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Corporate status
Incorporated
Terminology: governing document
"Memorandum and articles of association", usually abbreviated to "mem and arts".
Terminology: governing body
"The directors" or "the board of directors", although the mem and arts may use some other term to describe the directors.
Management/governance structure
Essentially two-tier, with a board of directors accountable to a wider membership who will also be shareholders (the two terms are virtually synonymous). Members will typically hold voting rights at general meetings and will elect all or some of the directors.
Further embellishments may be added to this basic structure, e.g. an executive committee (smaller than the governing body, perhaps made up of honorary officers and senior staff), or a members' council, which may meet more frequently than the full membership and supervise the work of the directors.
However, it is possible (and quite common) to create a single-tier structure by simply stating that only directors may be members and vice-versa. Thus although these two roles will still exist within the company, the same people will perform both.
All companies are required to have a secretary, usually described as the senior administrator. This person may also be a member or director, but need not be. In funded community and voluntary organisations, the post of secretary will often form part of the job description of a member of staff.
Membership
A company limited by shares may be either private or public (public limited company = PLC).
In a company limited by shares, someone becomes a member by acquiring shares in the company. This may be by purchasing them, or the company's articles may specify that certain people (e.g. employees) are automatically entitled to receive one or more shares.
In a private company limited by shares, admission to membership is usually at the discretion of the directors, but an "open membership" system may apply where strict criteria are laid down, e.g. anyone who lives on such-and-such an estate is eligible to become a member. A co‑operative company will automatically offer membership to everyone who shares a particular economic relationship with the company (e.g. employees in a worker co‑operative, tenants in a housing co‑operative, customers in a consumer co‑operative, etc).The articles should always allow for the expulsion of members who act against the interests of the company.
In a public company, it is more common for membership to be open to all who apply though this is not obligatory.
Where there are members who have rather different interests in the company's work, the membership may be divided into two or more classes (e.g. representatives of statutory bodies, representatives of local business, community members, user-members and so on). In a conventional share-capital company, voting rights are apportioned in accordance with the number of shares each member holds (one share, one vote), but the articles may specify one member, one vote.
A private company must have a minimum of one member. As the single member may be another organisation, a one-member company is useful legal form for subsidiaries. It is not possible to register a single-member public company.
Governing legislation
Governed primarily by the Companies Acts 1985 and 1989, plus a number of other statutes applying to companies (e.g. the Insolvency Act, the Company Directors Disqualification Act).
Charitable status available?
No.
Expected changes to the law
The Government proposes to introduce the "Community Interest Company" which will be an alternative to charitable status, available only to companies. Being recognised as a CIC will require a less stringent public interest test than applies to charities, but as yet no fiscal or tax benefits are proposed for CICs. The CIC form is especially intended for use by social enterprises. Any type of company (public or private, limited by shares or by guarantee) will be able to apply for CIC status provided it can demonstrate public interest and is non-profit-distributing.
Profit distribution permitted?
The articles will specify whether or not profit distribution is permitted. The ability to distribute profits to members is the norm in a share-capital company but it is not obligatory. Distribution of surpluses to members is usually permitted in co‑operative enterprises using a share company structure.
Examples of use
Companies have few inherent characteristics and so it is possible to design almost any sort of structure within a company vehicle.
A relatively small number of social enterprises are structured as companies limited by shares, particularly employee-owned businesses.
The private company limited by shares was once the normal legal form for the trading subsidiaries of charities, but since 1985 it has been possible to use a guarantee company for this purpose. A share capital company may be used by a group of voluntary or community organisations for a for-profit trading venture.
The public limited company (PLC) is quite difficult and expensive to establish but is permitted to issue shares to the public (which a private company may not). It can thus be a suitable vehicle for social investment funds (or CDFIs - community development finance initiatives).
Participation issues
Companies have the potential to be membership-based, so encouraging an active membership is an appropriate method of promoting participation - especially where the members share a common interest or condition.
Otherwise companies are free to utilise most of the other common methods of encouraging participation, including profit distribution in appropriate circumstances.
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