How does an idea become an organisation?
Understanding incorporation
The first episode of the new Corporate Bodies podcast series launched on 1st May! You can listen here (or wherever you get your podcasts!). Head over to the podcast page for the shownotes and transcript.
This article accompanies the episode and provides space for a little more reflection - as well as a brief introduction to what incorporation actually is.
What are we doing again?
We are diving into this investigation into why and how organisations are so weird with a good look at birth - how companies are created and what it means to incorporate a legal person.
Mark and I started this investigation with the assumption that the company - as a legal vehicle for collective action - is a useful tool for getting things done, and that there are some unexamined things deep in its DNA which contribute to some of the weirdnesses that play out in working life today. We also both have a pragmatic interest in creating fair and healthy places to work!
Longtime readers will remember that we have been talking about what we see as some of the original sins of the company:
Incorporation itself, which was originally a privilege conferred by the state, and was vital in enabling western colonialist expansion;
Legal personhood, which gives a company - as a legal person - the same rights to act as an actual human person, and has inherent in it a sense of the humans inside it needing to give up their own personhood;
Limited Liability, which protects the investors and managers of a company from losing more money than they put in - but maybe divorces those with power from the impact of their decisions
and we’ve increasingly begun to see the employment contract as another original sin, based as it is in relationships of subservience.
We’ve spoken to some amazing people across this series and we asked each of them about their experiences of setting up, or birthing, organisations, companies and collaborations. You’ll hear from all of them in the episode. There are some wonderful reflections on the similarity of giving birth to setting up a company, the uselessness of Young Enterprise programmes for preparing people to run businesses, the importance of a long gestation period for ideas and more, including the incorporation story of Shared Assets.
Listening to this all again it got me reflecting on the fact that I don’t remember learning about this stuff. I certainly wasn’t taught about it at school or university, but at some point in my life working with and alongside community groups and organisations trying to get stuff done, I managed to absorb the basic points of company law. I have eventually become someone who has quite strong opinions on the value or otherwise of different types of UK not-for-profit corporate structures, and so I thought it might be worth setting out a few basic facts here.
I think everyone who works in this space has a different set of analogies they use - you’ll hear Mark Simmonds in the episode talking about these as jam jars! - and I’ve always imagined a corporate structure as a kind of less-fully-realised humanoid figure, a little stick person. I found some slides that I made for a training workshop almost a decade ago and thought I might spoil you all with my incredible graphic design skills….
Incorporation 101 - the basics
Imagine you’re a group of people sitting round a kitchen table with an idea. Maybe you want to plant some flowers in your local park or organise a picnic. You can just go ahead and do that! You might want to create a constitution for yourselves that says who you are and what you do - and that will probably enable you to get a bank account, and maybe even some grant funding. You are now an unincorporated association - and you may well stay that way forever (and indeed there are fiscal hosting services that might mean you never need to incorporate - tune into Episode 10 for more about that). You can even get charitable status.
Imagine now that you want to do something else - something that might be riskier, or involve spending lots of money, or entering into contracts (like a lease on a building, or like paying builders to do something to that building), or employing people.
Technically as an unincorporated association you could do all of those things, but those contracts would all have to be signed by you as individuals. That means you would each be individually liable - financially responsible - if things went wrong. So, what you do is you incorporate - literally make a body - except this is a corporate body.
Because that corporate body has legal personhood it can enter into contracts on your behalf. If something goes wrong - if someone wants to sue you, for example - it is the corporate body that takes the pain. You can close the company down, and because of limited liability, you are only liable up to the value of any money you invested (and in a UK non-profit sense, that liability is usually capped at £1).
Once you know you want or need to incorporate you have some choices to make. There are a variety of different legal structures available to corporate bodies in the UK. I like to think of this as dressing my stick dude up in different jackets and hats - some of which you can wear together, and some of which are mutually exclusive.
This isn’t the place to go into the pros and cons of Community Interest Companies versus Charitable Incorporated Organisations versus Community Benefit Societies (although better believe I have opinions!). Something that comes through really strongly in the episode I think is that it can both be very easy to get hung up on having the “right” legal structure and spend more time worrying about that than getting really clear on your purpose and intention. No structure is perfect, they all have their limitations, but if you’re clear about what you’re trying to do and how you want to work, you’ll be more likely to pick the one that suits you best and to be able to withstand the impacts of some of those limitations.
What if the legal person accompanies rather than subsumes us?
One of the things I’m left with after listening to the episode again is that the moment of incorporation is one of real opportunity. You are essentially creating a legal person to accompany you on a journey - whatever the destination of that journey is. Once you create that person they will start to have their own needs and their own demands, and you will, whether you like it or not, be in a relationship with them.
If you choose a type of structure that does not fit your purpose well, you will always be a bit bent out of shape, or having to contort yourself to fit the structure of the thing you created. Could this be at the root of some of the feelings of dehumanisation we can have at work? If you are having to subsume some of your personhood into that of a legal person which isn’t quite right, you’re more likely to feel alienated from the whole thing.
In the episode Mark talks about recognising the need to have the weight of a company at your back to lend gravitas to a social mission. One of the things I like to do sometimes when working with people on strategy is to have a seat at the table for the company, for the legal person. Especially for social-purpose organisations, it can often be the legal person who most clearly holds the long term social mission - and who, over time, can develop their own personality, needs and character. I love the work Hanna Thomas Uose did with the wonderful MAIA group along these lines.
I wonder, if we think of the legal person as someone we are befriending and accompanying, working alongside of, rather than inhabiting, does that enable us to be more fully realised people in our work?