Setting up a community enterprise
Choose a ‘business structure’, if you’re starting a community business, that helps people or communities (a ‘social enterprise’), protects your business interests and those of your partners and which offers the right degree of protection and security for your board/trustees.
Definition of a social enterprise?
The term “Social Enterprise” describes the purpose of a business, not its legal form. It is defined (by Government) as “a business 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”.
Source: A Guide to Legal Forms for Social Enterprise/ Dept. For Business Innovation and Skills
Some of your options are listed below.
Create a Limited Company
Starting a ‘normal’ limited company entails a degree of protection for Directors and provides a well recognised structure for reporting to Companies House and complying with tax and other reporting and payment processes.
A Company Limited by Guarantee is most often’ used ‘ by Charities to support trading activities, with no obligation or structure to pay dividends to shareholders.
Register a new Charity
Things you will need to create…
- How your charity’s purposes meet the Public Benefit requirement?
- How will the trustees run the charity for the public benefit (governance)
You will also need:
- Proof that your charity’s income is ‘already’ over £5,000
- A signed PDF copy of the trustee declaration form
- A PDF copy of your charity’s governing document
A charitable incorporated organisation
CIO is a new legal structure for charities, from 2013. Combining the aims and structures of a charity and a business.
Become a Co-operative
Co-operatives are based on seven key principles…
Voluntary and open membership. Democratic member control. Member economic participation. Autonomy and independence. Education, training and information. Co-operation with other co-operators. Concern for the community.
Create a community based Industrial and Provident society
Industrial and Provident Societies (IPSs) are registered with the Financial Services Authority (FSA). Currently, those that are charities are ‘exempt’ charities. They cannot register with the Charity Commission, but are otherwise subject to charity law. HMRC decides whether they are eligible for tax relief as charities.
IPSs fall into two categories:
- bona fide co-operatives – these trade for the mutual benefit of their members, and the Registrar will judge the legality of their action by reference to co-operative principles; and
- societies for the benefit of the community – these trade to benefit the broader community, and the Registrar will refer to charity law. Societies for the benefit of the community are granted charitable status by the taxation authority, HM Revenue & Customs (Source: DIY Commitee Guide)
Establish a Community Interest Company (CIC)
A CIC is a special type of limited company which exists to benefit the community rather than private shareholders. To set up a CIC, you need to apply to Companies House.
You will need to create a ‘community interest statement’, explaining what your business plans to do. As a community based organisation you will create an ‘asset lock’- a legal promise stating that the company’s assets will only be used for its social objectives, and setting limits to the money it can pay to shareholders (if any).
Your new company will need to be approved by the CIC regulator.
Discover the CIC regulator on-line here…
Start as a sole trader
If you are a dynamic, enterprising individual with a good heart you may start a business, earn money, pay tax and donate your surplus income to your good cause.
80,000 Hours is a website dedicated to students who have adopted the ‘Earn to Give’ philosophy.
Resolve to be a business partnership (LLP)
A Limited Liability Partnership offers greater flexibility to set up their organisation for social good, and to decide on their direction of travel, and how any surpluses, if any, are distributed.
Stay as an Unincorporated Association
If you’re setting up a small organisation like a sports club or a voluntary group and don’t plan to make a profit, you can form an ‘un-incorporated association’ instead of starting a business.
You will need to keep good records, meet regularly with minutes taken and agree a constitution, for your group or activity, in the community. (A much simpler version of Memorandum of Articles for a Limited Company).
Co-operatives and industrial and provident societies are both types of mutual. A mutual is an organisation owned by, and run for, the benefit of its members.
The term “mutual” is used as an umbrella term for several different ownership models. Mutuals are often described as being characterised by the extent to which members have
democratic control of the business and share in its profits, and contrasted with ‘investor controlled’ companies.
Examples: Employee owned businesses, co-operatives.
There are also opportunities to invest in local enterprise with community shares or to bid to run a local service.
There is no legal definition of community shares. The term is used here to refer to a unique form of share capital called ‘withdrawable shares’ which can only be issued by co-operatives or community benefit societies registered with the Financial Services Authority.
Co-operative societies are for the mutual benefit of their members, whereas community benefit societies are for the broader benefit of the whole community. Both types of society can issue withdrawable shares, and they work to similar principles…
You can discover more about the Localism Act and your rights as a community on the web pages of Locality.
Good luck with the formulation of your governance project.