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![](_themes/nature/narule.gif)
Community Enterprise Companies
Graham Boyd (February 2003)
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Contents
![](_themes/nature/narule.gif)
A community enterprise is a specialised form of community-based organisation
that has both commercial and social aims and objectives. The commercial
objectives of a community enterprise mean that business methods and practices
drive its organisational functions and determine its operating style. This
sharply distinguishes a community enterprise from the predominantly
representative and often informal operating pattern of most other forms of
popular community-based organisation. However there are some features which it
shares in common with popular community-based organisations. In particular, it
is owned and controlled by the people who live in a defined locality or who
share other forms of common interest.
There are a range of particular functions for which community enterprises are
established some of which exist in combination while others are pursued on a
single purpose basis:
![bullet](_themes/nature/nabull1.gif) | To own and administer community assets and resources such as land, buildings,
equipment and machinery; |
![bullet](_themes/nature/nabull1.gif) | To undertake business and trading activities in a commercially sustainable and
socially responsible way on behalf of the community; |
![bullet](_themes/nature/nabull1.gif) | To act as a comprehensive focus for local economic development by providing
ideas, information, training and consultancy services; and |
![bullet](_themes/nature/nabull1.gif) | To provide financial services such as managing revolving loans within a
community and attracting outside capital. |
Community enterprise companies embrace two equally important aims:
![bullet](_themes/nature/nabull1.gif) | To create sustainable wealth for the community; and |
![bullet](_themes/nature/nabull1.gif) | To create social benefit for the community |
![](_themes/nature/narule.gif)
Community enterprise companies are a recent phenomena. Though the legal
structure enabling the establishment of such entities under Company law has
existed in many countries since the 1920s significant growth in its application
by social groups and development agencies has mainly occurred since the early
1980s.
Examples of organisations using the community enterprise company model include:
![bullet](_themes/nature/nabull1.gif) | cr裨es and day-care centres, |
![bullet](_themes/nature/nabull1.gif) | leisure and recreational facilities, |
![bullet](_themes/nature/nabull1.gif) | community and village halls, |
![bullet](_themes/nature/nabull1.gif) | food outlets and supply services, |
![bullet](_themes/nature/nabull1.gif) | telecentres (information technology centres), |
![bullet](_themes/nature/nabull1.gif) | waste recycling centres |
![bullet](_themes/nature/nabull1.gif) | local museums and heritage centres |
![bullet](_themes/nature/nabull1.gif) | local radio stations, |
![bullet](_themes/nature/nabull1.gif) | local regeneration and economic development agencies, |
![bullet](_themes/nature/nabull1.gif) | community land trusts, |
![bullet](_themes/nature/nabull1.gif) | community construction enterprises, |
![bullet](_themes/nature/nabull1.gif) | local utility providers - in particular water and renewable energy. |
This model of legal incorporation has obtained favoured status over others such
as trusts and co-operatives. In part this is due to it being both comprehensive
and accommodating thus:
![bullet](_themes/nature/nabull1.gif) | enabling it to be easily adapted to meet a wide variety of commercial and
social objects; and thereby |
![bullet](_themes/nature/nabull1.gif) | ensuring that its regulatory and other reporting requirements are more robust
and thus less subject to external interference. |
Finally, because the company model is widely used the legislation is subject to
more frequent revision and updating. ![](_themes/nature/narule.gif)
Once a group has developed a common identity through agreeing on the core
business activities or local services it wishes to deliver then it is necessary
to examine and decide on a number of other issues.
In particular the legal options available to a group. It is advisable first to
be as clear as possible about how the members want the enterprise to operate
both immediately and in the longer term. There will usually be a range of legal
structures available - trust, co-operative, co-partnership, share-company and
non-profit company. None will be ideal and informed choices will need to be
made.
The group guiding the setting up of the venture should be clear about its major
aims and objectives, as this will form the basis around which other secondary
issues can be addressed. Although model constitutions can be used, there are
still a number of specific details that will require particular attention and
these will need to be revised to suit each particular case. This is best done
with the help of a para-legal assistant or a legal expert who is familiar with
corporate law.
