Legal Structures
53
Development Trust Association Structuring for Success David Alcock 9 th December 2009
-
Upload
communityst -
Category
Documents
-
view
1.534 -
download
3
Transcript of Legal Structures
Development Trust Association
Structuring for Success
David Alcock
9th December 2009
Where are we going today?
Thinking about legal structures Applying that to the Trusts or groups
that you work with Looking at some more complicated
structures Reflecting on trading and charitable
status
Who’s he?
Anthony Collins Solicitors – based in Birmingham, working all over England and Wales
Leaders in advice to the third sector Committed to community regeneration Working with Development Trusts ad
the DTA, including on asset transfer and governance issues
Governance is …
a framework for action
a means to an end
protection
a way of working together
Legal structure
Does it matter? Yes it does, because it affects: What you can do Liability How the group can hold money or
assets Who will fund you and how
Choosing the right vehicle
Where do you want to go?What are your options?How should you decide?
Where do you want to go? What do you want to achieve through the
your organisation:TradingEnterprise developmentHolding assetsCommunity engagementA long term presence
Consider your aims in principle before you choose a structure
Where do you want to go? Key issues – do you want to:
continue to employ staff?enter into contracts?own property?provide or procure services... independently, without risking personal liability to members
If so, then you will probably need a separate vehicle
What are the options?Profit distributing structures:
Companies limited by sharesIncluding PLCs
Limited Liability Partnerships Industrial and Provident Societies
Co-operatives Community interest company ltd by shares
What are the options?Non profit distributing structures:
Companies limited by guarantee Industrial and Provident Societies
Community benefit Societies Community interest company limited by
guarantee
Charitable status?
What are the options?
If a group isn’t any of those, then in law its probably an “unincorporated association”
- an association of two or more people “for common purposes” (but not business) with shared duties and obligations, in an organisation with rules
- Or a “sole trader” or “partnership” (if its about business)
What are the possibilities?
How do you tell? Look at the constitution (if there is one) Search the Companies House website Search the Charity Commission website Search the register of industrial and
provident societies http://mutuals.fsa.gov.uk/
What are the possibilities?
How do you tell?
If it isn’t a company, an IPS or a charity … Then its probably an unincorporated
association, if its not about business Or a sole trader or a partnership, if it is
Don’t worry about labels
“Social Enterprise” “Community Development Trust” “Community Enterprise”
… don’t worry too much! Basic options the same
Company Limited by Guarantee (1)
Registered by the Registrar of Companies Separate legal identity
Any property or contract is entered into in the company (not the members') name
Accounts, returns and information filed with Companies House
Can be charitable or a Community Interest Company
Company Limited by Guarantee (2)
Common vehicle for non-profit making organisations
No shares; Members give £1 “guarantee”
Gives limited liability to membersCan hold assets Can enter into contracts in its own name
Company Limited by Guarantee (3)
Straightforward to set upSet of standard documents to accompany the main constitutional document
FlexibleMemorandum and Articles of Association can be "tailor made"Process exists for changing constitution if needed
Can be charitable or a CIC
Industrial and Provident Society
Two main types: Co-operatives; and “Ben-Coms”
Co-ops: for the benefit of those who join it as a member
Ben Coms: organisation set up to benefit people in a particular area; person can benefit from a “Bencom” even if he/she is not a member
Regulated by Financial Services Authority
Industrial and Provident Society
IPSs can now have asset lock, similar to CIC asset lock
Must have “special reasons” to set up a Ben-Com rather than a company
Ben-Coms can be charitable Generally higher set up costs than
companies NB community investment – some
useful key features
Charitable Status
In order to be charitable, an organisation must be “established for charitable purposes”
“Charitable purposes” means purposes which are “exclusively charitable according to the law of England and Wales”
13 listed in the Act but a wide range in practice
Charities Act 2006
Charitable Status
Some social enterprises are charities Some helpful charitable purposes:
Urban or rural regeneration Community capacity building Relieving unemployment
Health warning – Charity Commission guidance!
But what about activities?
