Meeting legal requirements for social business 

A social business will be established as a specific type of legal entity, which grants the company important rights.

This includes a range of aspects, from entering into contracts with suppliers, customers, employees, and project partners to legal protection, membership rights and restrictions.  

In this section, we look at the processes involved in meeting legal requirements as a social business and how you are advised to report your trading activity.

Limited liability for social businesses 

Most forms of legal entity also provide the protection of limited liability to their members and directors and/or officers. Regardless of the legal form the social business has adopted, it’s subjected to all the laws of the land just like a real person, and those who do business with the company have a right to basic information about the business.  

To ensure that limited liability protection is not lost, legal entities such as companies, must provide this basic information on the public record. 

Internal legal reporting processes  

There are a number of steps you can incorporate in the internal processes of your social business to ensure legal reporting requirements are met and employees are complying with industry regulations.

Maintaining awareness of legal requirements 

It is important to ensure that there are real people keeping a grip on this on behalf of the social business. The first step is to understand exactly the kind of legal entity or regulatory body they need to report to and how to check that this legal record is up to date. For example, if the legal form of your social business is 'Company Limited by Guarantee', the regulator in question will be  Companies House.  

Social business record keeping

A company is required to keep records and to share some of these with the regulator and some of them with the world in general.

For example, where is its registered office? It must share this with all its regulatory bodies and notify them when this changes. This helps authorities know where to write if they require information or if they want to notify the social business that they intend to turn up and examine the corporate records. 

Displaying the registration details of your social business 

The same information has to be available to the world in general in case people or other legal entities need to serve a legal notice. It is a legal requirement to put the registered office address on all communications from the social business that might involve the other party being involved in some contractual arrangement or risk or liability. This includes order documents, invoices, contracts, emails and the website (somewhere where people can find it like the home page, the about page or a footer on every page). 

Keeping a Register of Members

A company must keep a Register of all its members. In the case of a Company Limited by Guarantee, for example, the Register must have the current name and current address of all the members. 

A member is someone who: 

  • Qualified to apply for membership under the membership clauses of the Articles of Association. 
  • Has applied for membership through the procedure agreed by the Board of Directors. 
  • Has been accepted by the Board of Directors in a meeting which was properly minuted and their names appeared in those minutes. 
  • Signed their Guarantee Form to become a Guarantor. 
  • Was issued a Certificate of Membership and the date entered into the register.  

Keeping a Register of Members is necessary in case a liquidator needs to write to them and ask for the guaranteed sum, to which their liability has been limited through the incorporation of the company. 

Ultra vires

You should also keep records of what the servants of the social business are allowed to do on its behalf and what is therefore covered by the limited liability concept. If a member of staff or member of the organisation that owns the social business, or even a director, enters into a contract with an outside organisation or hires someone when they have been given no instructions to do so and no-one else is aware that they are doing it, they have stepped outside of the corporate responsibility and are acting 'ultra vires', or beyond the powers they have been given.  

Reporting your social business activity to regulators

Reporting requirements for Companies House 

In addition to the elements outlined above, a Company Limited by Guarantee is required to share its Register of Directors and Annual Financial Statements with Companies house and these go on the public record for anyone to search on Companies House.

This way the regulator knows who to ask searching questions of if they suspect all is not as it should be, or there are holes appearing in the public record. Anyone can check who is responsible for providing sound management of a company.  This information could be useful for several reasons, for example, if considering a potential trading partner. 

Reporting requirements for other regulators 

The above is merely an instructive example. There are many other regulators a social business might need to report to (from additional corporate records kept). Co-operative Societies, Community Benefit Societies, and Credit Unions for example have the Financial Conduct Authority  as their regulator. While the concepts are broadly similar, the reporting mechanisms are different. 

Companies Limited by Shares are registered with Companies House but have additional recording and reporting requirements related to classes and issues of shares. 

Get started on reporting your legal requirements with our social business compliance guide: