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Governance

It is essential to have a proper, legally recognised group structure in place with a high standard of governance (clear responsibilities for making decisions and transparent decision making). This helps to ensure that those undertaking the project are clearly accountable to the community.
 

Local Energy Scotland’s “Getting the Governance Right” guide suggests the following key principles of good governance:

  • Governance arrangements should have the endorsement of the local community
  • The governance structure and decision making arrangements may need to change over time as circumstances change
  • Decision making arrangements should seek to be inclusive of the wide range of perspectives, experience, knowledge and ambitions within the area of benefit
  • The group involved in decisions over distribution of resources should be separate from any group looking to deliver the projects
  • The role of the decision making group and how they go about their task should be drawn up in a governance document.
 

There are several organisational models which are relevant for taking a community project forward and you should bear in mind there will be costs associated with setting up a formal structure.

 

Unincorporated Associations

While there are still questions over the viability of the project, initial awareness raising and consultations can be undertaken by an unincorporated association. An unincorporated association will require a constitution but there are no statutory requirements. In this model, individuals are liable for property and contracts so it is only appropriate where there are no / minimal assets or liabilities. Unincorporated associations are generally not appropriate for any projects involving financial transactions, assets or liabilities as individual members are liable.

 

Common Legal Structures

In order to generate and sell energy for profit the following structures could be used:

 

Cooperative

  • Owned and run by, and for, their members
  • Investors purchase shares and dividends are distributed among members
  • Formal constitution required

Community Benefit Society

  • Similar to co-ops but run for the benefit of the community to provide services for people other than their members
  • Investors purchase shares and receive a small return on their investments with the remaining dividends being kept for the benefit of the community

Community Interest Company

  • Allows private investment in projects that benefit a community, not just shareholders.
  • Must pass a ‘community interest test’
  • Assets cannot be distributed to shareholders
  • Profits must be dedicated to community purposes

Company Limited By Shares

  • Usually wholly owned by non-profit distributing company limited by guarantee
  • A trading or investment vehicle - a mechanism for taking forward a project whilst minimising risk to parent community organisation
  • Constitution required

Private Companies Limited by Guarantee

  • No shareholders, only members who are bound by a guarantee in the company’s articles of association. If the company is wound up, the guarantee requires them to pay the company’s debts up to a fixed sum, usually £1
  • Protects the people running the company from personal liability for the company's debts, as with a company limited by shares.
  • Sometimes funding bodies, such as local authorities, insist on an organisation being registered as a company limited by guarantee.
 

Note: If a charitable organisation wishes to become involved in non-charitable trading such as energy generation, it is necessary to establish a non-charitable trading subsidiary body. Many non-profit distributing, community owned renewable energy projects in Scotland have been taken forward by wholly owned subsidiaries of the main community development trust or community organisation. In all these cases, the subsidiary company is a company limited by shares, with all the shares in the company held by the parent community body, which appoints its directors. It is a well-established non-profit distributing model which helps to ensure (providing there is good governance) that the community body has full control over the subsidiary company and also that the volunteers involved with the project are not personally financially liable.

 

For more detail on company structures and governance see the Scottish Council for Voluntary Organisations (SCVO) website. You may need legal assistance to constitute a group.

Scottish Council for Voluntary Organisations
 

For further information on setting up and managing community benefit funds, read Local Energy Scotland’s “Getting the Governance Right” guide.

Getting the Governance Right Guide By Local Energy Scotland
 

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