The Shropshire Warriors Basketball Club has been running as a “not for profit” community club since 1998 and over the years has increased in size, in terms of active volunteers and club members. The time has now come look at the optimum business model to sustain the club’s activities and basketball development programme to take operations forward for the next 15 years, with appropriate succession planning for the maintaining activities as some of the older volunteers move onto other things.
Also as it has now entered a senior team into the England Basketball League Division 3, where each EBL home game costs the club more than £300 we need to be looking at sources of sustainable income that don’t require expensive club membership fees, training fees and match fees. Sponsors for the basketball development programme want to see a credible operation that knows where it is going and meets their social needs and business objectives for investing in their community.
Most community clubs survive on the unpaid contributions of a nucleus of dedicated volunteers. In sport, the volunteers tend to begin as parents of younger club members, who take an active interest in the sporting activity their children do – and who follow their child through the programme until they leave for further education or work, or they may be teachers/ sports enthusiasts and their families who simply love the sport. With luck these “children” will continue to particpaet in the programme as adults, as players, coaches, officials etc to complete a virtuous circle. The Shropshire Warriors Basketball Club is no different here. It has obtained Clubmark accreditation by its national governing body (England Basketball) in recognition of the club’s safeguarding and other management systems, and over the years has become recognised as one of the more pro-active and forward thinking basketball development programmes in the country. A great number of our junior players progress to become part of the senior programme, and many return to the programme when they complete their further education.
The time has now arrived for the club’s management committee to decide what is the optimum business model to secure the member’s interests, to support basketball development in terms of coaching and training opportunities, enhancing competitive play for its members and volunteers, and to ensure the club operates on a firm financial footing where any surplus is ploughed back into more club activity?
So what are the choices available and how do we choose the best fit for our needs?
Social enterprises are becoming an increasingly popular business model and where social enterpreneurs want to change the world; are passionate about achieving explicit social or environmental aims and this motivates them as much, if not more, than the challenge of running a profitable business – i.e. they are not in it for the money. Social enterprises are distinctive because their social or environmental purpose is central to what they do, they can compete in the market like any other business, and make a profit, but their founders are never consumed by the motive of personal gain and don’t want to be forced into serving the interests of external shareholders. They continually reinvest their profits back into the business or directly into the community and are they are fundamentally about doing what’s right by society and the environment. They are meeting a need whether social or environmental and might be saving the local village post office or shop, tackling global warming, combating homelessness or providing better health and social care services, or maybe even basketball development in a community club!
At their best, social enterprises combine a public service ethos with the innovation and dynamism of a business. Some are created by outsourcing local authority services. Others are set up with a social entrepreneur with a vision or emerge from the voluntary sector. However they come into being, what sets social enterprises apart is a belief that being a competitive, well-run and profitable business is the best way of achieving social and environmental aims.
The first social enterprises in the UK were co-operatives and mutual societies. Today, however, there is a growing number of legal structures to choose from. The most common of these are the company limited by guarantee and the industrial and provident society. They use different structures to achieve different aims, taking account for example of the way stakeholders need to be involved or the way the business is to be financed.
A relatively new development is the Community Interest Company (CIC) – a legal model specifically designed for social enterprise, which is growing in popularity. CICs enjoy a light touch regulation, the assets of the business are protected for the benefit of the communities they serve and the dividends they can pay shareholders are capped. It is still early days, but CICs offer an easy, cheap way of incorporating and because they are for community interest, they are an increasingly attractive option for local authorities and other public bodies responsible for the external delivery of services. As always its best to take professional advice and more information on legal structures is available in a publication Keeping it Legal, which is available at: www.socialenterprise.org.uk
LEGAL STRUCTURES FOR SOCIAL ENTERPRISE AT A GLANCE
Business Link have produced a “rough guide” in a tabular format comparing the legal structures most commonly associated with social enterprise and more information is available from various websites.
Community interest company (CIC)
Industrial & Provident Society (IPS) (Co-operative)
Industrial & Provident Society (IPS) (Community Benefit Society)
Charitable Incorporated Organisation
For more general information about business structures, including other options such as partnerships and limited liability partnerships, see http://www.businesslink.gov.uk.
Considering the information about typical features, Ownership, governance and constitution, whether it is a legal person distinct from those who own and/or run it, whether its activities benefit those who own and/or run it, whether assets ‘locked in’ for community benefit, and whether it be a charity and get charitable status tax benefits it is clear that Warriors Basketball is curently an unincorporated association.
We have been considering whether to become a charity or possibly a limited company or even a community interest company. But how to choose and weigh up the benefits and constraints of each business model?
What a business does with its profits determines whether it is a social enterprise, rather than its specific legal structure.
A social enterprise should also consider whether or not to set itself up as a charity. Doing so offers a number of benefits, including significant tax reliefs, but results in increased regulation and less flexibility.
Social enterprises as registered charities
Many social enterprises have charitable status where the purposes of the organisation are exclusively charitable and are for the public benefit. Charitable purposes include advancing education or religion, and relieving financial hardship. Over many years, a host of other charitable purposes that benefit the community have been recognised as charitable by the courts or the Charity Commission.
The Charities Commission has issued guidelines on what charitable purposes are acceptable – which include the advancement of amateur sport the scope of ‘the advancement of amateur sport’ includes :
the advancement of any sports or games which promote health by involving physical or mental skill or exertion and which are undertaken on an amateur basis including :
- charities advancing sport at a local club e.g. local football, rugby, tennis clubs etc;
- multisports centres;
- other organisations concerned with the promotion of a particular amateur sport or game.
Community amateur sports clubs (CASCs)
Some community amateur sports clubs are registered sports clubs, which means they are clubs that are registered with HM Revenue & Customs (HMRC) under Schedule 18 to the Finance Act 2002 (c.23) (relief for community amateur sports club). Community amateur sports clubs (CASCs) registered with HMRC benefit from a range of tax reliefs, including Gift Aid.
There are specific requirements that community sports clubs must satisfy to gain HMRC registration, and these would typically be included in the club’s constitution. There are requirements on who can be paid what, and in what circumstances. There are also trading thresholds, and above certain levels of surplus corporation tax is applicable. This model is potentially the answer for a business model for our club, subject to an HMRC application and approval, and in the first instance a decision would need to be considered by te management committee and recommendations for decision made to the Annual General Meeting with members.
Further information about CASCs can be found at http://www.hmrc.gov.uk/casc/index.htm. The Charities Act provides that an organisation that is registered with HMRC as a CASC which is set up for charitable purposes is to be treated as not being set up for charitable purposes and accordingly cannot be a charity. This means that an organisation advancing amateur sport can be registered as a charity, or registered as a CASC, but it cannot be registered as both.
Organisational restrictions on charitable social enterprises
- A charitable social enterprise must have exclusively charitable purposes, and those purposes must be for the public benefit.
- The directors or trustees are responsible for administration and management and generally must not be paid for this work. However, charities can pay trustees (including the director) for providing goods and non-trustee or employee services to the charity. A range of safeguards are in place to prevent conflicts of interest or abuse.
- Any profits or surpluses made by the organisation must be invested back into it and used to support its charitable purposes. Any profit or surplus must not be paid out to members of the charity.
- Assets must always be used for the charitable purposes of the organisation.
Community Interest Companies
Community Interest Companies (CICs) are limited companies that exist to provide benefits to a community, or a specific section of a community. The CIC has the flexibility of the familiar company form, and access to a range of financing options, so may be appropriate for those working for a social purpose. Its key features include an asset lock and a community interest statement. Registering as a CIC is a single process. When you register you choose to be a company limited by share or a company limited by guarantee. CICs must comply with the CIC Regulations and Company Law. Find out more information here.
When registering a company with Companies House, a community interest statement describing its social purpose is also required. The CIC Regulator will approve an application if the statement passes the community interest test – ie the business activities intended to be undertaken will be carried out for the benefit of the community or a section of it, or that the CIC’s purpose is in the community’s or wider public’s interest.
Find out more information how to form a CIC on the Community Interest Companies website here .
CICs shouldn’t be confused with charities. CICs cannot have charitable status but a charity can set up a CIC subsidiary company. This means they do not get the tax benefits of a charity, but in return they do not have the strict reporting requirements of a charity. CICs have to follow specific rules, including the following:
- CICs must have an asset lock. This means that the company cannot generally transfer its profits or assets for less than their full market value except as permitted by regulation. It will also protect any remaining assets for the community if you dissolve the CIC.
- If the CIC is set up as a company limited by shares, there’s an option of issuing shares that pay a capped dividend to investors. The cap is set by the CIC Regulator to protect the asset lock.
- Together with annual accounts, CICs must present an annual community interest company report for public record. The report must show what the CIC has done during the year to pursue its pre-specified community interest and involve the individuals or groups with a particular interest in the CIC.
- Certain voting rights changed on 1 October 2009. A CIC’s chairperson no longer has the right to have a second or casting vote at a board meeting when the votes are equally divided. An alternate director can no longer – in the absence of their appointer – have a separate vote on behalf of their appointer as well as their own vote.