Five different Legal forms
Each legal form has different benefits and disadvantages. It depends upon the method and extent of the policy or form we are going to adopt. Following are five major legal structures for social impact venture.
1. An unincorporated project or company: a sole trader
Simplest form of the organization is that of an unincorporated company or project. Many self-employed persons are working under this method of trade. If you do have any unincorporated organization or project and you were not earning money through selling services and goods then there is no need to inform anyone. If you do have any payment then you has to maintain records as it would involve concerns regarding income tax, national insurance, corporation tax or even VAT. It is seemed simplest form and sounds better, whereas also having some disadvantages.
(i) People are less likely to buy from a social venture with no asset lock
As there is no asset lock so people will not take any interest in buying from such organization.
(ii) All the risk is on you personally
In sole proprietorship, sole trader is liable for any type of loss and it increases chances of more risk on a single person’s part.
(iii) You still need to keep accounts
Sole traders are not exempt from having records as there is business and legal activities compulsion and records keep all parties liable to comply with the rules and regulations.
(iv) No asset lock
Community will not be benefited from winding up of the company as there will be no asset lock on folding up of organization.
2. An unincorporated association or company: a partnership
Partnership is a form of business in which two or more than two people will contribute in the business and there will be division of risk or loss. Capital will be more as people contributing for capital will be more in numbers. In social venture capital it will help in managing and having established procedures. Most local clubs, societies and organizations are unincorporated. However the disadvantages of an unincorporated association, company or partnership are the same as the disadvantages of a single person running an unincorporated company.
Trusts offer a means of managing and holding property or money for communities or people. They are unincorporated organizations so there is personal liability for the trustees. Trusts are ruled and governed on the basis of trust deed that regulates the operational and beneficiaries processes. Any trust doing in social way or operating for any social cause is exempt from tax in a charitable way. There are various private trusts that show there is special look after for family members but most of the trusts are based upon overseeing “property held for a community”.
I) Easy to establish
There is plenty of support available to open a trust.
ii) Asset lock
Trust deed will fix that assets could not be sold to anyone other than beneficiaries mentioned in trust deed.
iii) Community engagement