Stephen Lloyd moots new legal structure for hybrid social businesses

Stephen Lloyd moots new legal structure for hybrid social businesses

Tania Mason, Civil Society
21.03.11

 

Charity lawyer Stephen Lloyd, one of the architects of the Community Interest Company structure, is leading a drive to convince the government to create a new legal form that advances a social purpose but also allows financial returns to private sector investors.

 

Social Enterprise Limited Liability Partnership would be similar to the new US hybrid legal structure known as a Low Profit Limited Liability Company, or L3C. Under this model, companies must have a social aim as their primary goal but they can be run as regular profitable businesses. 

 

The SELLP would be employed by charities and commercial firms that want to work together to advance a social purpose. Lloyd, a senior partner at Bates Wells and Braithwaite, is working together with Arthur Wood, founding partner of Total Impact Advisers, and others to draw up the new legal form.

 

Lloyd (pictured) said the introduction of CICs has been useful, but limited in terms of impact because the asset lock can deter investors. In creating CICs, the government had recognised the need for a new type of legal form for social entrepreneurs, but now there is a need to go further.

 

“This is an attempt to create a hybrid mixed-purpose legal vehicle to achieve charitable purposes but also allow injections of finance from charities, government and the private sector,” he told Civil Society.

 

“It aims to ensure charities can invest easily and sensibly without worrying about whether they are breaching their charitable purposes and being sure that HMRC will see the investment as a qualifying investment and there will be no tax risk.”

 

He said the charity would take the first risk in any investment in order to attract private sector money. The financial returns generated will flow to reward the secondary investors.   

 

Lloyd is proposing that if there are better-than-expected financial returns these should go to the charity, but he admits this part needs more work in order to ensure that caps on profit don’t deter investors.

 

“It’s a layered financial concept that requires a dedicated vehicle that needs to be legislated for,” Lloyd said, “because for charities to be able to invest in it, it needs to be accepted by the Revenue and Charity Commission as appropriate investment.”

 

Lloyd is suggesting that the CIC regulator should also regulate SELLPs. He has already proposed the model to Dfid and is meeting the Cabinet Office next month.

 

Lloyd and Wood will present the case for their proposals at the Skoll World Forum for Social Entrepreneurship at Said Business School in Oxford on 31 March.

 

An example of how a Social Enterprise Limited Liability Partnership might be used:
Research shows that for every £1 invested in sanitation projects in poor countries there is a saving or return of £8, derived from consequences such as lower demand on public health services, less work days lost to illness etc. So say a charity invests £20m in building an effective plumbing/sanitation system in a slum in a developing-world country. A private company or other investor is persuaded by the charity’s own investment that it is a worthwhile project and so stumps up a further £80m. Because the slum-dwellers are already paying some money for their existing, low-quality water supply and plumbing system, there is an opportunity for a financial return on the private investment alongside the social return that helps the charity to achieve its charitable aims.