What is the right legal structure for my Social Enterprise?

Legal structure should not drive the big decisions about your social enterprise but it is an important consideration. We have put together a summary table of the common forms of social enterprises to help you answer the question: 'What is the right legal structure for my social enterprise?'

One of the first questions often asked of us by nascent social enterprises is: “What legal form should we adopt?” Invariably, our response is: 'Let’s worry about that later – what is the impact you want to achieve?'

It has become a bit of a mantra here in Stone King’s Social Finance team that 'structure follows'. What really matters is the idea, the revenue stream, connecting the dots from the investor to the impact – the legalities and structure can (and should) be addressed only once those are identified.

Our role in the development of this distinctive market is not only as advisors or draftsmen but, equally importantly, as connectors of people, as contributors to the store of available knowledge of what works and what doesn’t, and as stimulators of discussion.

That being said, once all the dots are joined up, the question 'What legal form should we adopt?' becomes a critical one.

There is no one legal definition for the term 'social enterprise' (though we have suggested one in our Glossary of Social Finance terms and expressions) and it can include anything from a charity to a profit for purpose business intent on delivering an impact. It follows that there are many different types of legal structures that a social enterprise can take: charitable company, charitable incorporated organisation, community interest company, community benefit society, co-operative society, non-charitable company limited by shares or guarantee, limited liability partnership…

The choice is important because it will impact on the type of funding the social enterprise will be able to attract, the tax advantages from which it will be able to benefit, the regulatory regime it is subjected to, the extent to which founders and directors can receive financial benefit from the enterprise, and exit strategies available to investors.

It can be hard to weigh all these factors and to access comparative information about these many different legal forms. To help you assess which structure is right for you, we have put together a summary table of common social enterprise legal forms. While it is no substitute to specialist legal advice (and you can always contact us if you need that!), we hope it can help point you in the right direction. In the next few weeks we will also be writing short pieces about each of these legal forms, including our experience of setting them up and some examples of successful social enterprises we have worked with. So watch this space!

The law and practice referred to in this article or webinar has been paraphrased or summarised. It might not be up-to-date with changes in the law and we do not guarantee the accuracy of any information provided at the time of reading. It should not be construed or relied upon as legal advice in relation to a specific set of circumstances.

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