The main structures that a social enterprise can adopt are:

1. Trusts
2. Associations
3. Partnerships
4. Companies limited by guarantee
5. Companies limited by shares
6. Industrial & Provident Societies (co-operative)
7. Industrial & Provident Societies (society for the benefit of the community)
8. Limited liability partnerships
9. Community Interest Companies

Unincorporated Organisations

An unincorporated organisation is a group of people bound together by common purposes that has rules to govern how it operates.
Unincorporated organisations have no separate legal identity distinct from individual members and therefore individuals are personally responsible for any property, contracts and leases. Members have ultimate personal legal and financial liability.

On the other hand unincorporated organisations can be cheaper to run than incorporated organisations, do not need to submit audited accounts and have a simpler constitution.
The three kinds of unincorporated organisations are Trusts, Associations and Partnerships.

1. Trusts

A single tier structure with no members other than the trustees (of which there should be at least 2) who manage the trust on behalf of the people for whom the trust has been established.

A trust is a custodian of assets, funds or property and their purpose is specified in the Trust Deed. All assets must be used to benefit the specified beneficiaries. All unincorporated charities are trusts but not all trusts require charitable status.

See the Developing Assets section for information on assets and asset based transfer

2. Associations

A group of 2 or more people who come together for an agreed purpose to benefit themselves or others as laid out in a written constitution. Any profit must used to meet the objectives of the association. They are generally two tier with a governing body accountable to a wider membership.

Property is the responsibility of individual members and there is no implied power for an association to borrow.

3. Partnerships

This is a simple single tier structure with no members other than the 2 to 20 partners. The partners earn and share the proceeds of the business and are jointly and severally responsible for the debts of the partnership.

A Deed of Partnership may be the governing document; otherwise they are governed by the Partnership Act 1890. Each partner is treated as self-employed.

Incorporated Organisations

Incorporated organisations have a separate legal identity independent of their members. They are subject to corporation tax over a minimum profit level. Incorporation is recommended for social enterprises where trading and any other liabilities exceed all but a very low level.

The types of incorporated organisations are:

Limited Companies

Limited companies are owned and controlled by their members. Members' liability is either Limited by Guarantee or by Shares. Limited by Guarantee is the most common form for social enterprises.

A Limited Company must submit its governing documents to the Register of Companies and these are:

• Memorandum of Association: states the company’s objects, the powers of the company and the extent of liability of the members on winding up
• Articles of Association: state the company's rules, membership criteria and the method of electing the board of directors

Company Limited by Guarantee

A company where the members' liability is limited to the amount they have agreed to contribute to the company's assets if it is wound up. This is a common form of incorporation for social enterprises.

The incentive to participate is not private profit but commitment to the objectives of the organisation. Members cannot benefit from any profits made and profits have to be reinvested in the company or otherwise be used to meet the aims of the organisation. Liability is limited to a nominal sum, usually of £1.

Company Limited by Shares

A company form usually used by those seeking private profit. The share model may be useful for some social enterprises such as employee owned businesses and subsidiaries of other social enterprises whereby the profits are paid to the social enterprises(s) that owns the shares.

See the advantages and disadvantages of becoming a limited company here

Industrial and Provident Societies

Industrial and Provident Societies (I&PS/IPSs) are incorporated legal forms.

There are two forms of society:

Society for the Benefit of the Community

(Often referred to as a Community Benefit Society or 'Bencom') – This IPS trades for the benefit of the community rather than individual members. They are appropriate when there are a large number of local stakeholders and they can raise share finance. They must not trade for private-profit and can pay only moderate interest on shares or loans. Bencoms have exempt charitable status.

Bona Fide Co-operatives

(Usually referred to as a co-operative society or co-operative) – The form of IPS conducts business for the mutual benefit of members. There must be at least 7 members and membership must be open to all workers. The rules must reflect the principles of a co-operative, which is defined as,

"an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise"

This form is used by some forms of co-operatives, credit unions and some development trusts.

IPSs are registered with the Financial Services Authority (FSA). The registration fee depends upon the Rules to be adopted by the society but can be many hundreds of pounds.

See the advantages and disadvantages of becoming an IPS here

Limited Liability Partnerships (LLP)

This is an incorporated version of the partnership. A LLP is never likely to be a primary-level organisation in the voluntary and community sectors because of its requirement to exist "for business purposes" and to distribute profits to the partners.

However, a LLP may be formed by a number of voluntary or community organisations and social enterprises to generate trading income. For example, a group of charities might form a LLP to produce and sell Christmas cards, distributing the profits amongst the participating charities.

Worker co-operatives are sometimes structured as LLPs. This has the advantage that partners are taxed as self-employed rather than as employees on PAYE.

Community Interest Companies (CICs)

This legal form was available fro regisration from July 1st 2005. The CIC is primarily intended for use by social enterprises, which need the freedom to trade as a company but also need some objective evidence of their community benefit credentials in order to secure grant aid and other support.

They must first be registered as a limited company; CIC status is an additional ‘badge’ overlaid on the basic company structure.

For current information visit: www.cicregulator.gov.uk

Charitable Incorporated Organisations (CIO)

The CIO will only be available to charities and will be administered by the Charity Commission for England and Wales. Members' powers are likely to be less than in a company as all of a CIO's resources are intended to be applied to the advantage of beneficiaries, present and future.

At present this legal form is not available to charities.

Charitable Status

Many social enterprises do not seek or qualify for charitable status. The advantage of charitable status includes an exemption from income and corporation tax, providing that income is applied to charitable purposes or trading.

The disadvantage is that it limits the ability of organisations to trade other than for ‘primary purpose trading’ or trading to raise funds and these are treated differently for tax purposes.

For more information see: www.inlandrevenue.gov.uk/pdfs/ir2001.htm

Charitable purposes now include regeneration and the relief of unemployment. Some Social Firms that create employment and enterprises with a strong regeneration focus, such as Development Trusts, are charities. A charitable arm can be used, for example, for training and other community development activities.

If intending to apply for charitable status note that Memoranda and Articles of Association that are acceptable to Companies House may not be so with the Charity Commission.

Legislation

Here is a list of legislation covering the above:

• The Companies Act 1985
• The Companies Act 1989
• Industrial and Provident Societies Act 1965 (IPSA)
• Limited Liability Partnerships Act 2000
• Co-operative and Community Benefit
• Societies Act 2003

All information was correct at the time of going to print and consequently SEEM and its content providers cannot be held accountable for any losses from the use of this information.