Once you have your idea for a social enterprise you will need to decide what legal form you are going to use to operate it.  It is possible to operate your social enterprise as a sole trader or community group but there are some benefits to having an independent legal structure – such as enhancing credibility, limiting liability, good governance and obtaining investment.  If you do decide you want to set up a legal structure for your social enterprise here are some options that are open to you:
 
1. Limited company – a company is registered with Companies House and can be limited by either shares or guarantee.  To register a company you will need to have a company name, registered address, a shareholder (or member), a director and company rules called articles.  A fee is payable on registration and once your company is registered there are ongoing requirements in relation to record keeping, accounts, and filing information with Companies House. Companies are free to operate on a for profit basis although you may choose to operate your company for a social purpose.
 
2. Charity – a charity is a legal form which needs to be registered with, and is regulated by, the Charity Commission. Charities have to be established for a pre-defined social purpose, they are able to trade to support their social purpose and they receive certain tax benefits that other legal forms do not.  Charities are run by trustees who are not permitted to receive pay and do not allow investors to receive a return or payment of dividends or to exercise any management control. They may not therefore suit your social enterprise business model.
 
3. Community investment company (CIC) – this is a relatively new legal form which has been set up specifically with social enterprises in mind.  A CIC will have a company registration like a limited company but also has to have a purpose which is for the community benefit and cannot be privatised or distribute capital. To encourage investment in this area, CICs are permitted to distribute some of their profits and can also have paid directors. CIC’s have to be registered with the CIC regulator and report to it to show it has been pursuing its community benefit purpose. In many ways a CIC is a half-way house between a limited company and a charity – there is a legal requirement for the CIC to operate for a social purpose, the majority of profits have to be applied for the social purpose but reasonable remuneration can be paid to investors.
 
It is worth considering your options at the outset so you have the legal set up in place that will allow you to most successfully operate your social enterprise.
 
hannah ives 150x150Hannah Ives – LawBite LawBrief
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