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Perpetual succession without filings?

Non-profits: perpetual succession, but without the hassle of filings and traditional accounting?

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Hi all. My first post after benefiting from others' for a few years: thank you for the help! I'm not an accountant, hence needing to ask here...

I am going to be launching a small non-profit organisation. Because of massively easier admin we plan not to incorporate at this stage. But if things go as hoped, we would need to incorporate later. 

Can anyone suggest a solution to give us perpetual succession, without the hassle of filings and traditional accounting?

While scoping the business we need professional reports. Given how difficult it is to assign the benefit of these (not to say impossible), it is massively easier if the reports are addressed to a corporation from the get-go, probably a dormant one, rather than to the non-person that is the unincorporated association. But we want the advantages of not incorporating the association itself.

Things I've considered:

  1. A holding company - but this would not be the professional's client, so no duty of care to it? =can't claim for negligence?
  2. Incorporate the assoc's committee (no trading except as agent so no accounts) - but again, the client is strictly speaking the association itself, so if the association is wound up, no professional liability to the company as it was merely agent of the now-ceased assoc?
  3. Association includes two dormant nominee companies. When the business needs taking forward by an incorporated form, assoc is not wound up, but natural members of the assoc join one of the companies as members of the now-active company. Dormant assoc is left with two company members (one of those dormant also). Dormant assoc. was always the professional's client, and could still sue for negligence if nec. 
  4. A Scottish partnership (to ensure it's truly a partnership, members permitted to make 1% profit on a token investment, remainder for benevolent purposes)
  5. Incorporate the assoc as unlimited company, keep cash accounts only, and rely on the defence in CA s. 387 that in the circumstances this is excusable.

Of all of these, the last seems to me the simplest.

I don't know if this is the sort of thing y'all can help with? Many thanks if so! 

(Disclaimer: I'm not asking for legal advice, just people's sense based on accumulated experience.)

Replies (34)

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By eteb3
21st Jul 2019 11:42

Full disclosure: I asked a comparable question on the UK Business Forum // Accounts & Finance. But the good people there seemed not to understand that when scoping a non-profit, there is _zero_ money to pay an accountant! However attractive in other ways, companies are hardly worth considering - unless they're dormant or we can excusably run receipts and payments accounts.

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By WhichTyler
21st Jul 2019 12:01

eteb3 wrote:

when scoping a non-profit, there is _zero_ money to pay an accountant

Are you planning to pay anyone? For the 'professional reports' perhaps?

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By WhichTyler
21st Jul 2019 12:19

Is it just me or do all the proposed solutions involve more hassle, admin and risk of [***] up than getting the right structure in the first place?

Sorry but any sensible advice is going to require knowledge of what the 'organisation' is going to do, and what you mean by 'non-profit'...

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Replying to WhichTyler:
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By Tax Dragon
21st Jul 2019 17:26

WhichTyler wrote:

Is it just me.....

No.

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By Accountant A
21st Jul 2019 12:11

If you think "traditional accounting" is a "hassle" then whatever you have planned is unlikely to last long.

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By Wanderer
21st Jul 2019 12:38

eteb3 wrote:

I'm not an accountant, hence needing to ask here...

Did you miss this bit about the purpose of this site:-
Quote:
AccountingWEB.co.uk is the largest independent online community for accounting and finance professionals in the UK
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Replying to Wanderer:
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By carnmores
28th Jul 2019 18:10

but he may qualify as a finance professional asking a reasonable question. Perhaps you would care to define what you understand by 'accounting and finance professionals'

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Replying to carnmores:
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By Wanderer
30th Jul 2019 07:40

No I wouldn't care to, thanks.

It's AWeb's phrase, not mine, so feel free to ask them if you require clarification.

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By Wanderer
21st Jul 2019 12:43

eteb3 wrote:

Hi all. My first post after benefiting from others' for a few years: thank you for the help! I'm not an accountant, hence needing to ask here...

I am going to be launching a small non-profit organisation. Because of massively easier admin we plan not to incorporate at this stage. But if things go as hoped, we would need to incorporate later. 

Can anyone suggest a solution to give us perpetual succession, without the hassle of filings and traditional accounting?

While scoping the business we need professional reports. Given how difficult it is to assign the benefit of these (not to say impossible), it is massively easier if the reports are addressed to a corporation from the get-go, probably a dormant one, rather than to the non-person that is the unincorporated association. But we want the advantages of not incorporating the association itself.

