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Incorporating as a limited company |
Community activism evolves from the few pioneers into the associations that bring people together in common interest and goals. Simple voluntary systems work well and often remain at a scale fitting needs and locality. The more community issues are tackled successfully, the more a community identity emerges. Ambition and vision then drives even greater endeavour. How we organise ourselves during this evolution is as much a design challenge as the layout of a new community play area or community allotment. As communities take on more responsibility, they have to demonstrate that responsibility through an accounting of actions. Decisions are a group and community process that is recorded (taking minutes of meetings) as are the carrying out of those decisions and the resources that are used. The rules that the community give themselves on how they are to proceed, and the record they keep of their activities and assets, is the way public accountability is delivered. If we set ourselves up to be publicly accountable, the law will recognise our efforts. English and Welsh law provide two categories of legal structure that recognises our associations/organisations: UNINCORPORATED means that the organisation does not have a legal identity that is separate from the people that run it. The management committee is personally responsible for all the activities, contracts, finance and debts. Most voluntary sector and community organisations start out unincorporated and many of the smaller ones stay that way. INCORPORATED means that the organisation becomes a Limited Company which is a legal entity in it's own right. The company can therefore take on contracts and leases, buy property and owe money without the individual directors necessarily being liable. The larger an organisation gets the more likely it is to consider becoming a Limited Company. Whether your organisation is incorporated or unincorporated it will need a constitution, a document that sets out the rules for the organisation. Most funders now ask to see copies of an organisation's constitution. Model constitutions are freely available, but the main points to include in a constitution are:
A group is not required by law to seek approval of any kind before setting up as an unincorporated association. It doesn't have to register anywhere or send information to anybody except it's own members. This structure is most appropriate for groups with a low income, which don't need to employ staff or acquire property. It is quick and cheap to set up and needs only a simple constitution. It is also highly independent - accounts and annual reports only have to be sent to members and funders. The disadvantage is that there is no separate legal identity from the members and so any property must be held by individuals acting on behalf of the group. Also Individual members of the management committee can be held personally liable for the obligations and debts of the group. INCORPORATING AS A LIMITED COMPANY (www.companies-house.gov.uk)A group can register with Companies House as a Limited Company. The company then becomes a legal entity in its own right, quite separate from its members. The company can own or lease property in its own name; it can employ staff adequately and can trade legally as a group. Of the three main types of company, the most commonly used by communities is the not-for-profit, private company which is LIMITED BY GUARANTEE. It is limited because the liability of company members' is limited to the amount that they have guaranteed (agreed) to contribute to the company's assets if it is wound up. This gives individual members protection from personal liability unless they have acted fraudulently or continued to operate when they know the company can't meet its debts. In setting it up, a limited company must have at least two people from the organisation that subscribe to its Memorandum of Association - these are the founding directors. Ready-made companies are available off the shelf, but it is not too difficult or expensive nowadays to create and set up your own company, and it is better to have it precisely tailored to your needs. There may be a local co-operative development agency or local enterprise agency that can give you advice and help for quite low fees. When you incorporate a company yourself, you will need to send the following documents, together with the registration fee to the Registrar of Companies:
A REGISTERED OFFICE is the address of a company to which letters from Companies House and reminders will be sent. It must always be an effective address for delivering documents to the company, and to avoid delays it is important that all correspondence sent to this address is dealt with promptly. DIRECTORS AND MEMBERS Companies require a minimum number of formally appointed officers at all times, at least one director and a company secretary. Formal qualifications are not required for the company secretary. All company officers have wide responsibilities in law, but the key requirements are contained in the booklet, Directors and Secretaries Guide, available from Companies House. You can't be a company director if you are an undischarged bankrupt or disqualified by a court from holding a directorship. There is no minimum age limit in the Companies Act for a director to be appointed in England and Wales. However, he or she must be able to consent to their own appointment. A company limited by guarantee has as its management committee a Board of Directors, who must operate under company law. They are usually unpaid, and must not get any personal benefit if the company is also a charity. The members of the company (equivalent to shareholders) will have powers defined by the memorandum and articles. They may be individuals or organisations, and are given powers to elect or appoint directors. The Board are the governing body and they are responsible for company policy, but not for day to day management. That is carried out by the paid staff, headed by a manager. The Board can appoint various sub-committees and working groups with delegated authority. COMPANY NAME It is important to check that the name you want is acceptable to Companies House before you complete the company formation documents. Briefly, the restrictions are that you cannot register the same name as another company; the use of certain words is restricted; and names likely to cause offence are not allowed. It is also important to check whether your chosen name is similar to any other names already on the register. Under the Companies Act 1985 your company must state its name (as it appears in its Memorandum Of Association) outside the registered office and on its business stationery along with the company registration number. ANNUAL RETURNS Company directors have a personal responsibility for making information about the capital structure, management and activities of their companies available both to the members of the company and to the general public. For companies with limited liability, this will include accounts. Every company must deliver an annual return to Companies House at least once every 12 months. Companies House makes the information they hold about registered companies available to anyone who wants to see it. It is easy to lose confidence in a company that doesn't meet its legal obligations. If you don't send in your return on the company's financial state on time, and you don't send in details of changes, anyone wanting to do business with you will not have access to the most up-to-date information about your company. BECOMING A CHARITY (www.charity-commission.gov.uk)CHARITABLE STATUS To be registered as a charity with the Charity Commissioners, an organisation must have been established for exclusively charitable purposes. These purposes are characterised by a desire to benefit the public good and are expressed in the charity’s aims and objects. They are legally defined and include:
