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Choosing a Legal Structure

Introduction.

Every cohousing community in the UK is slightly different in how they are financed, the different decision making/governance structures that are used and a range of other unique features to the project that often means picking up a legal model off the shelf isn't always appropriate.

 

Choosing a legal form

Although most cohousing groups opt for a traditional leasehold arrangement with the group/company as the freeholder (and potentially rental units with either the group or an external partner as landlord), there are other models.

Mutual Home Ownership is an example of a model which links the cost of housing within the community to individual household incomes. Rather than buying a house, members buy shares. The features of this approach are:

  • ‘rental’ charges are geared to 35% of net household income
  • members secure a ‘foothold’ on the housing ladder at lower household incomes
  • members can buy more shares as their income rises
  • transaction costs on buying into and leaving are reduced because homes are not bought and sold the linkage - to average earnings - helps reduce risk and retain affordability
  • it remains affordable from one generation of occupants to the next

For more information, see http://www.lilac.coop (Lilac may run courses to explain their model)

This is a rough guide to the legal structures most commonly associated with social enterprise. For more information on them, see the websites listed below. For more general information about business structures, including other options such as partnerships and limited liability partnerships, see http://www.businesslink.gov.uk. However, there are a variety of legal requirements associated with setting up the structures described below and you should consider seeking professional advice before your organisation adopts any one of them.

 

Legal structure Summary: most typical features Ownership, governance and constitution

Is it a legal entity distinct from those who own and/or run it?

Can its activities benefit those who own and/or run it?

Assets 'locked in' for community benefit?

Can it be a charity and get charitable status tax benefits? Differences in the law as it applies in Scotland or Northern Ireland?
Unincorporated association Informal; no general regulation of this structure; need to make own rules. Nobody owns - governed according to own rules. No, which can create problems for contracts, holding property and liability of members. Depends on own rules. Would need bespoke drafting to achieve this. Yes, if it meets the criteria for being a charity. No specific differences.

Limited company

(other than Community Interest Company)

www.companieshou se.gov.uk

Most frequently adopted corporate legal structure; can be adapted to suit most purposes. Directors manage business on behalf of members. Considerable flexibility over internal rules. Yes, members' liability limited to amount unpaid on shares or by guarantee Yes, but no dividends etc to members if it is a company limited by guarantee. Would need bespoke drafting in articles, which could be amended by members. Yes, if it meets the criteria for being a charity. Scotland: no. Northern Ireland: separate but similar legislation.

Community interest company (CIC)

www.cicregulator.go v.uk

An effective limited company structure for social enterprise with secure 'asset lock' and focus on community benefit. As for other limited companies, but subject to additional regulation to ensure community benefits. Yes, members' liability limited to amount unpaid on shares or by guarantee. Yes, but must benefit the wider community. Can pay limited dividends to private investors and directors can be paid. Yes, through standard provisions which all CICs must include in their constitutions. No, but can become a charity if it ceases to be a CIC. Scotland: no. Northern Ireland: legislation not yet in place.

Industrial & Provident Society (IPS)

(Co-operative)

For bona fide co- operatives that serve members’ interests by trading with them or otherwise supplying them with goods or services. Committee / officers manage on behalf of members. One member, one vote (regardless of size of respective shareholdings).   Yes, but should do so mostly by members trading with society, using its facilities etc, not as a result of shareholdings.   No, would have to be constituted as community benefit type of IPS. Scotland: no. Northern Ireland: separate but similar legislation.
Industrial & Provident Society (IPS) (Community Benefit Society (BenComm)) Benefit community other than just own members and have special reason not to be companies. Like Co-op type, but new legislation provides option of more secure form of 'asset lock'.     Must primarily benefit non- members - 'asset lock' applies. Yes, if it meets the criteria for being a charity. Scotland: no. Northern Ireland: legislation not yet in place

Charitable Incorporated Organisation

First ready-made corporate structure specifically designed for charities. Similar to company but with different terminology, eg 'charity trustee' instead of 'director'. Yes, members either have no liability or limited liability. Members are not permitted to benefit and charity trustees are only able to benefit if constitution , court or Charity Commissio n give permission. Yes. Cannot be anything but a charity, and must meet the criteria for being a charity. Scotland: separate but similar legislation and regulator. Northern Ireland: legislation not yet in place.

 

Resources

The team at Wrigleys Solicitors LLP in Leeds have assembled the attached guidance notes to provide an overview of the main considerations to take into account when evaluating legal structure options.

The Legal Path
Summary of Legal Structures

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