Limited companies with a social purpose
Companies limited by shares or guarantee, registration and applying for charitable status
The limited company is an organisational structure which gives limited liability to its members. Some social enterprises take on the form of a limited company. This is a more accountable form than, for example, an unincorporated association.
Limited companies may have an 'objects' clause that sets out the company's aims or purposes. These objects can be commercial. However, if your business is a social enterprise, the objectives should also be related to social and/or environmental goals. For example, this could involve rejuvenating an area. It could also involve providing jobs and/or training for people who are disadvantaged in the labour market.
Social enterprises that are registered charities must only have objects that the law defines as charitable, such as relieving financial hardship or promoting education.
Types of limited company
There are two incorporated forms to choose between when setting up a social enterprise as a limited company:
- Company limited by shares (CLS) - shareholders each hold shares in the company. Their liability is limited to the amount unpaid on shares they hold. A public limited company (plc) differs from a CLS in that its shares can be sold to the general public.
- Company limited by guarantee (CLG) - each of the members gives a guarantee for a certain sum. The sum will go toward the company's finances if it is wound up. A CLG cannot raise finance by issuing shares, nor pay dividends to its members.
The issues are complex and you should seek professional advice.
Limited company registration and costs
All limited companies must register (incorporate) and file annual returns at Companies House.
Limited companies must also submit a set of memoranda and articles of association.
There is a fee for incorporating your company with Companies House. The fee varies depending on:
- whether you submit the necessary documentation as hard copies or electronically
- whether or not you want to incorporate on the same day that you submit the documentation
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Limited companies can also be set up as charities if the organisation has exclusively charitable objects and is for the public benefit. They should (in most cases) apply to the Charity Commission to be registered as a charity. However, it is very rare for a CLS to be a charity - social enterprises as registered charities and Community Interest Companies.