Professional support for the voluntary sector

An Overview Of Legal Status

Wednesday 25 November 2009 Amy Richardson, Solicitor Charlie Wright, Solicitor

Introduction

•Who are we?

•What will we cover?

•Types of charitable entity •Incorporation •Community Interest Companies

Types of charitable entity

• Unincorporated Associations • Trusts • Incorporated Bodies • Industrial and Friendly Provident Societies • Community Interest Companies

Incorporated Bodies Key characteristics •Limited liability for managers •Own legal personality •Memorandum & Articles of Association •Filings at Companies House as well as with the Charity Commission

Is incorporation it right for you?

• Does your charity have substantial assets?

• Do you employ staff?

• Do you enter into any commercial contracts?

• Additional administration – Companies House Filings

Community Interest Companies • Variant of a limited liability company • Same benefits as a company limited by guarantee – limited liability of managers • Same governing documents – Memorandum and Articles of Association

Trusts • No separate legal personality • Trust Deed – empowers the trustees to act • Power and responsibility for running the charity sits with the Trustees

Unincorporated Associations

•Rules/constitution •No legal personality •Unlimited liability - personal liability for managers •Minimal regulation

Triggers for Incorporation

• taking on a lease/buying a property • taking on employees • raising finance • entering into large contracts • requirement of funders/grant body

Incorporation 1 - Companies

•Company Limited by Shares •Company Limited by Guarantee •Community Interest Company

Companies – Common Factors

All company types have the following in common: •Written Constitution – can restrict profit distribution •Two tier power structure: Members and directors •Directors duties & conflicts of interest •incorporation and ongoing regulation

Companies – Differences

Differences between Share & Guarantee Co’s: •Membership Structure – shareholders v members •Voting •Use for social enterprises

Companies – Problems

Problems with use of traditional company structure for social enterprises: •Ability of 75% of members to change constitution (remove restrictions on profits) •Difficult to use CLG to raise finance •Suspicion caused by use of a “vehicle of business”

Companies – Solution

Community Interest Companies – “CICs” Described by Government as: “An entire new form of company designed to meet the needs of people seeking to pursue enterprise in the public interest, dedicating their profits to the public good”

CICs – Basics

•Can be a company limited by shares or guarantee •Existing companies can convert •Activities must be for the benefit of the community •Subject to the same regulatory constraints as other limited companies •No tax advantages

CICs – Incorporation

•Governing documents - specific provisions •Same form •Higher Fee •Community Benefit Statement •Declaration re: Political Causes •Name: must end “Community Interest Company” or “CIC”

CICs – Conversion

•Change constitutional documents – special resolution •Community Benefit Statement •Declaration re: Political Causes •Fee

CICs – Annual CIC Report

•Filed with Accounts •Additional information: •Remuneration of Directors •What the CIC has done to benefit the community during the relevant period •How has the CIC involved its stakeholders in its activities •Dividends or interest paid during the period •Whether any assets have been transferred

CICs – Asset Lock

Fundamental feature of CICs: •Limitation on distribution of profits •Restriction on selling assets at less than full market value •Dealt with by provisions in the constitution •Can only cease to be CIC by dissolution or conversion to Charity

CICs – Dividend Cap

•Dividends can only be declared by the members and not the directors alone.

•3 elements: •Maximum dividend cap - Base Rate + 5% of value of each share •Aggregate dividend cap - 35% of profits available for distribution •Interest cap - Restrictions on interest linked to performance

CICs – Regulator

Role: •To review community benefit •To approve changes to objects •To approve dissolution or the conversion •To provide guidance to CICs.

•To investigate complaints

CICs – Useful Websites

www.dti.gov.uk/cics www.cicregulator.gov.uk

Ann Hilton, ProHelp Manager 0115 924 7408 [email protected]