A charity is formed when people associate together to form a charitable organisation. They adopt a governing document at a general meeting, which constitutes them as a voluntary, unincorporated association. The constitution sets out the objects and powers of the charity, the rules for receiving people into its membership and for appointing its council of management – its trustees – and for appointing auditors. The association then applies to the Commission for charitable status. Charities are non-profit making with the income and assets solely used for charitable purposes. No member of the Council can individually benefit by payment. This means that employees cannot be committee members and it effectively rules out workers co-ops from being charities (see later). The Charity Commission requires annual returns of accounts and an annual report of activities. These also have to be made available to the membership and public. Charitable status adds credibility to an organisation by imposing regulations that deliver public accountability. It also provides some tax benefits (no corporation tax, can reclaim VAT, some rates relief) and enables it to apply to other, larger charities for funding as they can often only make gifts to other charities. A charity whose governing document is just a constitution (i.e. an unincorporated, voluntary organisation) is only suitable when the association is small in terms of assets and the work of the charity is done mostly by its members. There are significant drawbacks: the charity can’t own land or sign legal documents in its own name and there are restrictions on trading. Also, its members do not have any limit to their liability. AN INCORPORATED CHARITY Most large charities are also incorporated as non-profit companies, limited by guarantee (see INCORPORATING AS A LIMITED COMPANY). Their objects in their Memorandum of Association are carefully worded so that it enables them after incorporation as a company to then apply for charitable status. The Board of directors of the company are also trustees of the charity, and are unpaid. Any surpluses are retained within the company/charity. A charity already set up (i.e. an unincorporated charity) cannot then incorporate to a limited company. The charity has to be wound up first and the organisation then incorporates as a limited company, which then applies to become a new charity. Incorporation brings with it the benefits of a legal identity (i.e. able to sign documents and own land) and of limited liability. It allows the charity to deliver charitable services under contractual agreements and it can regularly enter into commercial contracts. Charities are allowed to trade goods providing that it is a minor activity (probably less than £50, 000pa) and that the trading in some way furthers the objects of the charity. Not all the trading that charities do is charitable. In order to overcome these difficulties, some charities set up subsidiary trading companies that are wholly owned by the charity and which covenant their income to it. In addition to annual returns to the Charity Commission, incorporated Charities will also make annual returns to Companies House. CO-OPERATIVES AND INCORPORATION THE ROCHDALE PIONEERS The co-operative movement started in 1844 when a group of 28 weavers working in the cotton mills in the town of Rochdale, established the first successful co-operative business. The weavers faced miserable working conditions and low wages, and they could not afford the high prices of food and household goods. After years of struggling, they came up with a solution: work together to open their own, cheaper store. They formed the Rochdale Equitable Pioneers Society, and when they had enough money collected from each member family, they opened a small co-operative store at 31 Toad Lane in Rochdale. The co-op opened on a dark, damp and cold night in an almost empty warehouse and there were only four things for sale: flour, oatmeal, sugar and butter. The Rochdale Pioneers were committed to economic democracy to collectively operate their co-op. They made sure that each member of the co-op had only one share and one vote, so every member family had a say in the decisions made in their business. This idea worked so well that it became the model for others to follow. The Pioneers wrote down their democratic principles, which were then used by other stores. The number of co-op stores grew quickly, and by 1900, 1,700,000 people in England were members of consumer co-ops like Rochdale. A co-operative is a group of people who are working together to solve their own problems and meet their needs. Co-ops are different from other types of organisations since they abide by rules:
Here are descriptions of the different kinds of co-operatives
INCORPORATION Co-ops can form voluntarily by simple agreement on a set of rules amongst a group of like-minded. If the lack of legal status is a barrier, such as in being able to attract funding, then the co-op could form a non-profit company, limited by guarantee (see INCORPORATING AS A LIMITED COMPANY). The incorporation as a company provides a legal name and also a measure of limiting individual members liability, which would not be the case in a voluntary agreement. However, the legislation for a limited company has nothing about co-operatives and thus there is no safeguard for mutuality outside of the voluntary agreement of the members and directors. Co-operatives can become incorporated by law with the Registrar of Friendly Societies (Victory House, 30 -34 Kingsway, London, WC2B 6ES) under the Industrial and Provident Societies Acts. The co-operative principle is enshrined in these acts, providing safeguards for societies that have disputes or are in breach of the legislation through recourse to the Registrar. To become registered, co-operatives need to produce a set of rules that contain its objects, its registered office, the terms of admission of members and their shareholdings, and the usual details on committees, meetings and financial matters. The co-operative needs seven founding members to be registered along with the rules. Audited accounts are required as part of the annual return of the society to the registrar. Liability for members is limited upto