Working for the community.

limited liability

Clubs, charities and other social enterprises can limit their liability in much the same way as a business - but in forms that are recognised as "not-for-profit". This ensures that the people who run these valuable services are protected from unacceptable risks.

wake-up call.

One charity that approached us for help had come close to losing everything as the result of an employee benefit scheme. They woke up to the realisation that the pension scheme was running into deficits that could put the charity and its trustees at serious financial risk. As a registered charity - but not a limited company - there was no legal limit to how much they could lose. They have now been re-registered as a Charity Limited by Guarantee.

Can an existing company convert to a Social Enterprise company?

Yes, in some cases. A private limited company (LTD) can convert to a CIC, whether it is "limited by shares" or "limited by guarantee". A charity cannot convert to a CIC. It must adopt new Memorandum & Articles of Association and it must change its name to include the ending "CIC" or "Community Interest Company" (instead of LTD or Limited).

Can a CIC obtain public funding?

That depends on the policies of the funding body concerned; but CICs have been around long enough now to be reconised by most expereinced funding bodies. A CIC cannot seek contributions from the general public.

Can a Charity buy and sell goods or services?

A charity is not allowed to "permanantly trade". This means it can run a temporary fund raising event but not run price list of items permanently on sale. Many charities get round this problem by setting up a separate company (CIC or Guarantee) that dedicates its earnings to the charity.

Can a CIC buy and sell goods or services?

Yes. A CIC can run much like a normal business provided it acts responsibly and reasonably. Its actions are subject to scrutiny by the CIC Regulator.

Can a normal limited company be a social enterprise?

A limited company should act in the interests of its shareholders and employees. But, subject to the Memorandum & Articles of Association, it anything that the directors wish, including working for and giving to good causes. However, as a "for-profit" organisation it will not attract funding bodies to support its social enterprise activites. If you already own a company and wish to set it up in a manner more appropriate to a social enterprise you can convert to a Community Interest Company.

Can we pay our executives and directors?

For charities and companies limited by guarantee it is not permissible to pay salaries to trustees. This rule can be circumvented in certain special cases. For instance, where a trustee serves as part of his or her official position (e.g. a church or religious leader, a mayor or council leader). In some cases, this means that the person who founded the organisation and it its main driving force cannot be oin the board of Trustees.
For CICs there is no such restriction provided the salaries can be shown to be reasonable (this is subject to scrutiny by the CIC Regulator).

How long does it take to register one of these companies?

There is a difference in processing time betweenthe different types. The slowest is the Community Interest Company (CIC) because it has to pass through the normal Companies House procedures AND be checked by the CIC Regulator's office. Furthermore, CICs cannot be formed electronically. We have to submit documents by post. So it can take up to four weeks to complete the process.
On the other hand, companies limited by guarantee (whether or not they are to be charities) can be registered electronically. Because they need special documents they are not quite as fast as regulare limited companies, but they are normally processed in one or two days.
BUT, do not make your choice on the basis of speed. It is better to get the right result slowly that the wrong solution fast!

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Legal options for limited liability not-for-profit organisations

Community Interest Company (CIC)

A single registration social enterprise company overseen by a Regulator and recognised by funding bodies as not-for-profit.

CIC Pros andCons

• Recognised by funding bodies
• Subject to oversight by the CIC Regulator
• Can be either "limited by shares" or "limited by guarantee"
• Must state its Aims/Objectives in foundation documents
• The company is allowed to earn money by active trading
• May pay salaries to directors (subject to controls)
• Not available for registered charities
• Not available for political parties
• Taxed as a Private Limited Company

Charity limited by guarantee

A company registered at Companies House but with no shares. Run by Trustees who each put up a nominal cash guarantee for the company. Register as a company then register the company with the Charity Commission.

Charity Pros andCons

• Recognised by funding bodies and the general public
• Regulated bythe Charity Commission
• Allowed certain tax concessions
• Must state its Aims/Objectives in foundation documents
• Charities are not allowed to "permanently trade" by selling goods or services
• Accounts MUST be formally audited
• Format (if limited) must be "limited by guarantee" (Directors are called Trustees)
• Trustees may not draw salaries

Company limited by Guarantee

Before Communit Interest Companies became a legal option this was the only way to incorporate a club or similar social enterprise as a not-for-profit venture. Run by Trustees, it remains an option and is the solution for organisations that are not permitted to register as CICs.

Guarantee Pros andCons

• Registered as not-for-profit
• Not regulated
• Must state its Aims/Objectives in foundation documents
• Format is "limited by guarantee" (Directors are called Trustees)
• Trustees may not draw salaries

Charity Incorporated Organisation (CIO)

A proposed new type of limited liability organisation that will be registered direct with the Charity Commission. The CIO concept only passed the proposal stage in December 2008 and it is likely to be some time before it enters into law.

CIO Pros andCons

• This option is not yet legally available

Social Enterprise in the "Big Society"

When David Cameron talks about “The Big Society” he is encouraging a culture change that is already underway. Periods of economic uncertainty create two kinds of response: those who put their heads down and hope the problems will go away; and those who come out fighting. Read more...

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Community Interest Company
Charity or Company Limited by Guarantee

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AIMS

Social enterprise companies must state their Aims (Objects) in their foundation documents. Aims statements outline what the company aims to achieve for the good of the community. To help formulate your aims check our examples pages:

• CIC examples
• Charity examples
• Guarantee examples

Audit

All Charities, Public Limited Companies (PLC) and other companies with a turnover above £5.6 million must have their annual accounts formally audited by suitably qualified Accountants. Smaller companies (other than charities) are not obliged to have an audit.

Guarantee

The cash guarantee put up by Trustees is forfeited if the company fails. It may be any amount but is normally a nominal sum. The default guarantee in companies Ordered Management sets up is £10.

Trustee

In charities or companies limited by guarantee the Directors are called Trustees. Each Trustee has one vote in the company and each of them put up a cash guarantee in case the company fails.

When you order a company we can help you apply for your business bank account...