So what is the right legal structure for your social enterprise?

There is lots and lots of advice around about what the right legal structure is for your social enterprise. I have found that in my experience you can pretty much make any legal structure work but some will take a lot more work than others, depending on what you are trying to do.

Unltd has a great guide to this at Determining the right legal structure and there is a good document as well here.

Let us know your thoughts and what legal structures you are thinking about.

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This might be a stupid question but I am not sure exactly what a social enterprise is?

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Not a stupid question at all Sally and lots of people ask that. The easiest way to describe it might be as a non-profit business. You want to run a business that is more about solving a problem in society (like climate change, housing, employment, healthcare, etc) than it is about making the founders or the owners wealthy. Does that make sense?

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Thanks that does help a bit

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Hi Dave. Thanks for the guides. Am I right in thinking that most companies are limited by shares? Do you think thats a good model for a social enterprise as well?

Hi Michael,

I think the right business structure depends very much on you and what is right for you. In my experience lots of people will tell you what the “right” model is but that is their opinion. Also (in my experience) you can pretty much make any of them work.

Te big advantages of company with shares is that that is what most companies are (from Amazon, Google, Apple to WH Smiths, Just Eat, Greggs, etc) (side note: you can tell where I clearly do my shopping) and so everyone knows this model. Basically when you create a company you create shares and then people who own the shares are the shareholders and they control the company and get a share of the profits. If you try and register a company at Companies House then this is the default company structure it will suggest - same with most lawyers and accountants.

The big downside is that there is nothing to stop the shareholders taking all the money (as they won the company) and many people become shareholders in order to become richer - that is usually the point. So if you choose this model then lots of people could get personally rich by taking money out of your company if it becomes really successful. Most people don’t regard companies limited by shares as social enterprises. If you become a company limited by shares you will find it very hard to get funding for social enterprises and you will be viewed with suspicion if you regard yourself as a social enterprise. That is worth bearing in mind if that is important to you.

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This was how our founder saw it:

The term “social enterprise” in the various but similar forms in which it is being used today – 2008 – refers to enterprises created specifically to help those people that traditional capitalism and for profit enterprise don’t address for the simple reason that poor or insufficiently affluent people haven’t enough money to be of concern or interest. Put another way, social enterprise aims specifically to help and assist people who fall through the cracks. Allowing that some people do not matter, as things are turning out, allows that other people do not matter and those cracks are widening to swallow up more and more people. Social enterprise is the first concerted effort in the Information Age to at least attempt to rectify that problem, if only because letting it get worse and worse threatens more and more of us. Growing numbers of people are coming to understand that “them” might equal “me.” Call it compassion, or call it enlightened and increasingly impassioned self-interest. Either way, we are all in this together, and we will each have to decide for ourselves what it means to ignore someone to death, or not.

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As someone who managed to ‘accidentally’ change CIC legislation and influence how the charity commission understand charity law - I think there’s a lot of very bad and dangerous ‘advice’ out there offered in relation to legal forms and social enterprise.

Always look at what the evidence and research says about the options you’re thinking about - including what the regulators of them expect of you, and what powers they hold over you (for example - most CICs don’t realise that the regulator can impose restrictions on any future trading activity you may want to introduce; and that Societies are the only legal form created as a direct lobby from the sector back in the 19th century and as such are regulated on values).

But don’t panic - there are always possibilities to change your legal form in the future if you realise you’ve incorporated with one that wasn’t ‘best fit’ for how you wanted your model to work (although some changes are easier to make than others…).

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