 'preferred option'.

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stephaniebiden


Hi everyone,

I just logged in and can see a lively debate is already raging.

Isn't the variety of legal structures, some allowing profit distribution and others not, and

the wide range of organisations which can identify themselves as social enterprises one

of the sector's strengths? It means there are lots of different options for structuring a

social enterprise to suit its founders' aims and the needs of other stakeholders, and to

try to narrow down the definition or regulate use of the term "social enterprise" would

erode this choice and flexibility.


29 of 57 26/01/2011 17:23

The downside it is can be hard to choose the right structure, and also to communicate to

funders and other stakeholders how a social enterprise's social mission is protected.

One resource which people may find useful if navigating the maze of possible legal

forms is GetLegal: http://www.getlegal.org.uk/ It includes an interactive "decision tool"

which can help find the right structure based on key questions like what finance the

social enterprise is looking to raise, whether the people on the board need to be paid for

their work, etc.

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JeffMowatt


"What would be the best legal structure to choose for our social business to reflect its

not-for-profit ethos?"

For us, faced with a similar dilemma it was the guarantee company form, as they CIC

did not exist. To be a little pedantic 'social business' is something described by

Muhammad Yunus as a non-loss, non dividend distributing company which is cause

driven.

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cicregulator


30 of 57 26/01/2011 17:23


Dizzel I don't think you indicated where you are based but your best bet is to spend

some time talking with a good local business advisor hwo is familiar with the various

structures. There are lots of good business advisors around. I'm sure the Social

Enterprise Coalition could point you in the right direction most likely in the first

instance to your local social enterprise support agency.

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NickPetrie


So a question for John / Linda regarding the Coops

Further to Dizzel's question, I have been in a co-operative Limited Liability Partnership

that did not last - and towards the end when things were getting messy it would have

been really useful to have had some rules as to what could and could not be done. If we

had been in an ISP or Company Limited By Guarantee things at the end would have

been much more straightforward.

LLPs are fantastically easy to set up but I would encourage those thinking of using them

to make sure the Limited Liability Agreement does not remain silent on too many topics

and deals explicitly with the kind of issues found in, for example, the Mem & Arts of a

Company Limited by Guarantee as produced by Co-ops UK.

I have a feeling that Co-ops UK produce a set of model rules or fact sheet on

LLPs - John could you confirm/deny this?

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31 of 57 26/01/2011 17:23

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Bankzy


@Jeff Mowat

"If a corporation wants to donate to its local community, it can do so, be it one percent,

five percent, fifty or even seventy percent. There is no one to protest or dictate

otherwise, except a board of directors and stockholders. This is not a small

consideration, since most boards and stockholders would object. But, if an a priori

arrangement has been made with said stockholders and directors such that this

direction of profits is entirely the point, then no objection can emerge. Indeed, the

corporate charter can require that these monies be directed into community

development funds, such as a permanent, irrevocable trust fund. The trust fund, in turn,

would be under the oversight of a board of directors made up of corporate employees

and community leaders.

Great in theory. It is unfortunate that this is not widely known. I would also imagine

that the "prior arrangement" would have to be pretty robust so that the members of that

company - if it very successful from changing their minds - and invoking their member

rights to change this. Would be good to develop a template iron clad "corporate charter"

and recommendations on how this is monitored overseen so that the members cannot

simply overtturn it.

Also another point, should we be twisting the share company model to fit "social

enterprise" needs? After all changing one aspect of the structure does not mean it is the

most appropriate model for a social enterprise.

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32 of 57 26/01/2011 17:23

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cicregulator


The CIC share model allows a moderate return to investors via the dividend cap while

offering the business another way of generating income. This option is less used than

the CLG but I think is an opportunity missed for some businesses. Funders are not keen

on share companies but then, unless for start up, a CLS can do far more than relying on

grant income which is not sustainable

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SocialInvest


Hi all,

Penny Fell from The Social Investment Business here, just joining the debate!

