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Day 2 Workshop, Michael Buckworth
Buckworths is a London law firm specializing in advising startups and has a significant focus on social enterprises, detailing various business structures suitable for such ventures. The document explores different frameworks including companies limited by shares, community interest companies, and charitable organizations, highlighting their unique benefits and challenges. It also offers insights into tax implications, funding possibilities, and regulatory obligations associated with each structure.
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Day 2 Workshop, Michael Buckworth
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- 2. www.buckworths.com ABOUT BUCKWORTHS The Firm • Only law firm in London working solely with startups •Advised on 45% of the seed investment rounds in 2018 • Significant practice advising non-UK companies About Me • Studied law at Merton College, Oxford University • Trained and qualified at Shearman & Sterling LLP and subsequently practiced at Cleary Gottlieb Steen & Hamilton LLP • Set up Buckworths in 2011
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- 4. www.buckworths.com WHAT IS ASOCIAL ENTERPRISE? • A business trading in goods and/or services that has a primary objective for social or environmental benefit. • Most of its surplus (profit) is either retained or reinvested to further the organisation’s objectives.
- 5. www.buckworths.com KEY CONSIDERATIONS • Protectionof the social purpose • Grant funding • Flexibility • Taxation • Regulatory and disclosure obligations
- 6. www.buckworths.com SOCIAL ENTERPRISE STRUCTURES •Company limited by shares (CLS) • Company limited by guarantee (CLG) • Community Interest Company (CIC) • Industrial and Provident Society • ‘Co-operative’ • ‘Community Benefit’ • Charity/Charitable Incorporated Organisation
- 7. www.buckworths.com COMPANY LIMITED BYSHARES (CLS) • What is it? • Company structure where owners (shareholders) hold shares in the company • Shares carry an entitlement to vote at meetings of the company, receive a dividend, and share in a distribution i.e. they carry ownership rights • Standard “for profit” structure • Use for social enterprise? • Inclusion of social purpose in the articles • Inclusion of “Mission Lock” – company’s purpose cannot be changed without a super-majority decision • Inclusion of “Asset Lock” – excess profits and assets cannot be distributed without a super-majority decision (or change to the articles)
- 8. www.buckworths.com COMPANY LIMITED BYSHARES (CLS) • Benefits • Flexible structure • Mission and Asset Locks can be removed • Social purpose can be changed • No additional disclosure requirements • Mix of profit and social enterprise can be more attractive to investors • Disadvantages • May not qualify for grant funding • May not be sufficiently attractive to SITR investors • Too flexible – may not lock in social purpose
- 9. www.buckworths.com COMPANY LIMITED BYGUARANTEE (CLG) • What is it? • Company structure without shares or shareholders • Owned by guarantors who provide a guarantee (typically of a nominal amount) which is then the extent of their liability should the company be wound up For more information please visit: https://www.bupa.com/corporate/what-we-do/our-customer-focus • Example: • The British United Provident Association Limited (BUPA) • “with no shareholders, our customers are our focus and our ambition is to be known as a true customer champion in health and care”
- 10. www.buckworths.com • Tax Implications • Corporation tax on its taxable profits •Company must: inform HMRC upon commencement of trading, submit annual Company Tax return and register for VAT (if applicable) • Standard approach for any non-charitable business • Social Purpose • Profits are reinvested to help promote non-profit objectives of the company rather than benefitting its members • No owners to whom profits can be paid • Officers may draw a salary within the rules of the company • Reporting Requirements • Companies House filings, including submission of annual return and accounts, each of which is publicly available COMPANY LIMITED BY GUARANTEE (CLG)
- 11. www.buckworths.com • Benefits • Limited liability, specific to amount guaranteed •Profit (mostly) locked into the company • Suitable for any size of organisation, allowing startups to expand without restriction • Eligible for grant funding • Possible to transfer assets to a CLS allowing a for profit objective to be pursued • Disadvantages • Harder to exercise management control • Funded through loans and guarantees only (i.e. no equity) COMPANY LIMITED BY GUARANTEE (CLG)
- 12. www.buckworths.com COMMUNITY INTEREST COMPANY(CIC) • What is it? • Basic company structure i.e. limited by shares or guarantee that uses profits and assets for the public good, but is precluded from registering as a charity • CIC subject to the ‘Community Interest Test’ • Example: • Investors in People CIC • “gives the community insights into their current people management performance by translating employment feedback into actionable change” For more information please visit: https://www.investorsinpeople.com/
