At Hub Ventures and Student Hubs we are often asked to advise students and recent graduates about legal structures for any new charity or social enterprise they are creating. What the pros and cons of each structure might be, the process involved, and perhaps even if they need a legal structure at all.
We wanted to write this post to share some of our learning and advice, because although governance isn’t everyone’s cup of tea, it needn’t be a headache. Quite understandably it can be a daunting prospect to wade through an internet’s worth of content offering legal advice and explaining the finer points of all the different possible legal forms; however, the essentials are relatively straightforward. The advice takes a few hours to work through properly, but is well worth the effort and will help you answer many more questions than just what legal form you should adopt - like how you want to make decisions amongst your team, where surplus funds (if there are any) should go, how you can best set yourself up for grants or social investment.
Equally, it’s worth going through things properly as these are not decisions you want to get wrong. Unpicking legal forms is nearly always possible (tax avoidance proves that nearly anything is legally possible if you try hard enough) but it might be hard to eject that separatist member of your founding committee when you’ve given them all the power and they want to break away to found the Judean People’s Front rather than stick true to your purpose as the People’s Front of Judea.
A disclaimer first though: we’re not lawyers, and would always recommend that you speak to a lawyer about the finer points of what you’re trying to do. We use three firms of lawyers most regularly; the specialist nonprofit, Bath and London based Stone King, for the majority of our charity/social enterprise work; a small firm called Latimer Hinks for much of our standard ‘commercial work’ (property matters, loan agreements, acquisitions) and most recently, through the probono match makers Trust Law (highly recommended), a firm called Morrison Foerster have been helping us with Worthwhile. We even nominated them for a charity award which they won in part for work with us.
But although there is an inevitable need to use lawyers on some things, the basics of governance/non-profit legals can be easily worked out with a little reading and research. Much of the paperwork you might initially need to fill in can also be done yourself, which unless you value your time at £150/hour+ is a lot cheaper. And most importantly, it’s helpful to know what you’re talking about, even when speaking to the ‘experts’. Not irregularly, our team will know the latest developments in a field better than those we’re paying. Lawyers, accountants and other professionals have to specialise significantly and though they’ll nearly always know the basics, even they have to read up on specifics and may sometimes offer the wrong advice - especially if you’re asking them advice outside of their field. Non-charity lawyers, for example, won’t know quite a few ‘quirks’ of the charity sector.
IF YOU'RE READY TO DIVE IN:
Whether you’re looking to set up a charity, social enterprise, even work out whether you need to set up a new legal structure, or you are already running an organisation and want to work out if a new activity you’re thinking of would be better done in a new legal form, all these resources are useful. We go back to them time and time again to make sure we’ve got the basics straight.
So here is a quick step by step guide to helping you decide what legal form to take for your project/venture, and some of the key questions to think about along the way.
- First, begin with the fullest possible analysis of your overall strategy and ambitions. As lawyers should always advise you, form follows function. The legal form that you decide to adopt should be matched to the purpose that you’re trying to achieve. What suited one person may not suit you, so don’t just immediately copy the person next door. Unless what you’re doing is actually illegal, a legal form can be found to achieve your aims, and it’s likely that, though most of your aims for a legal structure will be common (to employ staff, attract grants etc), you may have some quirks of your own. For that reason, we would always suggest that people take the fullest step back to analyse what they are trying to do before diving into legal forms. For this we know no more useful tool than a guide published a few years ago called the Built to Last Toolkit, by UnLtd. It is our bible for all the basics you need to think through when setting up a nonprofit organisation - and we still go back to it regularly to take a temperature check. It has a brief guide to possible governance forms and situates those forms in the wider context of issues you will need to think through. We think UnLtd under-appreciate how good this resource is, as we’ve never been given it by one of their team and originally used to download it from a website which wasn't their own. But it is excellent. We’ve never looked in as great depth, because it was produced more recently, but UnLtd's latest resource The Social Entrepreneurship Toolkit Matrix seems good too. Take a look at both and spend some time working through the bits that seems important, especially those relating to governance structures and legal forms.
- Secondly, on top of the basics in the UnLtd toolkits you’ll want to familiarise yourself with all the main legals forms that are out there and are used regularly. Because although form follows function, you might need to know the types of structure at your disposal to decide on your options. Our advice would be that, unless you’re a governance/legal geek (no harm in that, we are), or have some very very specific requirements, then just go for something understandable, simple and off the shelf that helps you get out of the starting blocks as quickly as possible. You want to spend your time building your venture and having an impact, not, at least in the early stages, worrying about creating a robust legal structure that will last you for the next 100 years, or guarding against every eventuality of governance. The more bespoke the legal form, the more expensive too. The best guide we know for the basics here is Simple Legal produced by Cooperatives UK. It’s not just about cooperatives, but takes you through all the main nonprofit legal forms out there. If you want more detailed advice then two reports, Which Legal Structure is Right for my Social Enterprise? and I Want to Run a Charity, Where Do I Start? by Trust Law and Morrison and Foerster are very good.
- Thirdly, check the latest legal developments. Though legal structures don’t tend to change that quickly, the advice in the guides suggested will be out of date and you don’t want to miss out on any changes to the law. For example, it’s not a structure we know anything about at Hub Ventures, but since we started out a new form of charitable structure has been launched by the Charity Commission - the Charitable Incorporated Organisation (CIO). You’ll want to check the latest guidance and see if anything that you’ve been reading about has become a relic of the past. Some judicious browsing of the websites linked to below and searching for topics like ‘nonprofit legal forms’ will flag up any obvious points.
- Fourthly, when you’ve started settling on the legal form you think might work for you (perhaps charity, perhaps Community Interest Company, perhaps Community Benefit Society etc), then go on the relevant regulator’s website and do more in depth research into the form you’re looking at and the process you need to go through to adopt it. Some links below and in the relevant guides listed above. That’ll help you narrow down your options.
- Finally, once your research is done, and you’ve spoken to all your key stakeholders, start filling in the paperwork, get your legal structure up and running and get on with what you want to achieve. It may be a bit of a slog, but once it’s out the way, it’s much easier to keep things ticking over.
We’ll write more with some thoughts about some of the other questions that might arise as you follow this process. But for now, we hope that give you some useful resources to get your teeth into.
If we can help with your decision making around any of this then drop us a line. Otherwise, kick back with a cup of tea and get reading. And good luck, maybe you’ll even find there’s a lawyer inside you just waiting to get out.
Question: What other resources have you found out there?
This advice holds whether you are starting something completely new or thinking of a new activity within your existing work (say a trading entity to a charity).