I think a key issue to highlight is that around grant provision being linked with not-for-

profit status. Several contributors have referred to the fact that all organisations grow

and develop in different ways and that is why grant funding may be appropriate in the

early stages to pump prime and enable an organisation - finding the best financial

product, whether that be grant or loan to suit an organisation's specific circumstances is


33 of 57 26/01/2011 17:23

what we're all about! However, we shouldn't lose sight of alternative structures which

can sit under charities and social enterprises - many charities for example develop

trading arms in order to exploit commercial opportunities. It's also crucial to focus on

the need to function as an efficient and effective business whatever legal structure you

are operating within in order to succeed in an increasingly competitive environment.

Penny

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StevenLeach


I like Bankzy's point about twisting the rules in one area to suit social enterprise. In the

example quoted this deals with the profit however, it leaves the question of asset

distribution unanswered, so would be unacceptable to many funders or social investors.

I think we should also recognise that commercial business has many models as seen by

investors. Recent conversations revealed that investors look at business as a "package"

where the financial return is just one factor; other aspects like knowing the industry,

liking the people, close proximity and feeling good about the product all play a part in

the decision.

Thus I challenge funders and social investors to look in a similar way. However, I also

accept they need gateway criteria just like commercial investors (who normally specify

a lowest financial return level), so maybe the onus is on the social business to be more

savvy about what investment they want and what they have to offer and then match that

to the most appropriate investment source. Easily said but outfits like mine and others


34 of 57 26/01/2011 17:23

can help

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cicregulator


I agree with Steven - develop a good sound financial strategy if you want to survive and

thrive

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JohnMulkerrin


You can achieve CIC status with both Company Limited by Share (CLS) and Company

Limited by Guarantee (CLG) structures, but I agree with the Regulator that the CLG

structure matches the contemporary understanding of 'not for profit'.

The CLG structure also allows a pretty straightforward conversion to Charitable status

which may be useful down the road.

The CLG structure is also recognised by grant funders such as The Big Lottery, so at the

start (making outrageous assumptions and with the caveat that I would need to have a

detailed conversation to give my final answer) I would suggest that the CLG structure

(whether you go for CIC or Charity status) would allow you the chance to access start up


35 of 57 26/01/2011 17:23

funds from empathetic organisations.

That doesnt necessarily help you Dizzel, but I'm happy to have a more detailed 121 on

the phone about your individual circumstances, we hve over 1000 members now at the

Association and can connect you with other practitioners who should be able to give you

their practical experience.

Another thing to think about........is there enough money coming out of these

Foundations? 96% of funds available to 'social enterprises' comes in grants for less than

5k (The Young Foundation)

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StevenLeach


Does anyone else ever find this; that an organisation or idividual sees themselves

identified bythe way they are incorporated (i.e. we are a CIC) rather than by what they

do (i.e. we get homeless people into work)?

I think having rigid definitions of social enterprise reduces flexibility (a point made

earlier) and leaves people prone to the above. We are what we do.

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36 of 57 26/01/2011 17:23

cicregulator


You are indeed what you do but don't you think the term Community Interest Company

describes what you are about?

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Bankzy


@DaveKilroy

I have a feeling that Co-ops UK produce a set of model rules or fact sheet on LLPs -

John could you confirm/deny this?

Co-operatives UK do not have a factsheet on LLPs - but we are working on a precedent

for an LLP co-op - wathc this space!

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GayleMonk


John M - Is the funding that's specifically available to social enterprises generally start


37 of 57 26/01/2011 17:23

up funding? In which case small but quite freely available grants (and I honestly don't

know how freely available they are) are sensible in many ways. A social enterprise still

needs to have a viable business plan in place which is sustainable if not profitable.

Ultimately, if a social enterprise is too reliant on grant funding, it may be losing the

"enterprise" element, any may be better off considering charitable status (if possible) or

another more strictly "not-for-profit" structure.

If the problem is that even start up funding is difficult to come by, then are there

alternative funding streams or models social enterprises should be looking at?

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SallyReynolds


no need to define social enterprise through a legal structure; we already have a variety

of forms and the flexibility to choose what's right for the company is reflective of the

diversity of the sector. The Social Enterprise Mark represents the parameters of

defnition within which the social enterprise operates so we have that tool already in

place.

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38 of 57 26/01/2011 17:23

SarahPatrice


Hello again,

I agree with the point made by Steven, the purpose of the social enterprise as opposed

to the way in which it is created should be the more important aspect. The legal

structure chosen is vital to ensure the individuals who have created the enterprise are

suitably protected through limited liability and to give the organisation a name, brand

and identity to build and grow the social enterprise.

Noting questions raised earlier in the debate regarding the best structure to adopt, it

genuinely is a question of what the organisation is to do, relevant tax considerations (I

am definitely not a tax advisor!) and the way in which it raises funds, should be key

considerations. As the CIC model was created specifically for the social enterprise

sector, it is arguable that this is the most appropriate structure and as a company is

fairly flexible, but there lie choices here also, that must be considered.

Happy discussing!

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cicregulator


Gaylemonk - it is always worth talking to the various charity banks about loans and

support. even at start up. Once again it requires a robust business plan

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39 of 57 26/01/2011 17:23

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andysharman


I would like to ask the panel for their advise on my current conundrum. I am currently

employed by a limited company to run a partnership that is currently set up as an

unicorporated association. The partnership is currently undertaking an amalgamation

with a neighbouring partnership and I am looking to expanded the scope of our work.

Would it be prudent to create the partnership as a form of social enterprise or would

that be difficult given the fact that the administration is taken care of by a limited

company? And if we can what would be the best guise for the partnership to take?

Your comments are welcomed.

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cicregulator


If the unincorporated association is to run independent of the limited company please

get it incorprated. Up to you what form you choose but don't leave individuals

vulnerable if you intend to develop the business.

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40 of 57 26/01/2011 17:23

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StevenLeach


Hi Andy,

Having set up a comnmunity group in the past the first question to ask is what do they

want to do? If they wish to enter into contracts and thus incur risks then they probably

want to be incorporated (not to become a social enterprise, but to give the rpotection

noted by Sarah Patrice above).

If they are not trading or entering other contracts (e.g. receiving grants) then there is no

need, just get an agreed constitution to direct affairs and operations.

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GayleMonk


Andy - One influencing factor may be the neighbouring partnership - is it already

incorporated? Does it similarly have a Ltd co behind it? It there are two "partners"

involved (like two different limited companies), then you need a structure that suitably

sets out the rules for what is in essence a joint venture.

The usual structures are available to you, and you may need to take tax advice on which


41 of 57 26/01/2011 17:23

is the most efficient for you.

If you are looking to trade for profit (regardless of where that profit is going), then it's

worth looking at either a share company or an LLP. But if profit isn't the guiding factor,

then a company limited by guarantee might work (and a CIC is of course an option).

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StevenLeach


As an aside to Sara's comment to me, yes, CIC is the one that most effecively does what

it says on the tin (so unlike IPS for example).

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JonathanJenkins


For me, and apologies if this is brief:

1. Social Enterprise Mark only any use to you if you agree with the underlying SEC

definition of social enterprise. Many don't.

2. Why are we so set on defining "social enterprise" by words or by legal structure.

Surely we should just drop the word "social" and assume that there are different ways

of running your business - a spectrum of finance first, social first or blended? Does it


42 of 57 26/01/2011 17:23

matter that we dont have a "box" to put us in?

3. Why is the social enterprise "industry" so determined to protect a puritanical

definition of what's in and what isn't? It's hardly a way of attracting in more capital,

more human resource if we constantly adopt a holier than thou approach to definitions.

The existing social enterprise industry doesnt have the scale of the capital or the people

to step up to take on the social need that is only going to get worse over the next few

years. Why would we turn anyone away, just because we dont quite agree with their

interpretation of two little words.

