A company can be limited by guarantee or by shares. This means that the trustees or directors of the company are protected in terms of their personal liability for the organisation’s actions and debts as long as their conduct is in line with directors’ duties under company law. Either the shareholders hold the liability (in return for a share of the profits), or the amount guaranteed (typically £1 each) by the Directors and any other category of members defines their maximum liability.

The most appropriate form will be a company limited by guarantee, as this provides for a clear not-for-private-profit structure (there are no shareholders who own the company) and also lends itself to more open forms of governance including various membership categories. In addition, a company limited by guarantee may take charitable status (see below), but a company limited by shares cannot.

Advantages of the company form are:

  • Protection for the individuals involved in running it, through limitation of personal liability (where duties under the Companies Act 2006 are adhered to)
  • A useful legal ‘wrapper’ or identity for the community benefits package and all its business
  • Ability to enter into contracts, e.g. with suppliers or staff if required
  • Regulated legal form provides comfort for the community, renewable energy business(s), suppliers and other key stakeholders
  • Can take charitable status.

Bear in mind that the company structure may be used to hold and govern more than one funding stream that is – or becomes – available to the community(ies). The company should therefore not be structured according to the need and wishes of one particular renewable energy business; it should be flexible enough to enable community funds from different donors to be governed and disbursed through it. For example, no donor should dictate the overall purposes (or objects) of the company, nor prescribe what, or who, it can or cannot fund.

Where any renewable energy business has specific requirements in relation to how their funds are used (or accounted for or reported on), this should be set out in the Agreement that your community enters into with the donor. Indeed, it may be that the company will be the community body that enters into such agreements on behalf of your community (see module for more information on Community Benefits Agreements). If a donor begins to have doubts about how their community benefits package is managed, this is best dealt with through that agreement, rather than through the donor having any rights to take control of the company or have any veto over how it operates (and which would make it difficult for other donors to use the company). For example, they may withhold the next tranche of funding until certain things are rectified to their satisfaction.

There is also a reasonable case to be made that fund donors themselves should not be permitted to be company Directors, as this may jeopardise the independence and community-led nature of the organisation.

It is recommended that a two-tier membership structure is adopted, whereby residents and/or community groups and organisations within the Area of Benefit can join as Members. Members then have the right to: attend the annual general meeting (and any other general meeting); elect those who will serve as company Directors, and; take decisions in relation to changes to the constitution itself or the winding up of the company. The Directors are generally responsible for controlling and supervising the activities of the company, including for monitoring its financial position. They are accountable to the Members, notably through general meetings. This puts the community in the driving seat in terms of the company’s governance.

The main disadvantage with the company form is the administrative and reporting work involved. The amount will depend on fund size, complexity of distribution arrangements, level of annual activity, and membership categories. It includes statutory requirements, for example to prepare and file an annual report and accounts, notifications of director changes, Persons with Significant Control, etc. to Companies House, as well as compliance with the General Data Protection Regulations (GDPR) and so on. In addition, holding an annual general meeting and, depending on membership categories, keeping membership records, serving the members with updates, notifications, etc. However, this work could be contracted to a third party administrator to carry out on the company’s behalf.

Further information can be found at Companies House. A model set of memorandum and articles (the “constitution” of a limited company) is provided by SCVO.