Share this content

Legal structure of a group of friends producing a free newspaper

Legal structure of a group of friends producing...

Didn't find your answer?

A client has got involved in running a local free newspaper for which he and others submit articles. The paper is financed by selling advertising space, none of the contributors receive any payment. He is, however, concerned about the legal structure of this enterprise. It is simply a group of friends getting together to produce and distribute the paper: there is no constitution and no (as far as they are aware) legal entity (company, club, partnership, etc.), although it does have its own bank account. The amount of money involved is tiny (c£3,000 per annum), so they don't want to have to start producing accounts, filing tax returns, etc.

His concerns are:

(i) Should there be some form of legal entity, and if so, what? Or is one already implicit in the organisation?

(ii) Are there any tax issues? There is always some spare cash in the bank account, so, although a not-for-profit organisation, there could be said to be a surplus most years.

(iii) Although more of a legal than accounting issue, is there any collective liability (e.g. if an article could be deemed defamatory)?

Any thoughts/ideas/ help would be very gratefully received.

Replies (35)

Please login or register to join the discussion.

By cheekychappy
05th Feb 2016 16:20

(i) Looks like a partnership already exists to me.

 

(ii) Yes see (i).

 

(iii) Yes. Your example is one that is a very real possibility and the move to limited liability should be discussed.

Thanks (1)
By gerrysims
05th Feb 2016 16:35

Someone is

You say none of the contributors receive payment but then say they are selling advertising space. So who receives the advertising payments ? Seems to me they are at risk.

Follow cheekychappy's advice above.

Thanks (1)
RLI
By lionofludesch
05th Feb 2016 16:46

Loss

If they were making a loss every year, you might argue it was a hobby. But, it seems, they don't.

Your client might not want to get involved in books, accounts and tax but it looks like he is.

As cheeky says, a limited company seems appropriate here.

Thanks (1)
avatar
By TerryD
05th Feb 2016 17:06

Thanks for taking the time to look at this.

Yes, they do make a "profit" in some years, and a "loss" in others. The money (never more than a few hundred pounds) is retained in the bank account, which in the name of the paper. The individuals never take a penny for themselves, not even travelling expenses, etc.

I fully agree the comment about getting limited liability to cover the individuals' potential liability - that does seem eminently sensible. Subject to that, though, could a members' association get round the accounting and tax issues?

Thanks (0)
Replying to bettybobbymeggie:
RLI
By lionofludesch
05th Feb 2016 17:09

Mutual Trading ??

TerryD wrote:

I fully agree the comment about getting limited liability to cover the individuals' potential liability - that does seem eminently sensible. Subject to that, though, could a members' association get round the accounting and tax issues?

Not unless they are the only customers for advertising.

Which seems unlikely.

Tell them to get on with that company.

Thanks (1)
By Tim Vane
05th Feb 2016 20:26

You keep mentioning a bank account. Some entity owns the bank account. That would be a big clue.

Thanks (3)
Euan's picture
By Euan MacLennan
06th Feb 2016 13:09

My answers

... for what they are worth, are:

It is clearly an unincorporated association, like many clubs.Unincorporated associations are subject to corporation tax on whatever profits they make.An unincorporated association can be sued, but I have no idea about collective responsibility of the members beyond whatever may be in the association's bank account.

Thanks (1)
Replying to Jason Croke:
RLI
By lionofludesch
06th Feb 2016 17:21

Clearly ?

Euan MacLennan wrote:

... for what they are worth, are:

It is clearly an unincorporated association, like many clubs

Clearly ?   I'm surprised by your thoughts.  There doesn't seem to be any evidence of this.  For me, it's a partnership.

Not that there's a great deal of evidence of that, either.  But I'd be surprised if, assuming HMRC were sufficiently bothered to take an interest, they'd plump for a Corporation Tax entity over Income Tax.

Thanks (1)
avatar
By TerryD
10th Feb 2016 10:03

Thanks for all your thoughts - just got back on parade after a couple of days off.

The bank account, I'm told, is in the name of the paper, "Timbuktu Times" or whatever, with two of the club members/partners mandated as signatories.

I've also been told that, as one of the members/partners is a retired journalist and "knows the ropes", they feel tat the risk of publishing actionable material is too low to necessitate incurring the cost of incorporating (personally, though, that fact might have led me to reach the opposite conclusion).

Thanks (0)
RLI
By lionofludesch
10th Feb 2016 10:17

Timbuktu Times ?

And as what sort of entity does the bank regard "Timbuktu Times" ?

Presumably there was some Money Laundering stuff going on when the account was opened. Did they ask for a copy of a constitution for an unincorporated association ?

I'm tipping the bank thinks "partnership".  But you'll have to ask the right questions to find out.

Thanks (1)
avatar
By TerryD
10th Feb 2016 10:56

I shall try to find out the bank's views. A thought has occurred, though - if there is no intention to make a profit, can it be a partnership in HMRC terms?

Thanks (0)
RLI
By lionofludesch
11th Feb 2016 10:29

Well, you can ...

Well, you can always ask. But it sounds like your clients just don't want all the hassle of keeping accounts and filling tax returns and things in.   I don't either - but the Government says I have to.

Partnership or Unincorporated Association - there's no mutual trading here, there are going to be forms to fill in and maybe taxes to pay.

Thanks (1)
paddle steamer
By DJKL
11th Feb 2016 10:57

Maybe rather than decide what it is they ought to consider what it ought to be?

If they have any thoughts as to creating something that will endure past the individuals currently involved( a partnership also has issues if one/other falls out, stops being involved, drifts away) considering what type of entity would best fit that purpose might be a good idea.

A company limited by guarantee can serve well where individual shareholdings are not appropriate , maybe discussing with them what they want to achieve/who they want to benefit from the activity and a little longer term vision might help clarify what they ought to do next.

Thanks (1)
avatar
By DMGbus
11th Feb 2016 12:12

Hobby trading

If the enterprise is not set up with a view to profit then it is a hobby and not returnable to HMRC.

Now, HMRC can NOT have it both ways!

EITHER it is a partnership and tax relief for losses is obtainable (offset against participants other income)

OR it is a hobby joint venture and losses are not tax relievable

I did wonder if the venture might be beter formed as a CIC, but then the costs might be prohibitive for a small scale non-profit-making venture?

https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...

My approach would be write to HMRC and say that this is a hobby.  It is not designed to make a profit.  It's raison d'etre is to benefit the local community by providing local information.   HMRC should be given a choice (ultimatum):

either accept that as a hobby they do not need returns (unless profits consistently exceed losses)

or it's losses will be allowed for tax relief against other income if HMRC insist on returns (that way some of the high professional costs will be recouped by tax refunds)

Thanks (1)
RLI
By lionofludesch
12th Feb 2016 10:38

Bottom Line

The bottom line is that you need to agree whether or not they're going to take an interest in this.

The problem might arise if you agree it's a hobby and then, a few years down the line, it turns into something else.

A bloke I know started a fanzine in 1976.  It's now a huge business with several publications, employing dozens of folk.

Thanks (1)
avatar
By TerryD
15th Feb 2016 11:42

Thanks everybody for your help. I've scheduled a meeting with the client to discuss all his options and risks - and probably scare him off completely!

Thanks (0)
avatar
By TerryD
25th Feb 2016 14:57

Resolution

Just to let you know what's happened, I've gone through all your suggestions with him, explained the pros and cons, risks and pitfalls, of the various approaches, and the potential costs involved, and he's going to try to get the others to agree to form a CIC.

Thanks again for you help.

Thanks (0)
RLI
By lionofludesch
25th Feb 2016 15:37

CIC ?

A CIC ?

I'm surprised that, given the apparently small scale of operations, that they want to add another tier of admin.  Their decision, obviously.

Thanks (0)
avatar
By carnmores
25th Feb 2016 15:48

i think a cic is the best option

its hardly another tier its  more of a protection 

Thanks (0)
Replying to Hugo Fair:
RLI
By lionofludesch
26th Feb 2016 15:18

Hobby

carnmores wrote:

its hardly another tier its more of a protection 

Against what ?

This is just a hobby, so we're told.  Minimal profits, sometimes losses, the OP said.  

As long as they're aware of the extra reporting requirements, fine.  But, personally, I wouldn't want to saddle myself with the downsides for no good reason. If the hobby turns into a business, they can always switch to a CIC later.

Thanks (0)
avatar
By TerryD
25th Feb 2016 16:07

Yes, he felt that some kind separate legal entity affording limited liability was important (regularising the tax situation much less so) and that they would be able to cover the cost (he has big ideas for the future). He still has to convince the others, though - but I get the impression that his view will prevail.

Thanks (0)
avatar
By TerryD
26th Feb 2016 16:08

Protection

I think the protection they seek is against the risk that the paper might publish something that could be viewed as defamatory and hence actionable. While I think it is a pretty low risk, they'd like it to be sheltered in a limited liability entity. I don't know enough about the law in this area to be able to say for sure that such a set-up would deflect any liability from the individual(s) concerned, but I raised the point and the client felt that it was important (makes me wonder about whom he is intending writing!).