- 13. www.buckworths.com • Tax Implications • Same tax treatment as a basic structure limited by shares or guarantee •Social Purpose • Asset Lock built into the articles and cannot be removed • Limits the ability to distribute profits and assets to ensure their use for the benefit of the community • Assets of CIC must be transferred to another asset locked body when the CIC is closed • Reporting Requirements? • Standard Companies House filings (confirmation statement, annual accounts) • Plus annual CIC report and (audited) accounts COMMUNITY INTEREST COMPANY (CIC)
- 14. www.buckworths.com • Benefits • Asset Lock •Controls over the amounts the owners / managers can draw from the company • Profits and assets used for the public good • Regulated (by CIC Regulator) • Eligible for grant funding • Disadvantages • Inflexible structure – once assets are in a CIC, you can’t get them out again • Extremely difficult to convert into a for profit company • Community interest test can be tricky to meet for some social enterprises COMMUNITY INTEREST COMPANY (CIC)
- 15. www.buckworths.com ‘CO-OPERATIVE’ INDUSTRIAL AND PROVIDENTSOCIETY • What is it? • Corporate structure used to benefit its members rather than society at large • Originates from the ‘cooperative movement’ • Control and ownership is equally held, not based on the level of investment of each member, voting is on a one member, one vote basis • Example: • John Lewis Partnership PLC • “group of people acting together to meet the common needs and aspirations of its members, sharing ownership and making decisions democratically” For more information please visit: https://www.johnlewispartnership.co.uk/csr/our-approach.html
- 16. www.buckworths.com • Tax Implications? • Same tax treatment as a basic structure limited by shares or guarantee •*May qualify for full or partial exemption from tax liability where regarded a “mutual trading concern” • Social Purpose? • Focuses on creating value for customers rather than big profits for shareholders • Incentivises members to contribute to the value of the business – see John Lewis where each member of staff is a “partner" • Liability? • Company has separate legal personality existing independently of its members, who have limited liability ‘CO-OPERATIVE’ INDUSTRIAL AND PROVIDENT SOCIETY
- 17. www.buckworths.com • Reporting Requirements • File annual return and keep proper books of account •Submit an annual return to the FCA (balance sheet and auditor’s report) • Keep on display in a prominent position at the registered office a copy of the latest balance sheet • Benefits • Flexible – the form of the business can be changed if required • Focus on members – good structure to feed profit to a community or membership • Disadvantages • Unlikely to qualify for grant funding • Complex to operate; relatively unusual • No automatic restrictions on distribution of profits – emphasis on equal shares ‘CO-OPERATIVE’ INDUSTRIAL AND PROVIDENT SOCIETY
- 18. www.buckworths.com 'COMMUNITY BENEFIT’ INDUSTRIAL ANDPROVIDENT SOCIETY • What is it? • Essentially identical to a “Co-operative” IPS, but locks in a community benefit • Adopts the ‘equal stake, equal say’ for decision-making • Example: • Taunton Association for the Homeless (‘ARC’) • “Arc are a local homeless charitable organisation, supporting over 450 people per year” For more information please visit: https://www.arcinspire.co.uk/About-Us/Who-we-are.aspx
- 19. www.buckworths.com ‘COMMUNITY BENEFIT’ INDUSTRIAL ANDPROVIDENT SOCIETY • Benefits • Stronger community benefit than “Co-op” • Ability to create asset lock • May be eligible for grant funding • Used to assist specific categories of people where the categorization would be too narrow for a CIC • Disadvantages • Complex to operate • No automatic restrictions on distribution of profits – emphasis on equal shares • Equal voting rights may not be ideal
- 20. www.buckworths.com CHARITY • What is it? • Not for profit structure meeting strict eligibility criteria •Used to promote solely charitable purposes • Benefits • Only structure with taxation benefits • Rates relief • Qualifies for Gift Aid, donations and grant funding • Disadvantages • Highly regulated • (Onerous) obligations on managers – trustees • Trustees cannot take a salary • Expensive to operate • Very restrictive to qualify • Charity cannot trade
- 21. www.buckworths.com HOW CAN WEHELP? • We can assist with: • Incorporation and set up • Website terms and conditions • Customer contracts • Privacy policies • Commercial agreements • Employment / contractor agreements • IP agreements and protection • Shareholders’ / founders’ agreements • Investment rounds (SEIS / EIS / VC) • Sale of business
- 22. www.buckworths.com FURTHER INFORMATION • Take our free “introduction to startup law” brochure •Contact us for our “introduction to GDPR” brochure • Check out our website at www.buckworths.com • Contact us by email at mbuckworth@buckworths.com or telephone 02079521723 • View our videos on SEIS, Trademarks, GDPR and other topics accessible from our website • Follow us on Instagram @buckworthslaw
- 23. www.buckworths.com CHARITABLE PURPOSES • relieving poverty •education • religion • health • saving lives • citizenship or community development • the arts • amateur sport • human rights • religious or racial harmony • the protection of the environment • animal welfare • the efficiency of the armed forces, police, fire or ambulance services
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