Things I've considered:

A holding company - but this would not be the professional's client, so no duty of care to it? =can't claim for negligence?Incorporate the assoc's committee (no trading except as agent so no accounts) - but again, the client is strictly speaking the association itself, so if the association is wound up, no professional liability to the company as it was merely agent of the now-ceased assoc?Association includes two dormant nominee companies. When the business needs taking forward by an incorporated form, assoc is not wound up, but natural members of the assoc join one of the companies as members of the now-active company. Dormant assoc is left with two company members (one of those dormant also). Dormant assoc. was always the professional's client, and could still sue for negligence if nec. A Scottish partnership (to ensure it's truly a partnership, members permitted to make 1% profit on a token investment, remainder for benevolent purposes)Incorporate the assoc as unlimited company, keep cash accounts only, and rely on the defence in CA s. 387 that in the circumstances this is excusable.

Of all of these, the last seems to me the simplest.

I don't know if this is the sort of thing y'all can help with? Many thanks if so! 

(Disclaimer: I'm not asking for legal advice, just people's sense based on accumulated experience.)

You need professional, paid for, advice.
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By JoF
21st Jul 2019 12:45

eteb3 wrote:
''when scoping a non-profit, there is _zero_ money to pay an accountant''

....but you can afford to pay others for any product/sevice you need to buy in?

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By lionofludesch
21st Jul 2019 13:19

Good luck with getting all that for nothing.

I love your optimism.

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By JoF
21st Jul 2019 17:00

I.

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By eteb3
21st Jul 2019 18:09

Thank you all. @Wanderer, yes I had missed that bit - nothing in the sign-up mentioned that I should be an accountant to post here, but I shall happily leave since I seem to be trespassing.

I should perhaps make clear that I can totally see the need for full-spectrum, fully paid accounting advice when the org is anything other than tiny.

So on the valid point of being apparently able to pay for other professionals but not an accountant (and forgive me if I seemed to be taking the *** - not my intention), perhaps I should put it this way: every £1 will need to be fundraised, and I naively thought that when the org is very, very simple, I could do the accounts myself (as I do now as a charity trustee running receipts-and-payments). So I was looking for a way to do that, and also have a legal person throughout the process.

Perhaps I'm overestimating the difficulty of traditional accounting for very small orgs with no fixed assets, and could indeed do it myself. Perhaps professional advice is always needed and always expensive. Perhaps BIS will one day let the members of unlimited companies below a certain size elect to keep R&P accounts...

Only out of courtesy to @WhichTyler since there was a suggestion (no more) that he'd like to know - and given the briskness of responses I'm not expecting a reply:

This would hopefully become a registered community benefit society issuing withdrawable share capital, which would buy land and buildings to be leased to a charity.

The first priority is to discover whether the regulator (the FCA) would even register such a society, and then whether the terms of the shares would be acceptable to it. *That* is what costs the big early money, and why I'm reluctant to spend a lot before we know that - but equally before there's a corporation to commission the advice, the eventual corporation isn't able to sue on it.

In any case, thank you all for the responses. Nothing like a cold shower to prompt some reflection...

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Replying to eteb3:
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By Tax Dragon
21st Jul 2019 19:00

If it's "very, very simple", why are you complicating it so?

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By lionofludesch
21st Jul 2019 19:56

Withdrawable share capital ?

Wow.

Why not just loans, like every other start-up ?

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By WhichTyler
21st Jul 2019 20:22

Or gifts like every other charity. Gift Aid would make the fundraising a lot easier...

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By WhichTyler
21st Jul 2019 20:17

Helion upon Ossa! Community benefit societies, afaik, are prohibited from withdrawing assets, but you want to spend hard earned (raised) funds on advice on how to get round that.

It is hard to imagine the end that justifies these means when simpler options exist, but perhaps you have looked at all the usual alternatives (inc. loans, like Lion says) and for some reason they don't work in your circumstances. For me that would be an indication that the scheme is not a goer, and perhaps fundraising efforts could be directed to more impactful purposes than advice on unconventional corporate structures. Just a thought...

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By WhichTyler
21st Jul 2019 20:37

You seem to be concerned about ability to sue your advisers if their advice is wrong and it all goes [bosoms]-up.

Leaving aside the point that this is a glaring red flag, how about this: Pay the advisers yourself (or get whoever is backing all this to pay them) and get the report written to whoever.

If the report says 'Yes its a goer, here's how you do it', then set up entity and get advisers to confirm their advice to the entity (for minimal fee). If they say 'no way Jose', then we can all pack up & go to the pub.

But as I said earlier, the mere existence of this palaver makes me wonder if there's anything really there...

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Replying to WhichTyler:
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By WhichTyler
22nd Jul 2019 10:55

Having read some of the guidance below on community shares, I now know a bit more about withdrawable shares, so they are possible, but only if the entity is sufficiently solvent to withstand the withdrawal...

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By paulwakefield1
22nd Jul 2019 11:17

They are indeed rather a strange beast. They are not transferable (except on death), they can never realise more than their nominal value and withdrawal, as mentioned above, is dependent on solvency and wholly at the discretion of the CBS management. Interest can be paid on the shares (within limits) and the interest is CT allowable.

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Replying to paulwakefield1:
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By paulwakefield1
30th Jul 2019 07:46

I have just realised that I left out one of the most important features which is that it is "one person, one vote" irrespective of the number of shares held.

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By lionofludesch
21st Jul 2019 21:59

Is it a charity ?

Or a CIC ?

Or haven't we even decided that yet ?

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By WhichTyler
21st Jul 2019 22:25

According to the op, it is to be a registered community benefit society (previously known as industrial and provident society). Why? Only the op knows..

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By lionofludesch
21st Jul 2019 22:54

I missed that.

Well, seriously, much more information required about the project in the round before I would feel able to contribute anything sensible.

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By Matrix
21st Jul 2019 22:59

Which has to file audited accounts with the FSA and corporation tax returns as per usual, I don’t see where the admin savings referred to in the OP would be.

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Replying to Matrix:
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By atleastisoundknowledgable...
22nd Jul 2019 07:47

OP wrote:

I naively thought ... I could do the accounts myself

Matrix wrote:

... has to file audited accounts with the FSA

Anyone else spotting the main issue ?

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By paulwakefield1
22nd Jul 2019 08:19

A Community Benefit Society does not have to have an audit (thresholds apply).

If you want to explore the CBS route, I would suggest the most sensible approach is to talk to one or more of the sponsoring bodies - there are 8 I believe. They will be able to tell you if your project is eligible and provide model rules. Going it alone is not to be recommended. Some of these bodies have small grants available for the initial stages.

There are accountants who provide discounts to CBS who are members of one of the sponsoring bodies.

I would start here: https://communityshares.org.uk/
and here: https://www.fca.org.uk/publication/finalised-guidance/fg15-12.pdf

And make sure to read the Community Shares Handbook downloadable from the first link above.

Then approach one of the bodies. The ones I have dealt with are friendly and willing to help.

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By WhichTyler
22nd Jul 2019 09:28

I hope the OP sees this...

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By LostinSuspense
24th Jul 2019 16:22

When the Op says non-profit organisation, is that a Charity or something else? I got lost trying to unravel things. (EDIT : sorry brain melt in hot weather, failed to process all info. above)

It might be easier for the Op to clearly state what he wants as the end point rather than posting what-if scenarios.

They might not get an answer here, but when they go to seek professional advice, they can go in saying "I want to create an entity that does x,y,z" and thus save time, confusion and money.

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By eteb3
29th Jul 2019 18:28

Thank you all: I was hardly expecting further replies, but grateful an interloper has been tolerated - nay, assisted.

Special thanks to WhichTyler, 'get the report addressed to whoever, then get the adviser to confirm the advice to the [new] entity for a minimal fee' - a solution not requiring perpetual succession, which, as you see, is what had me in knots.

I evidently seem too concerned to be able to sue on the advice: I'm not litigious, it's just my way of thinking about who owns the benefit of the advice. (Although little point paying professional fees if no professional is on the hook, surely?)

And why all this fandango with withdrawable shares (WS)?

Because they're the only feasible way under FSMA of offering a return on a 'loan' (would be so much easier, I agree...) that's acceptable to Muslims who won't take or pay interest. WS interest is a cost of capital under English law, as paulwakefield1 said. But as it's strictly speaking discretionary - and then only if there's a surplus - it's not the interest forbidden in most versions of Islamic law. You can set the share terms such that effectively you're offering a fixed-term, sharia-compliant, social investment bond. Tada!

(Not that we won't be seeking interest-free loans and charitable gifts as well: different supporters have different appetites.)

Thank you all for your engagement and helpful responses - the 'it'll never work' comments being most helpful of all.

All the best, Edward

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Replying to eteb3:
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By lionofludesch
29th Jul 2019 18:34

eteb3 wrote:

And why all this fandango with withdrawable shares (WS)?

Because they're the only feasible way under FSMA of offering a return on a 'loan' (would be so much easier, I agree...) that's acceptable to Muslims who won't take or pay interest. WS interest is a cost of capital under English law, as paulwakefield1 said. But as it's strictly speaking discretionary - and then only if there's a surplus - it's not the interest forbidden in most versions of Islamic law. You can set the share terms such that effectively you're offering a fixed-term, sharia-compliant, social investment bond. Tada!

<

Why did you think that that nugget was so unimportant that you wouldn't mention it ?

To provide complete advice, advisors need the complete scenario.

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By carnmores
29th Jul 2019 18:50

a very gracious comment , Nick

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By WhichTyler
29th Jul 2019 20:22

If they can only be redeemed at face value, where is the potential for a return on investment (rather than return if investment)

F

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By paulwakefield1
29th Jul 2019 20:41

The closest analogy is that of a loan. No increase in the value of the investment (loan) but the possibility of interest.

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