Thanks (0)
Replying to mbee1:
RLI
By lionofludesch
27th Feb 2016 15:20

CIC?

TerryD wrote:

I think the protection they seek is against the risk that the paper might publish something that could be viewed as defamatory and hence actionable. 

But that doesn't need a CIC.  A bog-standard limited company will do just as well.

Thanks (0)
By Marion Hayes
27th Feb 2016 20:15

CIC better than Ltd

from a reporting point of view.

Provided they can convince the Charity Commissioners they qualify as a charity, and the size is small enough, they only need to send a simple, cash based, I&E to the CC each year. There are no CH requirements or HMRC reporting required.   

Thanks (0)
Replying to Rammstein1:
avatar
By cbp99
27th Feb 2016 21:32

Are you sure?

Marion Hayes wrote:

from a reporting point of view.

Provided they can convince the Charity Commissioners they qualify as a charity, and the size is small enough, they only need to send a simple, cash based, I&E to the CC each year. There are no CH requirements or HMRC reporting required.   

https://www.gov.uk/government/publications/community-interest-companies-...

Especially Ch 8

Thanks (0)
By Marion Hayes
28th Feb 2016 09:54

CIO - Charitable Incorporated Organisation

Apologies to all - thanks cbp99 for telling me - a classic case of seeing what you expect not what is really there.

On reading the description of the activity undertaken I assumed the best structure (if it could be achieved) was that of a Charitable Incorporated Organisation which only reports, very simply, to the Charity Commissioners, but has limited liability for the Trustees etc.

As a result when CIC was suggested I read CIO - sorry again to everyone who replies

 

 

 

Thanks (0)
Replying to michaelbeaver:
avatar
By cbp99
28th Feb 2016 11:51

CIO

Marion Hayes wrote:

Apologies to all - thanks cbp99 for telling me - a classic case of seeing what you expect not what is really there.

 

And thanks to Marion for reminding me of the CIO format, which may be the most suitable format for the OP's client, giving limited liability with the minimum compliance issues.

However this would depend on its being a charity, ie having a charitable purpose: https://www.gov.uk/government/publications/what-makes-a-charity-cc4 

Thanks (0)
By Marion Hayes
28th Feb 2016 10:16

Link to sample CIO constitution for consideration

https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil...

Thanks (0)
RLI
By lionofludesch
28th Feb 2016 10:51

Disadvantages of a CIC are producing the written report, only being able to file by post, a £15 fee on top of the Annual Return fee - plus restrictions on dividends and the sale of assets, neither  of which I would see as significant at the moment.

Advantages - can't think of one.

Thanks (0)
By Marion Hayes
28th Feb 2016 16:14

Not enough information really

but assuming there is no political aspect, I would suggest that the charitable purpose it could fall within is the advancement of citizenship or communal development,

It must then be 'in the public benefit; so provided the distribution is wide enough and no one gets a personal benefit I think registration may well succeed.

 

Thanks (0)
avatar
By TerryD
29th Feb 2016 10:02

I have to admit that neither I nor the client thought that the activities would meet the criteria for recognition as a charity - maybe more research is needed there. So thanks for raising that. The reason the client likes the CIC route is that, via the asset lock, it sets in stone the not-for-profit, community based, objective of the enterprise. We didn't see producing the CIC34 as a particular hardship, but the added costs certainly will be uncomfortable with the current level of income. The client does intend, though, that the paper be run on a more commercially based approach, yielding more income, while maintaining its community focus.

Thanks (0)
RLI
By lionofludesch
29th Feb 2016 10:09

As long as ...

Wouldn't be my recommendation but, if that's what the client wants, that's grand.

Thanks (0)
avatar
By TerryD
29th Feb 2016 10:40

I take your points 100% Lion. My approach to these issues is generally to set out the objectives and then make two lists of the ways to achieve them: firstly, in order of simplicity and secondly in order of cost. Then do the balancing act. In this case, I think the sands have been shifting a little in terms of the primary objectives as the client learns more about the various options and cost, which was first stated to the top priority, has now fallen down the charts a little.

Thanks (0)
RLI
By lionofludesch
29th Feb 2016 11:13

CIC34

I've only done one CIC but the directors were grand about the CIC34 until they realised that they had to write the report, not the accountant. Instantly, it became a problem.

But your lads are journalists.

Thanks (1)
avatar
By TerryD
29th Feb 2016 16:11

Indeed - so their comments should exactly fit the size of the boxes (assuming Jerry Seinfeld was right: "it's amazing that the amount of news that happens in the world every day always exactly fits the newspaper").

Thanks (0)
Share this content