In considering the issues which require to be embedded into the organisation's
Memorandum and Articles of Association - constitution and set of rules - there
are 6 major areas of concern :
![bullet](_themes/nature/nabull1.gif) | The Form of Ownership |
![bullet](_themes/nature/nabull1.gif) | The Concept of Membership |
![bullet](_themes/nature/nabull1.gif) | Control of the Community Enterprise |
![bullet](_themes/nature/nabull1.gif) | The Size of the Organisation |
![bullet](_themes/nature/nabull1.gif) | External Relations |
![bullet](_themes/nature/nabull1.gif) | The Social Criteria |
The remainder of the paper briefly addresses these concerns. ![](_themes/nature/narule.gif)
This is the first principle that must be decided upon as it has a bearing on a
number of other issues. Ownership in most organisations, is vested in the
provider of finance, a system of capital hiring labour, but in a community
enterprise it is reversed so that ownership is vested in the members, a system
of labour hiring capital. This results in a system of community ownership in
which the main criteria is how best to determine the most appropriate means of
holding and managing community assets.
There are two further issues that need to be considered. Firstly, how will the
organisation be funded, given that in non-profit distributing company, such as a
community enterprise, equity shareholding is not an option. This means in
practice that finance can only be raised by way of grants or loans at a fixed
rate of interest. Secondly, if a key principle of the community enterprise model
is to retain the wealth and control in the locality then there is a need to
identify the community in order to restrict the membership and area of benefit.
There are two types of community:
![bullet](_themes/nature/nabull1.gif) | a community of interest |
![bullet](_themes/nature/nabull1.gif) | a geographical community |
![](_themes/nature/narule.gif)
Who are the members? Experience drawn from long standing community enterprises
suggests that to sustain active levels of member participation and to ensure
that the organisation meets its primary objectives - undertaking profitable
commercial operations - a limited rather than an open membership tends to work
best.
However, a limited membership restricted to the employees, owner-members or
consumers is not ideal and is an approach more suited to the co-operative
business model. On the other hand a large membership open to all residents in a
community, may also be unacceptable because of the unwieldy form mass membership
seems to impose.
Studies indicate that organisational networks need to be limited to a human
scale of around 500 people. And to enable a trusting and efficient working
relationship to be established, the number of people in their component parts
should very broadly not exceed 150.
Some mix seems to be appropriate whereby a range of stakeholders may become the
founding subscriber members - community based organisations, external support
agencies, consumers and employees. How this multi-stakeholder mix is constituted
will depend on the actual situation in the locality and what commercial
activities are being undertaken.
Once the principles of membership have been determined these can be written into
the organisations Articles of Association. ![](_themes/nature/narule.gif)
It is important to have the involvement of a wide range of local stakeholders in
the organisation's decision-making organs. A key means of doing this is through
the establishment of a system of network governance in which:
![bullet](_themes/nature/nabull1.gif) | Power is distributed between a number of different company organs; and |
![bullet](_themes/nature/nabull1.gif) | Natural checks and balances are placed on private interests. |
It is therefore important to have a robust constitution and set of rules, which
states clearly the various powers and duties that different decision-making
organs have within the organisation. In addition management and administrative
systems require to be established and regularly reported upon - annual budget,
annual financial audit, quarterly progress reports, etc. A primary reason for
having sound management and financial control systems is that these assist the
organisation:
![bullet](_themes/nature/nabull1.gif) | to properly plan and adjust to changing circumstances; |
![bullet](_themes/nature/nabull1.gif) | to function efficiently and effectively; |
![bullet](_themes/nature/nabull1.gif) | to re-invest and expand its operations; and |
![bullet](_themes/nature/nabull1.gif) | over the longer term by contributing to its financial sustainability. |
To ensure that both the community and wider public interest in the enterprise is
safeguarded it may be worth considering the development of a two-tiered board
structure. In this arrangement the overall management and financial
responsibility for the enterprise is the responsibility of an appointed Board of
Directors while the other organ perhaps in the form of a secondary board or
council acts as the forum for holding the service and assets accountable to
residents, consumers and other interested parties. This second organ would in
effect play a consumer watchdog, public interest and trustee role. ![](_themes/nature/narule.gif)
In considering the size and shape of the organisation it is important to take
account of a number of factors. What is the organisation's core business? What
human, financial and other resources are required to run the organisation? And
what annual targets have been set for it in the organisation's business plan?