the value of their membership share. DEVELOPMENT TRUSTS (www.dta.org.uk) There are about 150 Development Trusts spread all over the UK. They aim to build the capacity of local communities and put people at the heart of what they do. They build and manage workspace, provide sports and recreational facilities, run childcare centres, promote community development, carry out environmental improvements, preserve and refurbish local buildings, run training programmes, support small business, set up community enterprises and more. They are independent, not for profit bodies, often registered as charities and committed to mutuality, community involvement, local accountability, the creation of common wealth, independence, self-reliance and sustainability. Most are seeking to build an asset base and generate income that will enable them to become financially independent and help them sustain their activities in the long term. All recognise the importance of partnership - with local authorities, business, central government, local regeneration agencies, Training and Enterprise Councils, and the wider voluntary sector - as being an essential part of the development process. Development trusts are found in inner cities, on peripheral housing estates, in market and coastal towns, former coalmining areas and rural communities. They recognise that regeneration is not purely economic and that only comprehensive, integrated approaches are likely to succeed in the long term. Some development trusts have assets of over £20 million and employ large numbers of professional staff while others are small in scale and operate largely on voluntary effort. The longest standing have been in existence since the early 1970s but many new development trusts have been established since 1995. They seek an active commitment from Government and other partner agencies to support their role, and are well placed to play their part in Government initiatives aimed at bringing people back from the margins of society. CREATING A DEVELOPMENT TRUST There are two characteristics essential for a trust. It should be an organisation that will achieve the social, economic and environmental regeneration of an area by providing real benefits to its local people, and it should be financially sustainable i.e. it operates as a viable, efficient business.Development Trusts are different from most small businesses: they are not owned by any set of individuals, and do not distribute any profits. They could be called public interest companies. They do, however, have to find ways of constantly raising funds and earning money. And although grants may be available, few funding regimes stretch for more than a few years. This means that while 'community benefit' may be the vision which engages people's commitment, those creating and running a development trust have to set up all the administrative systems of a business, follow all the legal requirements of a company, and be just as enterprising. There is no legislation that specifically defines development trusts and so they use established systems of incorporation (limited company, charity) but identify themselves with the aims and purpose of the development trust movement. Those thinking of setting up a development trust should contact the Development Trust Association (internet address above) which provides considerable support. There is an online guide (look in www.partnerships.org.uk) and you should think about the following:
NORTH KENSINGTON AMENITY TRUST in west London has for almost 30 years developed the 23 acres of land beneath the Westway A40(M) elevated motorway. It shows what can be done by a community-based development organisation that takes a long-term view. The Trust emerged from a community campaign in the late 1960s, which aimed to persuade the local authority to actively involve local people in determining what should be built on the derelict land. Today the Trust manages 150 workspaces, including workshops, commercial offices, charity offices, shops, a music venue and a market area providing 750 jobs, plus a wide range of community and recreation facilities including an indoor tennis centre, climbing wall, fitness centre, cafe and gardens. The Trust also plays an active community development role, helping to establish new projects and giving grants to local groups. It has now created a sufficient income-generating base to ensure its independence and sustainability. BEECHWOOD COMMUNITY TRUST grew out of a community association formed in 1986 to tackle problems of drug-related crime and vandalism on this once notorious estate outside Birkenhead. In 1992 the Trust secured a former Kwik Save supermarket along with funding to convert it for community use. The centre soon housed a day nursery and social club, followed by a thriving education, training and enterprise facility. Beechwood has successfully gained European funds for its work, under the Objective 1 programme. Many other development trusts have accessed European structural and community funds for their development and training programmes, in both urban and rural areas. THE ARTS FACTORY based in the Rhondda, south Wales, was started in 1990 by local people who came together to increase the range of work opportunities for people with learning difficulties. In 1993 they recognised that the problems of exclusion faced by this group of people were also faced by a great many others in the area. The project then refocused its original mission to develop opportunities for all local people to participate in the regeneration process. The Arts Factory now involves over 70 trainees and volunteers every week in five community enterprise teams - environment, art, pottery, a garden centre and two woodcraft workshops. The teams make and sell high quality products and services and deliver accredited training to local people. The Arts Factory is also restoring a Grade 2 listed chapel to house, amongst other things, a cinema, youth facility, video production workshop, graphic design bureau, community dances/raves and a place of worship. The Arts Factory shows how development trusts can actively involve those typically excluded from the regeneration of their own communities. AMBLE DEVELOPMENT TRUST, centred on a small, coastal town in Northumberland, was formed in 1994 to try and arrest 30 years of decline following the loss of coal mining in the area. In the last 3 years they have led a regeneration strategy for the town which has pulled in over £7m of investment, including £3.5m of central government funding from the SRB programme and English Partnerships. Projects completed include refurbishment of the high street, a CCTV system, a drop-in centre for local youth and a new Tourist Information Centre. Work will soon start on redeveloping the marina and waterfront plus a range of other projects to help businesses, identify skill and training needs and create new tourism opportunities. Already there has been a 300% rise in recorded visitors and 6 new businesses formed in the town. Mark Fisher - Permaculture Design course handout notes www.self-willed-land.org.uk mark.fisher@self-willed-land.org.uk |