A guide to third sector trading - WCVA

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
The options for trading organisations
Companies limited by guarantee are by far the most widespread
format for trading because, as the name suggests, the financial
liability of the directors and members is usually limited if the
business fails. Though not ideal, they are enormously flexible and
are usually the obvious choice. They can be adapted to operate,
among other purposes, as:
• stand-alone trading companies – with or without charitable
status
• charitable (or non-charitable) holding companies with
subsidiary trading companies
• subsidiary trading companies
• community-owned regeneration organisations with multiple
activities
• worker-controlled co-operatives (although these commonly use
structures under the Industrial and Provident Society legislation).
Companies limited by shares have two main uses in third sector
trading organisations, as:
• Stand-alone trading ventures (often community-based) in which
groups of individuals or organisations can buy shares to invest in,
and own, trading activities which are run for social benefit:
− They have been used, for instance, in rural communities to
raise funds to buy buildings and businesses such as post
offices and shops threatened with closure.
− The individual shareholders may be offered a share of the
profits, via dividends, to entice their investment, or the
shareholding may be seen as a long-term interest-free loan to
support essential community services.
− It is extremely important to make sure investors are aware of
the terms of their financial involvement, to avoid community
resentment if expected dividends are not paid. In one
example, a rural community became seriously divided by an
ill-defined project to which individuals had each contributed
hundreds of pounds. See also section 5.4.
− Local organisations such as community groups may own
shares in social enterprise businesses in order to retain profits
for their communities – as in the case of small wind turbines
or hydro-electric power schemes (Bro Dyfi Community
Renewables has pioneered this approach in Wales).
• Trading subsidiaries: Companies limited by shares are used
much more widely as wholly-owned subsidiary trading
organisations by charities, development trusts and other
community ventures. See section 4.6.
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