Thus it is important when setting up the organisation not to overburden the
voluntary directors, other appointees and employees by having them diverted onto
delivering too many diverse activities and non-essential products and services.
Therefore the organisation's Memorandum and Articles of Association should
contain sufficient detail to be able to guide the voluntary directors and
appointees on the organisation's primary objectives and their powers and
statutory duties in running the company in a responsible manner. Similarly for
employees job descriptions, work plans and day-to-day management direction
should guide their work and ensure products and services are delivered cost
effectively and to a high standard.
Organisational growth and new products or services should not be created as a
result of the personal whims of directors, ad hoc sub-committees or
opportunistic requests from external parties. A combination of ill-thought out
expansion and poorly researched and priced products and services can very
quickly overtake and divert fragile operations such as community enterprises by
making too many demands on limited staff resources, crippling their limited cash
flow and sending them into insolvency.
The organisation should grow organically based on the delivery of fairly priced
quality products and services. Its primary purpose being to serve the residents
and consumers of the locality in which it has been established by meeting an
economic and social demand for goods and services that neither the state nor the
private sector is capable of fulfilling.
At a future date should the enterprise wish to expand into other related
products and services or diversify into entirely new activities then there are a
number of options available. It can undertake the new activities by either
expanding the existing set up or, if the activities have a significant degree of
risks attached to them and this requires the enterprise to safeguard its core
assets and business, then it can establish a wholly owned trading subsidiary
company to undertake any new activities. ![](_themes/nature/narule.gif)
Under the membership section a form of community ownership based upon a
diversity of different local interest groups or stakeholders was suggested. This
arrangement allows for a broad base of community and other external interests to
be formally represented in the structure's governance organs. Specific
organisations can be identified as being members and thus listed in the relevant
parts of the organisation's Articles of Association. ![](_themes/nature/narule.gif)
Organisations, particularly those that use co-operative and company legislation,
are obliged to present annual audited accounts and narrative reports on their
financial situation. These provide the information with which to measure success
or failure. However, community enterprises have social aims and objectives, and
financial measurement alone cannot provide sufficient information to assist in
achieving their desired goals.
A formal procedure for conducting a social audit should be introduced. If the
organisation decides to take up social accounting, it must first tackle the
problem of social criteria. If the social objectives are clear, it should not be
difficult to develop a social baseline from which to determine progress. It is
important that these social criteria be determined and included in the
organisation's constitution and business plan. ![](_themes/nature/narule.gif)
- An earlier version of this paper was prepared in 1994 by Alana
Albee and Graham Boyd for an ACE-HI training course for
Community Enterprise Agents in the Highlands of Scotland. This
paper considerably expands and updates that version.
- Community enterprise is a generic term. There are a number of
other similar terms used to describe this type of undertaking
- community business, community co-operative, community
interest company, community benefit corporation, social
enterprise, local development trust.
- Department of the Environment, Transport and the Regions, (May
1999) Community Enterprise - Good Practice Guide, London, pp
6-8.
- United Kingdom, India, Sri Lanka, Kenya, Tanzania, Uganda,
South Africa, Zambia, Nigeria, Canada, Australia, New Zealand,
etc.
- Spreckley, Freer. (1989) Developing Community Enterprise,
Community Economy Ltd, London, pp 4-6.
- Turnbull, Shann (2002) A New Way to Govern - Organisations and
Society after Enron, NEF Pocketbook, London, pp 30-31.
- Turnbull, Shann (2002) A New Way to Govern - Organisations and
Society after Enron, NEF Pocketbook, London, Chapter 6.
- Pearce, John. (2001) Social Accounting and Audit for Community
Organisations, (Manual & CD ROM), CBS Network and Social
Enterprise Network, West Calder, Scotland.
Other useful publications are:
- Pearce, John. (1993) At the Heart of the Community Economy -
Community Enterprise in a Changing World, Gulbenkian
Foundation, London.
- Henderson, Paul. Editor, (1991) Signposts to Community
Economic Development, Community Development Foundation,
London.
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Further Information:
Visit: www.caledonia.org.uk
where there are number of short
articles and papers on different aspects of community
enterprises.
Visit: www.cbs-network.org.uk
This web site contains a range
of technical material on community enterprises and links to a
variety of intermediary support organisations that provide
technical assistance. ![](_themes/nature/narule.gif)
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