What is a Legal Structure?

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IMPORTANT:  Before deciding on a legal structure it is vital that you obtain professional advice.

Selecting the correct legal structure for a social enterprise is just as important as obtaining finance, preparing a business plan and finding the correct staff.  A legal structure provides the legal framework to which the organisation will adhere.  To avoid legal issues it is vital that the most appropriate legal structure is selected when establishing a new organisation.

The organisation’s legal structure is defined in its governing document.  The form of the governing document will depend on the legal structure chosen, but two common governance documents are:-

  1. The Memorandum.  This document details the relationship between the organisation and the outside world and is required when creating and incorporating the organisation.  This is a public document and it contains the following information
  • the legal name of the organisation
  • statement of intension/objectives of the organisation
  • location of registered office of the organisation
  • list of subscribers (stakeholders)
  • details on distribution of profits
  1. The Articles of Association.  This document contains details about how the company will be run, including:
  • management structure and procedures
  • roles of the members and directors,
  • procedures  for their appointment and removal  of members and directors
  • AGM procedures

These are legal documents and taken together form the governing document of the organisation.  It is advisable to get appropriate professional advice when writing or amending them.

A legal structure is either unincorporated or incorporated.  Most Social Enterprise organisations will eventually adopt one the following incorporate structures:-

  • Company Limited by Shares (CLS)
  • Company Limited by Guarantee (CLSG)
  • Company Limited by Guarantee with Charity status (CLSGC)
  • Community Interest Company Limited by Shares (CICLS)
  • Community Interest Company Limited by Guarantee (CICLG)
  • Scottish Charitable Incorporated Organisation (SCIO)

IMPORTANT:  Before deciding on a legal structure it is vital that you obtain professional advice.

Note:

The term ‘Social Enterprise’ has no legal weight and is a statement of how an organisation operates.

 

For more information on legal structures, check the following websites:-

www.gov.uk/government/organisations/office-of-the-regulator-of-community-interest-companies

  • SCVO information on Legal Structures  

www.scvo.org.uk/setting-up-a-charity/decide-on-a-structure/