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.

Revised Guidance on 'Fit and Proper Persons Test'

HMRC has released revised guidance on the 'fit and proper persons test'. This is not surprising given the uproar over the initial guidance published by HMRC.

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.......

Renewable Energy Co-Operatives

Barely a day goes by without renewable or green energy being highlighed in the media and as the world frantically seeks to exploit these forms of energy to satisfy its insatiable appetite the question as to who should own the natural resources and the financial benefits of their exploitation come increasingly to the fore.

Many community organisations have successfully engaged in renewal projects across the UK and Ireland with one of the most obvious examples being that of Baywind Energy Co-Operative Ltd

The likes of Baywind have looked to the co-operative (Industrial & Provident Society) model when deciding upon a suitable legal structure which will deliver their stated ojectives.

A co-operative structure offers democratic control (one member/one vote) of the decision making process and involves the local community on a wider scale, putting them at the heart of the management of the enterprise. Doing this helps the local community buy into the concept from the outset which is important given the contentious nature of some renewable energy projects. Some people may argue for example against the erection of wind turbines but if those people are successfuly integrated into the project and see the economic, social and enviromental benefits produced for their community then they are less likely to oppose the enterprise before it has even become established.

The democratic control offered by the co-operative structure is further strengthened by the ability to raise much needed finances from the community by issuing shares. Those persons with shares may then see a financial return when profits are distributed, thus supporting the local economy and rural regeneration.

An asset lock may also be put in place to protect the assets and ensure that they are retained for the benefit of the community, although importantly it would be the choice of the community as to whether they wished to ensure this.

The co-operative model offers the best legal vehicle through which a community may engage in a renewable energy project.

Company Name Disputes

Social enterprises, despite their often altruistic motives, are still firmly immersed in the commercial world and all the business related themes that entails. Consequently, social enterprises (and for that matter any commercial enterprise) should view the protection of their intellectual property as an integral part of the business process.

The ownership of ideas, products and services will often form part of the goodwill enjoyed by a company. That goodwill generates business which in turn helps enterprises to create profit and/or meet their social objectives.

One of the most important and obvious examples of the way in which intellectual property can generate goodwill is through the company name. The name affords the company a highly visible means of identification through which the enterprise can build a reputation and brand; vital components for any successful commercial entity.

Thus it is understandable given the importance of the name that disputes can, and often do arise between companies over ownership. The Company Act 2006 offers some legislative remedy to those disputes under the guise of section 69.

Under S69 (1) A person ("the applicant") may object to a company name on the ground that:

(a) the name is the same as a name associated with the applicant in which he has goodwill.

(b) that the name is sufficiently similar to such a name that its use within the UK would be likely to mislead by suggesting a connection between the company and the applicant.

If the applicant can satisfy one of the above then it is up to the other party ("the respondent") to put forward one of the accepted grounds of defence as laid out in S69(4) of the Act.

1. The first defence that may be relied on is if the name was registered by the respondent before the commencement of the activities on which the applicant relies to show goodwill. Therefore it would be prudent for any enterprise contemplating an objection of a company name to check when the other party first registered the name with Company House. (Sub-section 4(a))

This defence does not apply where the company name was registered in anticipation of goodwill or reputation being established by another company. An example would be where someone knows that a merger is about to take place between two companies and so registers one or more variations of the name that the newly formed commercial entity is likely to require. The registration(s) would be opportunistic in that the registration holder’s purpose in obtaining the registration was to cash in on the other entity’s fame. This is known as an opportunistic registration.

2. The second defence arises if the (respondent) company is operating under the name, or is proposing to do so and has incurred substantial start-up costs in preparation; or was formerly operating under that name and is now dormant (subsection 4(b))

This defence would not be available if the name was registered but the company never conducted business under that company title.

Like in the first defence if the applicant can prove that it was a opportunistic registration this will trump a successful defence under 4(b)

3. The respondent could also argue that the name was registered in the ordinary course of a company formation business and the company name is available for sale to the applicant on the standard terms of that business. (sub-section 4(c))

Again an opportunistic registration will defeat this defence whatever its merits.

4. The respondent can state that the name was adopted in good faith; that it was not carried out with some conspiracy in mind but that the similarities are mere coincidence and that the respondent's motivation and knowledge are beyond reproach. (sub-section 4 (d))

5. The last potential defence under S69 is where the interests of the applicant are not adversely affected to any significant extent by the fact that that the name is the same or is similar. (sub-section 4 (e))

Consequently a goodwill or reputation of little or no commercial significance would not be sufficient and would allow the respondent to mount a successful defence under this subsection.

In effect section 69 only afford protection to the applicant if (s)he can prove that the registration of another company name was opportunistic in nature and/or that it adversely affected the applicant's business.

The first port of call if you do feel aggrieved over another company name should be Company House. If you believe that an opportunistic registration has taken place then you should contact the Company Name Adjudicator.

Both organisations should be able to offer initial guidance and support.

Public Procurement Action Plan (Northern Ireland)

The Department of Finance & Personnel have recently released their response to the Assembly's Inquiry into public procurement in Northern Ireland. The Response outlines how the Department will address many of the reccommendation made by the Assembly Committee in it's report.

New Legal Tool (Get Legal)

The NCVO has introduced a new on-line tool which helps prospective charities, social enterprises and co-operatives to sift through the host of different legal structures available and to pick the one that best suits their respective needs and objectives.

Many organisation face the issue of choosing a legal structure with some trepidation so this tool will hopefully be of considerable benefit.