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

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...

Live Q&A: Social enterprise - a guide to
legal structures
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

Eliza Anyangwe
Guardian Professional, Tuesday 18 January 2011 10.18 GMT

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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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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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Comments in chronological order (Total 81
comments)
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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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14 of 57 26/01/2011 17:23


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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16 of 57 26/01/2011 17:23


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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20 of 57 26/01/2011 17:23


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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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23 of 57 26/01/2011 17:23


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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25 of 57 26/01/2011 17:23


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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

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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

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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

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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

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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

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