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Lincolnshire Co-operative Development Agency
Types of Organisation
Legal Structures:
 
Legal structures for social enterprises are chosen so that it serves the social enterprises core purpose and values.  It depends on who the social enterprise considers to be its community and how it wants the community (whether this means its staff, its customers or a mixture of stakeholders) to influence or benefit from its activities.  
 
Choosing a legal form is an important part of establishing a social enterprise.  Your legal form provides the framework for your business, and it is important to set the rules correctly in order to make it as easy as possible for your social enterprise to be successful.  
 

Social Enterprises will generally decide to incorporate as either Industrial and Provident Societies or Companies.

 
 
Industrial and Provident Societies: Also referred to as IPS, is a corporate body and its members benefit from limited liability.  IPS have two models, a bona fide co-operative society and a society for the benefit of the community.
 
A co-operative society is a democratic enterprise whereby its members generally have one vote regardless of how many shares they hold.
A society for the benefit of the community must demonstrate that its activities will benefit people rather than the members.  Rules apply to these societies whereby surpluses are to be distributed and require any assets remaining after the company is dissolved to be distributed for similar purposes and not circulated to the members.  
 
Companies:
If the company is a limited by shares, then it is owned by its members and liability of the members is limited to the nominal value of the share, whereas, if the company is limited by guarantee, it is owned by guarantors and liability for the guarantors is limited to the value of the guarantee, which is usually £1. 
 
The governing instrument of the company is contained within two documents;
 
The Memorandum of Association and the Articles of Association.
 
Memorandum of Association, this contains the powers and objects of the company and with social Enterprises will often include a non-profit distribution clause. 
Articles of Association, this is where roles of members and directors and the internal management procedures are set out.  All limited liability companies have objects clause in their constitution that sets out the companys aims and purposes.  A constitutional requirement often underpins the social and public interest that the company aims to meet, and, states that profits must not be paid out to members but must be invested into the companys social purpose. If a company has been dissolved, all remaining assets must be distributed to similar organisations with similar purposes and not distributed amongst the members.  
 
Charitable Status:
Some charities are also Social Enterprises. 
Having charitable status has tax advantages, however, there are regulatory constraints.  Charities are organisations that benefit the public and whereby all profits are re-invested back into serving the charitable aims of the organisation.  
 
Also see Social Enterprise Coalition website, a guide to Social Enterprise. 
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