In a recent post I looked at the different models for community led broadband schemes and how the distribution of risks and responsibilities can be shared. In this post I wanted to consider how different business types can affect the scale and ambition of a community-led project.
The two biggest risks to a community-led broadband scheme is assuming that it’s a technology project, but that’s closely followed by an assumption that because it’s a community scheme a community interest company (CIC) must be the right vehicle. The first is always wrong, and the second is not always true – this is a business sustainability problem not a technology problem, and the choice of business vehicle is a business decision just like any other and will depend on the needs to the venture.
There are lots of myths which surround community enterprises:
Myth 1 – “Not for profit”
There is no such thing as a viable “not for profit”. All sustainable businesses, no matter what their motives and goals, have to make a profit but there may be decisions about what you do with any surpluses. Privately owned companies will tend to share the profits between building reserves, reinvesting in the business and returns to investors, while a sustainable community enterprise will typically also want to return a proportion of their surplus for other community projects.
The co-operative movement’s Rochdale Principles lays down the responsibilities of Industrial Provident Societies but these principles are also a very useful starting point for any community project, however its incorporated.
Myth 2 – Community Enterprise = [CIC, co-op, company limited by guarantee] (delete as applicable)
Almost any company type can be made to be community friendly but its true that the co-operative sector has been much better at creating templates which work for communities. However, a company limited by shares can just easily have hand-crafted articles which protect community interests just as a co-op or a company limited by guarantee does routinely – it just seems to have gone out of fashion.
The CIC rules support both cooperative and limited forms, and its worth taking to time to find the right one for your project – this is not an emotional decision, its one which underpins the future sustainability and ambitions of your scheme.
The best option for community led broadband?
There is no right or wrong company type for community enterprises but today’s community-led broadband schemes often have some dynamics which make traditional approaches very difficult.
Modern broadband networks are very expensive and long-term ventures, often needing industrial and financial partners to help them become real. Whatever vehicle you ultimately decide on needs to manage these tensions alongside the needs of the community.
At the moment social investment funds have a tendency to be be more expensive and risk averse than “red meat” investors, but hopefully this will) change, and really needs to if the social investment sector wants to be a credible source of support for community led broadband schemes.
You may also find it more difficult to secure an industrial partner (as opposed to a supplier) if the organisation is anything other than a company limited by shares. Operators’ lawyers and accountants understand limited companies but they may not have experience of other company types which can (but not always) make them cautious about entering into a formal partnership.
BUT while it can easier to develop a joint venture or partnership based on a traditional company, it does require work to ensure that your community interests are protected in the company articles and contracts – an off-the-shelf company almost certainly won’t provide that protection.
And finally, if you intend to have public sector investors, say in the form of a grant, you may find that they have a very narrow understanding of community enterprise. For example, way community enterprise has been interpreted by BDUK has excluded all models except CICs – co-ops, companies limited by guarantee, Bencoms and any other traditional social enterprise models are unlikely to be acceptable unless they are overseen by the CIC regulator or there is a shift in policy.
In summary, don’t rush to incorporate; take time to understand not just your own needs but also those of all your stakeholders