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Wednesday 25 August 2010

Community Benefit Societies & The Asset Lock

In recent years Community Benefit Societies (BenComm's) in England & Wales and Northern Ireland have had the option of introducing an 'asset lock' within their legal framework which ensures, that upon dissolution or amalgamation, the assets will be retained permanently for the benefit of the community. This also prevents the possibility of the assets being redistributed to members upon a conversion from a Society to a Company.

Monday 23 August 2010

Protecting the Social Mission through your legal structure

The social mission is the common strand which runs through every social enterprise yet it can quickly become subservient to commercial pressures as organisations become increasingly fixated on the financial bottom line. This may occur despite the best intentions of those who run such enterprises, but to avoid such potential dilemmas it is perhaps prudent to build in safeguards which will protect the social theme.


One way of acheiving this is to articulate the social mission in the enterprise's Memorandum and Articles of Association (the governing documents/constitution). Through clearly stipulating the social objectives of the enterprise such documents can help focus those in charge and maintain standards. The governing documents can also be drafted in such a way as to ensure that profits are retained to fund the social mission. Assets can also be 'locked in' to the enterprise so that their benefit will be retained for the community in the event of a sale/dissolution of the company.


Such safeguards are useful but have their limitations in a traditional company structure as it is possible for the board to remove such clauses from the constitution if a majority agree.


As such it may be beneficial for a social enterprise to employ the Community Interest Company structure as a security blanket with which to enfold the normal company arrangement. The Community Interest Company structure contains an asset lock which is legally enshrined and cannot be removed. There are also caps on the ways in which profits may be distributed and any social enterprise that wishes to adopt this structure must pass a community interest test which ensures that the company will carry out activities which benefit the community.This reporting obligation is on-going and must be prepared at the end of each financial year, thus ensuring that the enterprise does not take its 'eyes of the ball' regarding the social mission.

Another way in which the social mission can be protected is by ensuring democratic control of the enterprise. To this end a co-operative type structure (Community Benefit Society)may be employed which encompasses the concept of "one member, one vote". By allowing each member an equal vote regardless of their share capital it would be hoped that vested interests could not reduce the 'social scope'. The Community Benefit Society structure also prevents the distribution of profits to the members; they must be retained for the benefit of the community. Upon dissolution or winding up of such a society only the amount invested by members may be re-claimed. Any other assets must pass for the benefit of the community.

The social mission can be protected in different ways through the effective implemenation of varying legal structures. Which one suits your enterprise best will often depend on the your particular circumstances and goals.

Wednesday 18 August 2010

Tuesday 3 August 2010

More delays for Charitable Incorporated Organisation

The Office for Civil Society has now announced that the introduction of the new Charitable Incorporated Organisation legal strucutre has been delayed yet again.

It now appears that the new legal form will be introduced next year at the earliest. Such a significant delay will adversly effect the many organisations which have shown an interest in adopting this structure.

The wait continues.......