Charitable Status
Tax treatment different to normal companies Exempt from most forms of Corporation
Tax Other tax advantages
Access to sources of funding Restrictions on trading Regulation by Charity Commission “Burning the bridge”
Community Interest Companies
New legal form for social enterprise CIC registration: CIC regulator “Community benefit” Annual Community Interest Report Standard/required provisions in M&A Asset lock No tax breaks
Community Interest Company
Community Interest Test (s35(2) Companies Audit, Investigations and Community Enterprise) Act 2004
“A company satisfies the community interest test if a reasonable person might consider that its activities are being carried on for the benefit of the community or a section of the community”
Community Investment
Community share issues (equity) Community bonds (debt based) Companies limited by guarantee
cannot issue shares CICs ltd by shares and Community
Benefit Societies can
Community Investment
Some important features of Community Benefit Societies: One member one vote (however many shares) Withdrawable share capital (not just
transferable) £20,000 investment limit for individual members And therefore, exemption from some FSA
regulations in relation to share issues
Unincorporated Associations
A group of people – a defined purpose Will have some rules, even if not written Residents’ associations, sports and other
clubs, trade unions, event committees … Need not be of benefit to wider community
Unincorporated Associations
Some of the implications: The organisation has no separate legal
identity But:
the members will still have duties and liabilities to each other… and potentially to other people
More complex structures
Case study 1:You are working with a Development Trust
who wish to work with a private sector training provider to set up a new training base on their “patch”. Both organisations would like a share of the profits if the new venture makes money. The community are anxious not to lose control of the venture.
More complex structuresCase study 1: Joint venture Set up new CIC ltd by shares
One share eachProfit sharingEach appoint 2 Directors, M&A will provide decision making protectionFramework agreement “around” JVCo
More complex structuresCase study 2:You are working with a rural development
trust who are interested in developing renewable energy. They are considering how to shield the main Trust from the risk of the venture, and are also wondering how to raise finance and whether to work with a private sector partner.
More complex structuresCase study 2: Rural development trust (CIC) Setting up energy supply company as
separate bodyWholly owned by Trust / part owned with private sector partner?IPS for community share issue? (control?)
How do you make the choice?
Assess what you want the vehicle to do Do you want to give out profits to members or
investors, or is it not for profit? Is it likely to have only charitable aims? Is it likely to carry out only charitable
activities? Trading?
Are the tax advantages going to be important?
How do you make the choice?
How certain are you – do you need to retain flexibility?
How are you going to raise funds?
With me so far?
Structuring for Success
Constitutions – what they’re for and what should be in
them
David Alcock
9th December 2009
What is a constitution for?
Organisations are not like people! They need constitutions to:
tell them how to do things give them some certainty protect the members
What is a constitution for?
Most constitutions have to meet external requirements
charity constitutions CIC constitutions co-operatives and “ben-coms”
The key elements of a constitution
What is this group?
NameAims and core purposePowersProfit making or non profit makingEqual opportunities statement
The key elements of a constitution
Membership
Who are theyHow do they become membersDifferent groups?How are they removed
The key elements of a constitution
Management
Committee / BoardWho is on the Board, how do they get thereAny categories / criteria (eg residents, stakeholders)How long are they on for, how do you get them off?Officers?
The key elements of a constitution
Meetings
Members / BoardHow often?QuorumVotingMinutes
The key elements of a constitution
Other key elements
Delegations – committees, working groupsChanging the constitutionDissolutionConduct of Board members
Other useful governance tools
Complaints procedure Code of conduct Terms of reference for sub groups Financial rules
Trading Companies
David Alcock
9th December 2009
Trading issues
What do we mean by a trading company?
When might you want to set one up? What legal form do trading companies
take? What are the issues in forming a group
structure?
What is a trading subsidiary?
A company (or other corporate entity) Which is:
Separately registered But wholly or mainly owned by another
company (the “parent”) And forms a group structure with that
parent
Distinction from joint ventures
When might you want one?
If you are a charity and: You are restricted by the rules on charities
and trading; or You want to do non charitable things
If you want to: Set up something new; or Move into a risky business area; and You want to contain the risk
When might you want one?
Charities and trading Trading is:
The sale of goods or services But not:
The sale of donated goods, given to the charity for selling on
The sale of investments The sale of assets used by the charity for its
charitable purposes The letting of land or buildings without services
When might you want one?
Charities and trading Charities CAN engage in some trading:
Where it contributes directly to the meeting of their objects (“primary purpose” trading);
Where it contributes indirectly (“ancillary” trading);
A limited amount of trading purely to raise funds, provided there is “no significant risk” to the charity – NB tax issues
What legal form do trading companies take?
Often (but not always) a company limited by shares, with the parent company owning all or a majority of the shares
NB charities can now jointly own a trading company and both benefit from the gift aid provisions
Can be a community interest company (CIC)
What are the issues in managing two companies?
Have to run the subsidiary as a genuinely separate company Two boards of directors – some distinct
membership More meetings Administration, consolidated accounts
Funding issues Other investors Funding from the parent
The relationship can get complicated!
Structuring for SuccessThanks for listening!
David Alcock0121 212 7451
9th December 2009
