A guide to third sector trading - WCVA

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It’s an idea, but is it business? A guide to third sector trading 1: Getting started 2: First steps 3: Business planning 4: Legal and governance 5: Funding and resourcing 6: Financial controls 7: Managing growth 8: Management and governance 9: Social enterprise 10: Sources of support 4: Legal and governance structures It is quite common for steering groups and boards to devote more nervous energy to discussing the future legal structure of their organisation than to planning the business they intend to undertake. And there seems to be little connection between the length of time devoted to the subject and confidence that the structure is the right one for their circumstances. In the case of one Welsh charity there was a lengthy debate over whether to establish a wholly owned subsidiary trading company to undertake business activities and look after the charity’s building assets, or to take advantage of the prestigious new Community Interest Company structure. Enthusiasm for the CIC won the day, and one was eventually set up. Unfortunately, the process had taken so long that the original objectives were overlooked at the registration stage and the CIC was accidentally established as largely independent of the charity. The full implications of the blunder took a while to emerge. The charity was left with no assets of its own, and the terms of a building redevelopment grant meant that the mistake could not be corrected for several years. It can be better to keep arrangements as flexible as possible so they can be adjusted as circumstances change or as mistake become apparent. 72
It’s an idea, but is it business? A guide to third sector trading 1: Getting started 2: First steps 3: Business planning 4: Legal and governance 5: Funding and resourcing 6: Financial controls 7: Managing growth 8: Management and governance 9: Social enterprise 10: Sources of support 4.1 Incorporation or not? It is recommended that, in almost all cases, enterprise activities are operated by limited companies. The important choices should be about what type of company, not whether to register. Unfortunately, the apparent legal implications of company formation gives rise to a huge amount of anguish, soul-searching and indecision. The problems are commonly illusory, although there are occasions in more complex organisations when choices genuinely are difficult to make. This section aims to simplify the issues. Before you start: Clarifying the language: There are a few points about terminology which you need to be familiar with: • Organisations which have not registered as limited companies are called ‘unincorporated associations’. • The process of creating a company of any kind is called ‘incorporation’. • The ‘memorandum and articles of association’ is the special form of constitution used by limited companies. • The terms ‘Board’, ‘Board of Directors’, ‘Board of Trustees’, ‘Management Committee’, ‘Council of Management’ etc are more or less interchangeable. You can call the group which governs your organisation whatever you like. Don’t panic: The decision to register as a limited company does not need to be a traumatic experience if you go about it methodically. • It’s perfectly natural; lots of people like you are doing it all the time. • There’s plenty of experience for everyone to follow among existing community and charitable groups, and there are many advisors in the third sector. • You do not need to spend money on a solicitor to register your company, unless you expect to have an unusual and complicated structure – in which case you probably need a solicitor who is a specialist in company registrations for the third sector, and this can be expensive. • In the experience of some social enterprise development staff, the company constitutions which have been drawn up by solicitors are invariably the ones which cause most problems for third sector organisations – because they are non-standard. 73
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