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Choosing the right legal form for your social business

How to decide which form is best for your social enterprise

You want to start up a social enterprise, but you’re not sure how best to structure your organisation. You might ask: what does it mean to set up in social enterprise; what are the rules?

But it doesn’t really work like that.

It is for you as a business person to make decisions about risk and governance, and about who you want to be in control of your organisation. Once you decide on these things, you can choose which legal form to take. Your business dictates the form, rather than the other way round.

Abbie Rumbold of Bates Wells & Braithwaite, a firm specialising in charity and social enterprise, explains: “The thing that people never understand – and it’s something that’s really important – is that legal structures are there for people to morph and to twist into what it is that they need.”

Nevertheless, when choosing which form to take, there are some factors you would need to take into account:

  • Consider your attitude to risk and how you want to mitigate risk.

  • A very important consideration too, is funding and finance: where is your money going to come from? Different legal status is appropriate depending on where you source your finding.

  • Decide on the kind of board you want to have and how you want members to be appointed: do you want them to be paid or unpaid?

  • What kind of governance structure are you interested in: are you looking at a two tier, or a single tier? This may dictate the kind of form you adopt.

There is a lot of history and culture connected to different legal forms, too, and this may influence your decision more than you think.

Abbie Rumbold believes an emotional response influences peoples’ choices greatly. “Something like the co-operative society has a fantastic history which is really attractive to a lot of people: they want to be a part of that whole culture,” she explains. “You can mirror everything that you do in a co-operative society in a private limited company or a company limited by guarantee, but some people choose a co-operative for the culture and the feel that goes along with it.”

Equally, of course, you might say you want to become a company because when you go to the bank, people will know what a company is. You may be reassured by its straightforwardness: by the fact it’s not a form exclusively for the social enterprise sector.

So don’t let the intricacies of legalese and the weight of regulation get you down. It’s worth remembering that most people choose certain legal forms because of what’s accepted or known about them, as opposed to the technicalities behind them.

Whatever form your social enterprise takes should fit with the culture of your organisation as much as it satisfies all legal requirements.

 

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