Decide on the Formation of your Social Enterprise
Eventually, you are going to have to decide what form your business is going to take.
Will you be:
a Limited Company,
a Sole Trader,
a Community Interest Company,
a Company Limited by Guarantee CLG or
a CIO or Charity?
Choosing what form your business is going to take is often about finding a balance that is right for you and your own goals. The closer you are to being a charity, the more likely you are to get grants, where as the closer you are to being a business, the more control you have over your own assets.
If you are struggling to make a decision on this matter, it may be helpful to bear in mind that it is always easier to go from being a limited company or sole trader to a charity than it is to start as a charity and become a limited company. In fact, many charities have to close down and start from scratch if they wish to become a limited company further down the line.
It is important to take the time to ensure you’ve got the right setup to avoid difficulties like this for your own business in future.
Social Enterprise CLG – something to think about
A CLG (Company Limited by Guarantee) or CIC (Community Interest Company) is usually the most common formation when it comes to social enterprises, however there are definitely some things to consider before committing to these formats. Within the CLG or CIC formation, there is often what is called an asset lock. This means that any equipment or assets belonging to the company can only be sold to provide a social purpose moving forwards. This makes it very difficult to sell a social enterprise for profit in the future. If this was your goal then you are better off sticking to a limited company formation.
Another thing to note is that you will need three directors that aren’t related to you. That is why we emphasised the importance of reaching out and networking earlier in this thread. One very important thing to note is that the Board of Directors will have full control over the company. For this reason it is extremely important that you are confident with who you bring into the company and that their visions, goals and aspirations match your own.
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