Social enterprises: legal and governance issues Are we ready? Samantha Pritchard Tuesday 21 st June 2016

OVERVIEW Structures of “social enterprises” – is our legal form suitable? When would we need a JV or SPV? Legal issues in putting a bid together The terms of social finance Is our board fit for purpose? Housekeeping – good practice

SOCIAL ENTERPRISE What is a social enterprise? Legal structures 1.Can a charity be a “social enterprise”? 2.What does a “social enterprise” look like if it is not a charity?

SOCIAL ENTERPRISE Charitable “social enterprises” Key features A status, not a structure Asset lock Tax efficient Good for grants and loans Not so good for paying returns on investment NB – Perception in the marketplace?

SOCIAL ENTERPRISE Charitable structures Charitable company Charitable Community Benefit Society Charitable Incorporated Organisation (CIO) Trust Unincorporated association Royal Charter company

SOCIAL ENTERPRISE Non-charitable “social enterprises” CICs Co-operative Society Non-charitable Community Benefit Society Company limited by guarantee Commercial company?

SOCIAL ENTERPRISE CICs Cannot be a charity Designed with social enterprise in mind Asset lock But more freedom than charities Can be designed to reward financial investment NB – Can be part of charity group structure

SOCIAL ENTERPRISE Co-operative Society Cannot be a charity Established for the benefit of the members Founded on co-operative principles Foster a more collective and entrepreneurial spirit Community Benefit Society – if it is not a charity Exists for the benefit of the community Encourages community engagement/buy-in Some restriction on application of profits

SOCIAL ENTERPRISE Company limited by guarantee Not for profit Asset lock None of the additional regulation of a CIC Commercial companies? Flexible and commercial Enable distributions to investors But no guarantee of profit for social purposes Trading companies may be suitable recipients of investment

WHEN WOULD WE NEED A JV OR AN SPV? Need to ring-fence risk Working with others Project outside our core objects (if we are charitable)

WHAT MIGHT A JV LOOK LIKE? Company/ LLP/ contractual JV Ownership of assets Tax or VAT issues Do our investors want to invest in a JV? Governance

LEGAL ISSUES IN PUTTING BID TOGETHER Legal advice on governance/legal structure Is this within our objects/do we have the power? Due diligence on project (investigation of key risks) Restrictions on activity Confidentiality of information (protection of IP) Freedom of information

THE TERMS OF SOCIAL FINANCE Read them! Understand them Identify key risks What is your exposure? What are you legally committed to do and by when? How can you walk away? What does your financer/investor expect? When do you get paid? NB – are we committed at the point of our bid being accepted?

IS OUR BOARD FIT FOR PURPOSE? Do we have the right mix of skills and expertise? Is our board adequately trained and aware of its legal duties and responsibilities? Authority for decision making/delegation and project management Do we need a governance review?

OUR BOARD – WHAT WILL FUNDERS EXPECT TO SEE? A professional board with diverse skills mix Strategic in approach Effective oversight and holding management to account Succession strategy/code of conduct/delegation structure Control of finances NB – the board should be advocates for the project

HOUSEKEEPING MATTERS – GOOD PRACTICE Policies and procedures up to date and fit for purpose Financial management/business planning Compliance with law and regulation and requirements of regulators Register of assets and liabilities/commitments

CONCLUSIONS Good governance = the building blocks A demonstration of capability and capacity The right strategic direction Reassurance to funders that: (a) delivery of social mission; and (b)return on investment is possible

QUESTIONS & ANSWERS

BOND DICKINSON Samantha Pritchard Associate, Charities & Not for Profit