Legal structures for asset transfer

1. www.walescooperative.org

2. Who We AreWho We Are
• Set-up in 1982.
• Now the largest co-operative development agency in UK.
• Support co-operatives and social enterprises throughout
Wales.
• Funded by:
Welsh Government, European Union, Local Authorities &
Consultancy fees.

3. Learning OutcomesLearning Outcomes
• To gain an overview of the legal forms available for
organisations who may be considering applying for a
Community Asset Transfer.

4. ContextContext
• Community Asset Transfers in Wales – A Best Practice Guide.
• P17 – “ When assessing whether a Stage 1
Expression of Interest application should proceed
to a Stage 2 full business case, relevant criteria
should include:
– Governance, structure and history of
organisation….

5. • P18 – “The Applicant must be A Community / Town
Council or a Third Sector organisation (TSO) which satisfies
the following criteria:
– Legal entity that is incorporated and provides
limited liability for the stakeholders involved, this
would usually be in the form of a company, society or CIO
(Charitable incorporated Organisation).
– It must enable the management/ownership of buildings
and provision of services.
– Exist for community/social/environmental benefit.
– Non-profit distributing – any surpluses must be
reinvested to further its community benefits/social aims….
– Decision making process influenced by local
community.

6. Organisation TYPESOrganisation TYPES
The Best Practice guide refers to “Third Sector
organisations” and specifically to:
– voluntary organisations
– co-operatives
– social enterprises
These are not legal forms

7. Legal FormsLegal Forms
 Company Limited by Guarantee
 Community Interest Company (C.I.C.)
 Charitable Company
 Charitable Incorporated Organisation
(CIO)
 Community Benefit Society
 Co-operative Society
 Company Limited by Shares
 Limited Liability Partnership

8. Unincorporated OrganisationsUnincorporated Organisations
VV
Incorporated OrganisationsIncorporated Organisations

9. Unincorporated OrganisationsUnincorporated Organisations
These organisations do not have a separate legal identity
from its members. Examples of unincorporated organisations:
• Community Associations
• Scout Groups
• Tennant & Residents Associations
• Unincorporated Charities
Individual members are personally responsible for any debts
and contractual obligations.

10. IncorporationIncorporation
The organisation is legally separate from its members.
Registered with an appropriate Registry
The organisation can enter into contracts in its own name
Certain triggers will indicate it is time to incorporate –
when “risks” increase
Members’ liability is limited to the value of any
guarantees they have given
Directors can lose their limited liability in a few specific
situations, for example wrongful or fraudulent trading

11. Unincorporated Incorporated
Liability Individuals may have to
meet any outstanding debts
personally
Members have limited
liability.
Ownership Generally not possible to
enter contracts in an
organisation’s name
An incorporated body
may enter into
contracts in its own
right
Risk Can be unequally
distributed
All members are
treated the same
Cost No or limited start up costs Start-up fee and on-
going filing fees
Administration None needed by law unless
a Charity
Records need to be
kept and filed with the
appropriate registry
Privacy Complete, unless a Charity Names of Directors
and possibly
addresses are on
public record.

12. Companies – what are they?Companies – what are they?
 Incorporated organisations
 Regulated by Companies House
 Companies can be limited by shares or by
guarantee
 Company limited by shares mostly entails
private equity and therefore is difficult to
reconcile with Third Sector organisation
principles except possibly in a CIC ltd by shares
in some circumstances.

13. Company Ltd by GuaranteeCompany Ltd by Guarantee
PlusesPluses
 Limited liability for members (usually £1)
 Very flexible
 Easiest form of company to administer
 Familiar legal form within the Third Sector
 May have social or environmental objects
 Must have appropriate Surplus and Dissolution
Clauses in the Articles of Association.
 Relatively Simple and Cheap to set up.
 Could apply for charitable status

14. Company Ltd by GuaranteeCompany Ltd by Guarantee
MinusesMinuses
 No regulation of social purpose
 No statutory “Asset Lock” (unless charitable
when change to dissolution provisions requires
charity commission consent)

15. Community Interest CompaniesCommunity Interest Companies
 Legal form specifically for social enterprises
 CICs can be limited by guarantee or by shares
 Bolting on social purposes to company structure
 Must have a community interest statement
 Feature a statutory asset lock
 Intended to make both public and commercial
funding more accessible
 Establish a clear social enterprise 'brand'
 Regulated by the CIC Regulator

16. Community Interest CompanyCommunity Interest Company
PlusesPluses
 Specifically designed for social enterprises
 All the freedoms and flexibilities of a normal
company in terms of trading
 The social purpose is regulated
 Can provide equity with shares always at face
value (par) and a cap on aggregate dividend

17. Community Interest CompanyCommunity Interest Company
MinusesMinuses
 Each share in a CIC Ltd by shares normally carries one
vote (as opposed to one member, one vote)
 More regulation
 Cannot also apply to be a charity
 CIC’s do not get any charity tax reliefs even if the
objects seem to be charitable in nature.

18. Hay Community Enterprise CICHay Community Enterprise CIC
• “Commercial trading enterprise”
• Democratically controlled by members.
• CIC status means that the assets of
the enterprise are locked-in and
cannot be sold. All profits can only be
used to further the interests of the
enterprise and for social, community or
environmental benefit.
• It is available to hire for community
events, shows, exhibitions, sales and
public or private functions. Holiday
accommodation to let.

19. Registered SocietiesRegistered Societies
 Incorporated organisations
 Regulated by Financial Conduct Authority (FCA)
 Designed specifically for co-operatives and community
benefit societies
 Co-operative Societies are run for mutual member benefit
 Community Benefit Societies are run for the benefit of a
wider community rather than just the members
 Limited by shares – but different from company shares
 Exemptions from Financial Services and Markets Acts

20. Community Benefit SocietyCommunity Benefit Society
PlusesPluses
 May enhance sense of community “ownership”
 Democratic principles enshrined
 Some regulation of social purposes and Asset Lock
possible
 Can provide withdrawable equity always at face value
(par)
 Can raise investment from the “community”
 Limited liability for members (value of their investment)
 Could potentially apply for Exempt Charity Status (HMRC)

21. Community Benefit SocietyCommunity Benefit Society
MinusesMinuses
 Unfamiliar legal form
 Legislation still lags behind that of companies
 Cost of registration can be higher
 There must be three members

23. Charitable StatusCharitable Status
To be a charity an organisation must:-
 Be set up with purposes which are exclusively
charitable
 Carry out these purposes for the public benefit
when you run your charity
Charities can be unincorporated or
incorporated

24. Advantages of charitable statusAdvantages of charitable status
 Various tax advantages e.g. corporation tax
exemption, National Non-Domestic Rates (NNDR)
reliefs, stamp duty exemption
 Well- regarded
 Charities can claim Gift Aid on donations made by
UK tax payers.
 Some funders can/will only fund charities
 May be more attractive from a commercial
sponsor perspective.

25. Disadvantages of charitableDisadvantages of charitable
statusstatus
 Heavily regulated by the Charity Commission
 There are restrictions on trading as Charities
 Employees cannot normally serve on boards

26. Charities and TradingCharities and Trading
There are exemptions which allow charities to trade:-
 Primary purpose trade where the trade is the direct
provision of the charity’s objects
 Ancillary trade where the trade contributes indirectly to the
charity’s objects
 Non primary-purpose trading (25% of income up to income
of £200k, max £50K)
 A trading subsidiary could be set up if income from non
primary-purpose trading are likely to exceed the Inland
Revenue threshold
 The Charity must not subsidise the subsidiary

27. Incorporated Charitable FormsIncorporated Charitable Forms
• Charitable Company Ltd by Guarantee
• Charitable Incorporated Organisation
• Community Benefit Society that has Exempt Charity
status

28. Charitable Companies Ltd byCharitable Companies Ltd by
GuaranteeGuarantee
• A company ltd by Guarantee is set up with
appropriate Articles of Association
• The company then applies for charitable status

29. Charitable Companies Ltd byCharitable Companies Ltd by
GuaranteeGuarantee
PlusesPluses
• A very familiar legal form within the Sector
• Tried and tested
• Has the advantage of charitable status and the advantages
of being a company e.g. funders / lenders can take a charge
on an asset.
• It may be more appropriate for larger –scale organisations
than the CIO form.
• A company can be in place fairly promptly and can work
towards charitable status.

30. Charitable CompanyCharitable Company
MinusesMinuses
 Dual registration and regulation – Companies House
and Charity Commission
 Administratively more onerous and higher
accountancy fees

31. The Charitable IncorporatedThe Charitable Incorporated
Organisation - CIOOrganisation - CIO
 A new incorporated form for a charity, not a company
 Only has to register with the Charity Commission and
not Companies House
 Can enter into contracts in its own right and trustees
will normally have limited/no liability for CIO debts
 Foundation and Association models available
 Process for direct conversion of charitable
companies is not yet available

32. CIOCIO
PlusesPluses
 Provides a single incorporated structure for
charities
 Only one regulator – the Charity Commission
 Easier accounts, filing, reporting
 Simpler constitutional form
 Smaller CIOs can prepare receipts and payments
accounts, while smaller charitable companies must
prepare accounts on the accruals basis

33. CIOCIO
MinusesMinuses
 New, untested form
 Registration time
 Designed for small to medium charities and may not
be appropriate for those charities looking to grow.
 CIO legislation makes no provision for the
maintenance of a public register of charges - a
lender / funder will not be able to obtain the
protection of registering a charge at Companies
House.
 There is a completely new legal regime for CIOs, and
grey areas may emerge.

34. Life Leisure Trust (trading asLife Leisure Trust (trading as
Aneurin Leisure)Aneurin Leisure)
• Clear charitable objects
encompassing recreation, arts,
culture and heritage.
• Multiple sites including sport
centres, theatres, libraries, parks.
• “Trading” is likely to be mainly
primary purpose or ancillary.
• Clear advantages of being a
charity e.g. rate relief etc.

35. Thank YouThank You
Any questions?Any questions?