Legal structures for social enterprises

1. Why legal structures are important

The legal structure of your charity or community group will affect how your charity runs and what it can and can’t do.

If you want to set up an organisation where you will volunteer your time, then we recommend you read our guide on Legal structures for community groups and charities.

2. Charitable Company (Limited by Guarantee)

A charitable company is an organisation that is registered with both the Charity Commission and with Companies House. This may be because of a risk that the organisation might incur large financial liabilities due to employing staff, engaging in charitable purposes involving commercial risks and/or controlling substantial assets.

In order to establish a Charitable Company, you must register with Companies House and the Charity Commission.

3. Community Interest Companies (CICs)

A Community Interest Company (CIC) is a form of company specifically created for the social enterprise sector. CIC’s are required by law to have provisions in their governing document to set out their social purpose. They have an asset lock, which restricts the transfer of assets out of the CIC and ensures that theya continue to be used for the benefit of the community. They also have a cap on the maximum dividend and interest payments they can make

4. Community Benefit Society (CBS)

A Community Benefit Society (CBS) is a business that runs for the benefit of the wider community, re-investing profits in the community. This type of organisation has been popular with communities who want to take ownership of community assets such as pubs, and piers. It is appropriate for organisations wishing to raise capital from the public, as it has several special attributes such as democratic member control, withdrawable share capital, and asset lock.

5. Co-operative Society

A co-operative Society is a business that is owned and controlled by its members, who can be customers, staff, suppliers, local residents or a combination of these stakeholders. Members have an equal say in how the business is run. They also choose what to do with profits, whether distributing among members, reinvesting in the business or giving to the community. Shared ownership is central to a co-operative’s existence.

6. Private Company Limited by Guarantee without Share Capital (CLG)

A Private Company Limited by Guarantee (CLG) without share capital is a business whereby directors benefit from limited liability and give a nominal guarantee to cover the company’s liability in the event of winding up. There is no share capital and there are no shareholders. In order to establish a CLG, you must register with Companies House.

7. Private Company Limited by Shares (CLS)

A Private Company Limited by Shares is a business whereby shareholders put money into a company, and in return the company gives it a percentage of ownership, in the form of shares. The amount of ownership depends on how many shares you purchase in comparison with the other people, if any, who own shares in that company. In order to establish a CLS, you must register with Companies House.

8. Legal structures and governing documents