PuppetShip Community Interest Company
In-House Puppetry Company
Legal Status Summary
The phrase “Social Enterprise” covers a broad range of different company legal structures but it can generally be defined a “Non Profit making Organisations” (NPO's).
Main types of legal status
1. Sole Traders, individuals, self employed, profit making, personally liable
2. Partnerships, two or more Individuals, share profits, share personal liability
3. Limited Partnerships, two or more individuals, share profits, share limited liability
4. Company Limited by Shares - Profit making - private share holders receive dividend, limited liability
5. Company limited by Guarantee - unpaid “Directors”, assets locked, can change status
6. Community Interest Company (CIC -Pronounced “Kick”) unpaid Directors, assets locked and company legal status locked
7. Charity with unpaid Directors and status locked, can not “Trade” outside Aims
Status Overview
1. Sole Traders, individual, self employed, profit making, personally Liable
This legal status is by definition for the individual
2. Partnerships, Two or more Individuals, Share profits, Share personal liability
Even if a full profit route was chosen this legal status is unsuitable for this project as it lacks the protection of limited liability. We may employ Partnerships on contracts.
3. Limited Partnerships, Two or more Individuals, share profits, share limited liability
Essentially a partnership with the added personal protection of having limited liability. Partners play an active part in the running of their company this structure has no Directors and as such is best suited to professions such as Architects or Doctors practices where the partners know how the business works are control their business hands on.
This is the main difference between Limited Partnerships and Limited Companies where the shareholders need not actually take an active role in the day to day running of the business employing managers to run the business.
This company structure could have wholly charitable or social Aims; this would be possible but highly unusual.
4. Company Limited by Shares - Profit making - private shareholders receive dividend, limited liability
This legal status can still have Social and even Charitable Aims but will have the generation of revenue for distribution to its shareholders as the primary Aim. This does not guarantee that there will be any profit for these shareholders to receive, but it does exclude this status from the “accepted” NPO description.
In America many businesses with Social Aims are incorporated as Profit making companies in order to access funding from “Angels” who understand that any returns are unlikely as the nature of the business is arranged to generate social rather than financial wealth.
This is because America does not have many funding streams for social businesses to benefit from taking an NPO status. In America Investment “Angels” are said to have “two pockets” one where they expect to make a return and one where they do not.
5. Company limited by Guarantee - unpaid “Directors”, assets locked, can change status
In the UK a Company Limited by Guarantee can usually be described, as a “Social Enterprise” in that it's Aims, including the Primary Aim, is entirely social or charitable in nature. This structure locks all capital assets and profit generated into the company.
The Directors of such a company are not paid but may receive expenses and in exceptional circumstances can be paid a reasonable fee for services which relate to the actual trading of the business.
Companies Limited by Guarantee can vote to become profit making companies but they may be required to give funders back grant aid if it has not depreciated to zero. Other criteria may also apply.
A Company Limited by Guarantee with wholly Charitable Aims may become a Charity but it does not have to.
A Company Limited by Guarantee is a well-recognised NPO status.
An NPO can also be;
Co-Operative (type Two), Mainly for groups of people who want to work or live together.
Provident or Friendly society, Cater for groups who wish to own land or collect money towards a specific good cause
An Un-Incorporated Organisation - not really an option for any company wishing to employ staff, pay wages and hold Capital Assets as it has no Legal identity meaning that members are personally liable.
6. Community Interest Company (CIC Pronounced “Kick”) with unpaid Directors, assets locked and company legal status locked.
This is a new Legal Status for NPOs, introduced in July 05 many people are unaware of its existence, this will change as more organisations choose this “Brand”.
The main advantage of becoming a CIC is so that the Directors can earn a salary for running the business. In establishing the CIC Company type the Government is trying to clarify the area of “Social Enterprise” by requiring each CIC applicant to pass a CIC test based on social benefits of the company Aims.
A CIC is by definition a NPO but an NPO may not necessarily be able to become a CIC as it would be judged upon its wider social benefits before being awarded CIC status.
CICs will come into their own when there are many CICs, as they will gain recognition from all funding sources. This should act as a “seal of Approval” meaning that upon seeing CIC on an application funders will be assured that all Assets and profits will be held within the Company and ultimately within the community. CICs can make donations to other CICs where this would be difficult in a Company Limited by Guarantee.
These advantages do not currently exist as only a few of the major funders have openly acknowledged the new CIC Status. There are none of the Tax breaks enjoyed by Charities, and the CIC status is locked.
7. Charity with unpaid Directors and status locked, can not “Trade” outside Aims
The main advantages of having charitable status is that we could draw regular funding from other Charities and Trusts who only make awards to registered Charities. Some Charities and Trusts do make awards to NPOs but the majority prefer making grants only to Charities.
Also a Charity does not pay any tax and so may benefit from substantial savings however this comes at the price of not being allowed to trade outside it's Aims. This effectively means that most Charities must set up “Trading Arms” a partner company which trades and donates funds to the main charity.
Charities must apply and be registered with the Charities Commission who regulate all Charities and Trusts. Yearly financial returns must be independently reviewed and over a certain threshold must be independently audited.
The Charities Commission also maintains and reviews all Charity details, such as trustees, Aims and accounts.
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