Legal structure

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Your project will need a formal legal structure in order to access funding, sign legal documents and raise money. The structure chosen will affect decision making processes and whether money can be raised from the public, and therefore has implications for how and how much your community is able to become involved in your project. Points to consider include how you wish to raise money, what your preferred governance structure is and whether you want philanthropic values to be enshrined into your project.

Types of legal structure. The most common choices for social enterprises are between a company, a society or a charity. If your project will rely on capital grants, then any of these legal structures could be appropriate. However, if you intend to raise capital from the public through issuing shares, the best choice is likely to be a society. While a Community Interest Company can also raise share capital, there are restrictions on the returns it can give to investors, which may make it difficult to raise the money required, and it does not enjoy the same tax breaks as societies and charities.

There are two forms of society – a Community Benefit Society and a Co-operative Society. Both forms must comply with the cooperative values of self-help, self-responsibility, democracy, equality, equity and solidarity. The principles of voluntary and open membership, democratic member control, member economic participation, autonomy and independence, and concern for community must all be enshrined into the constitution of the organisation, with members able to contribute to governance and decision making.

A lot of time can be spent agonising over the choice of legal structure – time which might be better spent on the project itself, in some cases! You may come across passionate advocates of one form of society or another, but in practice there is often little difference between them in terms of their everyday management and ability to raise share capital. In theory Community Benefit Societies are ‘for the benefit of the community’, whereas Co-operative Societies are ‘for the benefit of their members’. In practice both have a social mission and the boundaries between ‘community’ and ‘members’ can be blurred. A brief summary of some of the issues can be found in the Community-Led Wind Power action pack.

There is lots of information available on the various options and their registration processes and requirements. Useful sources of information include the Government website GOV.UK (e.g. see the guidance on 'Setting up a social enterprise') and resources from Co-operatives UK. It can also be worthwhile seeking professional advice to ensure you choose a structure which will suit the current and future needs of your project.

Case Studies
Country: UK

Low Carbon West Oxford decided to become constituted as a formal organisation in order to maintain and build the community’s trust, seeing this as an important way to enable greater community participation. They considered various governance options, including becoming a charity, a society or a Community Interest Company. They eventually decided to set up two separate organisations: Low Carbon West Oxford (LCWO) and West Oxford Community Renewables (WOCoRe). LCWO is a registered charity that runs carbon reduction and behaviour change projects, while WOCoRe is a Community Benefit Society which produces renewable energy. Although this adds an extra administrative burden, it allows WOCoRe to offer anyone in the world a chance to invest in its renewable energy projects, whereas LCWO focuses on working specifically with and for the benefit of West Oxford, offering free and open membership to anyone living there. WOCoRe membership is available to anyone who buys its shares, which are set very low with the minimum block costing just £10, to allow a broad range of people to invest in the community.

Source: Low Carbon West Oxford and West Oxford Community Renewables (2010), Low Carbon Living: Power to make it possible

Country: Ireland

Cloughjordan Ecovillage was conceived as a model for future development, an educational project dedicated to environmental protection and to sharing the fruits of the community’s experience. Future residents of the village established a not-for-profit company to realise the project in 1999: Sustainable Projects Ireland Ltd (SPIL). SPIL operates as a co-operative but with the legal structure of a charity, a foundation for the public good. Membership of SPIL was initially limited to  residents intending to live and build in the village but has naturally evolved to include other local residents. The Membership Agreement defines members’ rights and obligations. Members also subscribe to an ecological charter which sets out guidelines for the design of the development and which will continue to affect all future operations. A board of directors and an advisory panel were appointed consisting of people with a range of skills required to establish the project including an engineer, an architect, an accountant, a solicitor, a quantity surveyor and the then leader of the Irish Green Party.

Country: France

The regional association for the development of solidarity economy (ARDES) initiated a project to deliver community funded solar panels on schools, with funding to be secured collectively by citizens and public authorities. In order to inform citizens and communicate about the project, but also to optimise the integration of citizens in the project, an association, Plaine Sud Energies, which then became a cooperative, was created. As the awareness raising first started amongst representatives, they were the first ones to join the association, but other people from the community also joined. It enabled the constitution of a core group who would be the key driving force for the project.

Country: UK

The Big Lemon, a sustainable community bus service in Brighton, is a Community Interest Company (CIC) limited by shares.  This means it can sell shares in the company in order to raise finance, but there are legal limits on dividend payments to ensure that profits are used for social objectives that benefit the community. The Big Lemon chose this model in order to safeguard its aims in law and to make it immediately recognisable as a social enterprise, whilst allowing it to raise finance from the community by selling shares. Incorporation as a CIC is subject to agreement by the CIC Regulator and must be renewed each year by means of an annual CIC Report. If the CIC Regulator is no longer satisfied that the company is working for the benefit of the community, it can withdraw its CIC status.  The Big Lemon sees these features as a way of ensuring the community have confidence that the project is being run in accordance with its mandate, true to its original vision, mission and values, with members of the community being able to participate in the ownership and running of the organisation.

Source: Community-Led Transport Initiatives action pack