I think there is so much wasted time and effort on this (and I really thought twice as to

whether to actually enter the debate). We should just concentrate on helping good

people do good stuff - whether in charities, CIC, CLSs, LLPs or sole trader. Any time

spent doing much else is merely a distraction.

Off the soap box now, and will leave you to it - it's time for inclusion not exclusion.

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andysharman


It wouldn't run independently of the limited company as they are the scheme

administrator, and my employer, who still wishes to continue in that role. To run

independentally would not be a viable option at this time.

However, I'm conscious of the fact that how the partnership is set up constitutionally

could have an impact of potential funding streams, What would be your advice based on

this?

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43 of 57 26/01/2011 17:23

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andysharman


Gayle - The neighbouring partnership was being wound up as part of the local authority

cutbacks, so I am taking responsibility for creating a new partnership to look after all

the affected areas including my current district.

The new partnership would continue to be not for profit as I feel the more co-operative

approach would have the more positive results.

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StevenLeach


I have to leave this discussion. I think my take is that I am not worried if the term Social

Enterprise is not defined, in fact I am happier if it is not. There need to be a variety of

different models to tackle the issues and opportunities out there.

What I like is that people want to get up and cahnge the world and to make things better

for others. I am humbled by most who work hard and rarely pay themselves (I have met

two such in the last two days; one gives long term unemployed people jobs and a new

life, the other gives people a home).

Each example of this desire to help is an individual one and we should be careful not to

stiffle this ambition and desire with catch all rules. I imagine it could be similar to the


44 of 57 26/01/2011 17:23

drop in people giving time to coach sports, think about it).

Also, we do well to recognise the investment community have pressures of their own

and that to change is tough. We need some meeting in the middle.

Having said that it is a pleasure and priveledge to be in this part of business and I wish

you all well in changing your part of the world tomorrow and if I can help it is liklely I

will be there

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cicregulator


I seem to have lost some of the threads here hope I haven't missed anything

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GayleMonk


Andy S - it's worth getting some advice about whether or not to incorporate (a good

business adviser, as mentioned in some of the posts here, can do this - or you could seek

formal legal advice). But essentially it sounds like you're expanding the work of an


45 of 57 26/01/2011 17:23

existing unincorporated body. So the activities will stay the same, but cover a wider

area. In which case, your risks aren't changing. If an unincorporated association has

suited you so far, it may continue to work for you.

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JeffMowatt


@Bankzy,

By now the concept has become fairly widely known I suspect. I'd made contact with a

lot of people in government and the sector since 2004, starting with Baroness Thornton

of the SEC to describe what we were doing. Later to our RDA, Rise-SW, repeatedly..

Both the CIC and more recent SE Mark I understand required some form of

modification to company articles. It's something also found in the US B Corporation

model.

The model was however far more than changing one dimension, or twisting one area. It

set out an ethical argument for sharing and making people the central focus of business

and economics, which touches some unexpected places, as I describe in this blog

By 2006 it had been embedded in an international development strategy paper h which

restated the principles of redirecting capitalism to serve a social purpose and proposed

national scale deployment of social enterprise and a social investment fund to

propagate it.

@StevenLeach,

. .

Like yourself I've been in the IT industry for some years. We use profit from software

development to fund our social cause. A significant part of this approach and our work


46 of 57 26/01/2011 17:23

has been directed at the role of the web for social change, going back to the 1996 paper:

e.g

"Top-notch education is leaving the confines of physical campus and four walls. A

student in remote Zaire, given an Internet connection, can become a Duke-educated

Master of Business Administration, while remaining mostly in his or her home village to

the village's benefit. The prospect of such decentralized localization of education and

economic activity allows a great deal of autonomy, freedom and self-determinism in the

village's own character and identity. It need not be a risk to cultural heritage and

integrity to benefit economically; the means by which such benefit will occur, how local

citizens can have food, shelter, health care, and a basic sustaining human standard of

existence can be determined at the local village level and then communicated at the

regional, national, and global level simultaneously at virtually no cost via the Internet

and a web site. It is this basic level of human sustenance, coupled with self-sustaining

enterprise to provide this basic level of support, that I refer to as sustainable

development -- which is just another way of saying "people-centered" economic

development."

