Pros and cons of Pros and cons of incorporationincorporation

Unincorporated Incorporated

Limitation of liability No: individuals may have to meet outstanding liabilities personally

Yes: individual liability limited to share capital or guarantee

Legal personality No: individuals must enter into contracts on organisation’s behalf (and are then legally liable)

Yes: organisation is “legal person” and can own property and enter into contracts in own right

Risk Risk unequally distributed amongst members

All members treated the same unless agreed otherwise

Cost Small or no start-up costs Registration, annual fees and reporting costs

Administration None required by law (except for charity) but will need membership records, bank account etc

Accounting and reporting requirements

Privacy Total (unless a charity) Directors’/trustees’ personal details on public record

Other features you might Other features you might wantwant• Ability to raise money by issuing shares• Ability to pay returns to shareholders• Community benefit objectives• Asset lock• Tax breaks for organisation and/or investors• Access to future community tariff (if any)

Choice of legal formChoice of legal formLtd liability/legal person?

Community benefit objective?

Public share offer?

Return on shares? Regulator

Asset lock?

Ltd liability partnership Companies

House Co ltd by shares Only if

listed Companies House

Charitable guarantee co Charity

Commission Community Interest Company

Only if listed

Subject to cap

Companies House/CIC Regulator

IPS (bona fide co-op) FSA IPS (for community benefit)

FSA

Key features of IPS (ben Key features of IPS (ben com)com)• One member one vote• Withdrawable share capital• (Usually) exempt from prospectus regulations• £20k limit on individual shareholdings• Social dividend not financial gain • Interest not dividends• Returns limited to amount needed to retain capital (but no formal

cap as for CIC)• Optional asset lock• Must register with/report annually to FSA• Can qualify for Enterprise Investment Scheme• IF community tariff introduced, likely to qualify

Registering an IPS (ben Registering an IPS (ben com)com)Will need:•Money (£800 - £1000) - unless CDA will pay•Time – typically 4-6 weeks from application•Rules (constitution)•Sponsor (eg Co-ops UK, Sharenergy, Wessex)•Objects clause tailored to your objectives•Name•Registered office•Company secretary•At least three subscribers (founder members)