What’s the best legal structure for a social enterprise?
We get asked a lot of questions from early stage charities and social enterprises about legal structures. Should you register as a charity, a BCorp, or a limited company? How do you get a social enterprise mark? And what’s the difference between them all?
There is no clear cut legal structure for a social enterprise, and the challenge is to find a legal form that reflects the balance of profit versus purpose for your organisation. With a labyrinth of information out there, it can be really tricky to work out what structure could work best for you.
Disclaimer: we are not lawyers, and this post does not contain any legal advice. The purpose of this post is to signpost you to tools and resources out there that can help you decide on the best legal form for your entity.
Business models and legal forms go hand in hand
Before we get going though, it’s worth noting that the legal form that will suit your entity will go hand in hand with the business model or trading streams you have.
If you’re in the early stages and aren’t entirely sure, the key things to keep in mind are:
- What are the core activities of your organisation?
- How are you going to fund these activities?
- What are the short, medium & long term aspirations for your organisation?
- Do you see any of these activities or funding streams changing significantly in the next few years?
Make a note of those answers, because they will help guide your thoughts when working out the right legal form.
Resources and tools
There are some great tools and frameworks available that are designed specifically to help social enterprises navigate legal structures. A couple of key links to ook at can be found on the following websites:
- Social Enterprise UK’s Start Your Social Enterprise Guide. Head to Section 7.0, Page 20 for their guidance on legal structures
- The School for Social Entrepreneurs have some guidance on the different forms which you can find here
- UnLtd have a great guide that lays out the key factors to consider and common structures
- Good Finance provide some great resources including a guide to legal structures for social enterprise at a glance by Anthony Collins
- Bates Wells Braithwaite provide legal documents and guidance for charities on social enterprises which you can find here
There’s no one size fits all!
Each legal structure has it’s pros and cons. In our experience, all of these are negotiable and there are workarounds for many of the limitations imposed by any given structure. Where it can get tricky is when you want to either diversify your activities or diversify your income.
For example, if in 5 years from now, you want to raise VC capital, a charity might be too limiting. If however, you think you’ll stay funded by social capital (grants, social investment, donations) then a charity / CIC might be right for you.
Always keep in mind what it is you want to do, and how you think you’re going to do it!
