Social Investment Toolkit: A Social Entrepreneur’s Guide To Raising Finance by Cheng Mark

Author:Cheng, Mark [Cheng, Mark]
Language: eng
Format: epub
Published: 2017-12-20T16:00:00+00:00

Module 6 – Legal Basics

Pre-Reading

Overview

In this preparatory reading for module 6, we cover:

Incorporating your venture

Key features of Companies

Group Structure

Where should you incorporate?

Jurisdiction

Non-Profit Regulation

Legal issues around raising Social Investment

Tax

Introduction

This booklet forms pre-reading for the rest of this module. Most social innovators do not have a background in law or finance, and therefore may need some help navigating the legal issues involved in setting up a social venture or completing a social investment deal. If this describes you, we hope that you will find the following information useful.

This short primer is designed to give you the basic legal knowledge you will need in order to raise social finance. Even if you are already well versed in law, this primer is worth reading　as a refresher in key legal aspects although you should note that the exact legal interpretation of the terms and concepts described in this booklet will vary from jurisdiction to juris­ diction. This primer only gives general descriptions of some of the more common features as a matter of international practice. Please consult a legal expert familiar with your local juris­ diction when applying to your own venture.

This booklet ‘Legal Basics’ contains no exercises, worked examples or case studies. It is intended as pre-reading　for Module 6 in order to give you a solid foundation in the legal aspects of raising social investment. In this booklet, we cover core concepts such as incorporation, jurisdiction, regulation, and types of legal entity (both for-profit and not-for-profit).

We recommend that you read this booklet before embarking on the other workbooks in Module 6.

In this module, we will not be able to provide you with specific legal advice. The complexities of legal structuring are such that you will need the services of a professional legal advisor. However we can provide you with some core concepts that will help you in any discussions with a legal advisor.

Incorporation

The first question that you will need to address before you even launch your venture is: what legal form should your venture be? This is known as incorporation, and the type of legal entity that you choose to incorporate as is known as your ‘corporate form’ or ‘legal entity’.

Corporate forms come in many different types, including non-profits, partnerships, companies limited by shares, companies limited by guarantee (i.e. without shareholders), public bene t companies, trusts and other more exotic options.

You will need to decide which country to incorporate in, and what kind of corporate form you should set up. The form　that you choose determines whether and to what extent you can undertake commercial activity, which forms of capital you can receive, how you are regulated, and will also have tax implications. We explain this further below.

Companies

The most typical form in which you will wish to incorporate is a company. The key advantage of being a company is that its shareholders have limited liability. That means that if the company fails, the shareholders may lose all of their investment but they are not personally responsible for the company’s liabilities (or debts). This ability to cap owners’ liabilities is essential for being able to raise third party capital.

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