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stephaniebiden


Andy -

What does your local partnership do, and how is it likely to be funded? (Grants?

Contracts to provide services? Who would be the funding bodies?)


47 of 57 26/01/2011 17:23

I agree with StevenLeach, the question isn't so much should you set it up as a social

enterprise, but should the partnership be incorporated to manage the risks (especially if

funding is uncertain). Incorporating it in some way may also help it to develop its own

identity when pitching for funding.

Otherwise it will need to operate as some kind of contractual consortium between the

different partner organisations and one organisation, presumably the company you

work for, will have to be the lead member of the consortium which is not just

administering the work, but also taking on liability for it all. In either case you need to

make sure the relationships between, and the contributions being made by, the different

members of the partnership are understood clearly. Problems often arise with this kind

of collaboration when the partners haven't all reached agreement at the beginning about

who is responsible for what.

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GayleMonk


Steven Lynch - I wholeheartedly agree with you. Labels are less important than the

amazing work that people are trying to do - and legal structure only matters in the sense

that (as Sarah P has said above) it can help to protect people.

I'm honoured to do what little I can to help the people who are trying to do those

amazing things - regardless of what they call themselves.

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48 of 57 26/01/2011 17:23

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Bankzy


To all those who are favouring the approach to choosing a legal structure from the point

of view of what the organisation is actually doing/will do on the future, we have a

wonderful resource - Simply Legal and its free. Link to the publication below:

http://www.uk.coop/resources/documents/simply-legal

This is going to be part of a wider series, Simply Finance, Simply Governance, Simply

Start up

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NickPetrie


Hi everyone, thanks for your participation in the discussion - I hope that you all feel

that your questions have been answered (if not, drop a note in the comments and I will

follow it up)

As the session draws to a close, could each member of the panel leave us with a

sentence on what they consider the most important issue around structure that Social

Enterprise will have to deal with the in the coming years.

Whether that is access to grants, loans and finance or if problems will occur around

defining Social Enterprise (despite many panellists feeling it is best left undefined)


49 of 57 26/01/2011 17:23

Thanks

Nick

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adrianashton


there's another aspect to this discussion that might be worth some conisderation (and is

linked back to my earlier musing about roles of regulatory bodies) - legislation changes

over time.

Time was, if you wanted to form a co-operative of any kind, IPS was the form to take,

but changes to company and partnership law have meant that many 'newer' co-ops are

incorporating as companies; we've also seen the basis of what it means to be a charity

change (to the point that I think there's now a mess hall on an aircraft carrier that has

charitable status) and the CIC form has had two change to its rules since it was launched

(although there's been a prototype CIC form that some enterprises have been adopting

since 1985!)

so... what prospects does our panel think will be affecting social enterprises based on

changes to legislation that governs legal forms in the coming decade?

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50 of 57 26/01/2011 17:23

NickPetrie


Ah, some of you got there whilst I was writing that comment - cheers

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JohnMulkerrin


I disagree Sally,

Govt brought in the CIC legislation to be the recognised legislative tool of social

enterprise, the Marks perameters are limited by its requirement to develop a product

that they control and monetise as an income stream.

I have previously called it a double audit fee for CICs, I already prove my status as a CIC

through an annual statement to The Regulator which is far more credible in the real

world.

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Bankzy


stephaniebiden


51 of 57 26/01/2011 17:23

RE: Consortium approach. Co-operatives Uk is seeing a growth area in this type of

structure. With organisations such as GPs, creatives, charities coming together to create

co-operative consortia to access funding and complete joint projects.

Obviously, there should be member agreements in place that regulate the relationships

between the members and the co-op and include such things as:

- time commitment;

- commitment to provide/deliver on projects;

- procedures for "what happens if a member fails to deliver" etc.

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GayleMonk


Thanks Nick,

It's not a legal issue, but to me the biggest continuing problem is how to:

(a) run a successful business venture, while

(b) not losing sight of the ultimate social or environmental goal, what ever that may be

for you.

So if social enterprise is about both the "social" and the "enterprise", then how does one

structure or organise itself so as not to lose either element, as both are vital?

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52 of 57 26/01/2011 17:23

cicregulator


I think that the one of the biggest challenges is getting the message to wider society

about what it is that social enterprise does. There are a number of good options

regarding structure and the choice depends on your vision for the business. all social

enterprises need to thnik hard about how they will survive. They are innovative and

imaginative and should be up to the challenge. let's just make sure we maintain the

good reputation of this growing movement.

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Bankzy


JeffMowatt

Would be interested to see a set of articles that set out the ethical argument for sharing

and making people the central focus of business and economics. Can you direct me to a

copy or give me the name of a company that has adopted these articles so that i can see

what provisions have been included to achieve this.

Also, do any of the provisions in the new Companies Act contradict these provisions or

imply certain things that would dilute the efforts made?

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53 of 57 26/01/2011 17:23

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shrock


interesting tho this discussion's been i do think it illustrates the perennial problem with

this sector: continually pleading 'special case'.

So 1) I’m with Jonathan , lets drop ‘social’ (hmm sounds familiar) 2) if a business is not

for profit its not a business 3) its horses for courses in terms of funding: entrepreneurs

and investors will be matched based on need and investment model.

as some comments have already noted it would be impossible to have a discussion in

any other sector where founders spent so many heartbeats on discussing legal entity.

This is a diversion, because in the end the structure you choose is self evident. Its really

not that complicated.

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JohnMulkerrin


I think Jonathan Jenkins view is the way forward, to reverse the lines from an old

favourite song

'Its what you do, not the way that you do it'

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54 of 57 26/01/2011 17:23

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SocialInvest


I along with many other contributors agree that less is more in terms of defining social

enterprise. In terms of the biggest issue - finance and funding. New models of finance

and new vehicles coming into the market will help ease the pressure.

Penny

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Bankzy


As the session draws to a close, could each member of the panel leave us with a

sentence on what they consider the most important issue around structure that Social

Enterprise will have to deal with the in the coming years.

"Trying to adapt and be dynamic enough in their business strategy to compete at a

meaningful level with the commercial world and be taken seriously and not to forget or

ignore the organisation's legal structure in the process." Seek advice.

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55 of 57 26/01/2011 17:23

SallyReynolds


as per Nick's request for closing off here, I think the most challenging area for social

enterprise around structure will be doing everything that the business needs in terms of

finance whilst being able to prove the social or environmental impact of that

organisation. This would be done ideally through the structure and/or by holding a

brand, so that purchasers and procurers can recognise and make their choice to buy

from social enterprise without having to do all the work that they do at the moment to

ensure it does what it says 'on the tin'!

making sure that those who advise on legal structures for social enterprise really know

their stuff would also be a good start - have heard some worrying stories recently.

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CeriJones


Apologies for being missing most of the afternoon.

I think agree that being absolutely clear about business strategy is critical before a legal

form is selected. I would add to that organisational mission and how involved you want

your stakeholders to be. Once your clear about this getting advice from lawyers who

have experience not only of legal forms for social enterprise but also of the sector you


56 of 57 26/01/2011 17:23

are operating in as there are some areas (particularly health) where the contracts you

are bidding form will influence the legal form you choise.

Finally remeber you don't have to limit yourself to one legal structure going foward.

Many social enterprises and in fact many businesses have groups structures for many of

the reasons sighted above. I believe the HCT group have almost every legal form as part

of their structure.

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57 of 57 26/01/2011 17:23

Live Q&A Social Enterprise a Guide to Legal Structures - The Guardian: Social Enterprise Network

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Transcript of Live Q&A Social Enterprise a Guide to Legal Structures - The Guardian: Social Enterprise Network