Structuring Regenerative Organisations: What Shape to Choose?
The legal structure of an organisation can be the crucial factor in whether hoped-for outcomes are achieved. Jack Colvin, a lawyer in our governance team, explores legal questions, advantages and disadvantages that should be considered when establishing a regenerative project.
When embarking on a regenerative project, the list of priorities can seem endless: meetings with stakeholders, engagements with local government, locating experts, project planning and sourcing funding. Understandably, considering what type of legal entity might be needed can fall to the bottom of the list. However, the legal structure of an organisation can have far-reaching consequences on the operation of the project. While it can smooth the way towards charity status, tax registration and software licences (to name but a few advantages) the legal shape of an organisation can also impact its ability to pursue its goals in unexpected ways.
Our mission at North Star Transition is to create the conditions for disconnected organisations, communities and individuals to forge new alliances and relationships, so that new concepts and approaches can emerge through which to advance regenerative systems change. Our governance team has therefore had experience working with different legal structures, including those that have inhibited rather than enabled the possibility of collaboration for change.
Legal structures
As we’ve delved into this problem, which has manifested in every one of our Transition Labs, we’ve found that it is usually an embedded, high-level, often invisible legal shape that moulds and fixes how an organisation functions. A legal structure, at a high level, is the mould into which the organisation fits: it might be a company, a trust or a partnership. These are the specific moulds into which most organisations in the modern world are poured. This may sound somewhat irrelevant to the operation of the organisation, surely what matters is that it gets things done: It makes money, it runs a successful business, it maintains assets for the community etc. However, this legal shape dictates the organisation’s flexibility and capacities for adaptation; and it may be designed to confer on the organisation a separate legal personality – a core principle in English law which, so the idea goes, enables companies to take risks, start new industries, or take on new projects, without any risk to investors of losing their capital.
The protection against loss of capital was famously enshrined in English law in 1896 by creditors of Salomon & Co Ltd. In a legal case very familiar to law students in the UK when Salomon & Co Ltd went bust, its creditors were surprised to find that they could not regain their money from Mr Salomon, as it was his company which owed them the debt. As Salomon & Co Ltd was a company and not, for instance, a partnership, its shareholders were only liable to the extent of any shares they had not paid up. While this an excellent deal for the shareholders, the practical effects of a market dominated by organisations within the company 'shape' means that shareholders' own private capital is almost never at risk, regardless of the actions of their companies.
Separate legal personality is not unique to companies and can be found in other structures such as the limited liability partnership. While we won’t delve more deeply into the concept of separate legal personality in this article, it’s important to note that this concept underpins the operation of the global organisations we interact with daily.
Is there more than meets the eye?
These legal shapes can be surprisingly deceptive. In fact, a number of organisations in the public eye have names which suggest a different legal structure to the one they have. A good example is the National Trust which is, in its own words "Europe's biggest conservation charity". It seems a relatively simple inference that the legal structure of the National Trust is a trust. However, it is, in fact, a company, having been first incorporated in 1894 as an Association Not For Profit under the Companies Acts 1862-1890. Another familiar name, John Lewis & Partners, is owned by John Lewis Partnership Plc (another suffix which means 'public limited company'), and is not officially a partnership at all. The answer to why these organisations are run as companies, is that the company is a uniquely agile legal structure. It allows investors to purchase and trade shares, directors to run the business as they see fit, and customers to buy from a trusted brand which feels more than the sum of all the people working for it.
The prevalence of limited companies means that the infrastructure in place for setting up a company is already there: an online form on the Companies House website and a nominal fee of £100 means one can be set up in as little as 24 hours. It’s this capacity to support a broad and independent entity that often inclines people to want to set up a company when embarking on a regenerative project.
Legal structures for communities
However, does this shape work for organisations whose goal is not to make profit but something else entirely? What if your investors are not global banks but local community members? This is the issue with using legal structures for regenerative purposes that have in fact been designed for commercial purposes. Traditional legal structures are more often than not pre-packaged to facilitate the making of profit and the protection of owner liability.
A recent example of what is likely to go wrong can be found in the Tayvallich Peninsula, Scotland. The 1,370 hectare site was bought by Highlands Rewilding in 2023, a company established with the aim of owning and leasing land to enable the recovery of nature and the reestablishment of self-sustaining native ecosystems.
The UK Companies Act 2006 creates duties for directors and includes the provision that, where directors fail in their duties, they can be held personally liable for the company’s losses. A duty usually associated with being a director includes the promoting the success of the company, which generally entails maximising its profits for the benefit of its shareholders; but how is this duty likely to conflict with the goals of a regenerative organisation? Highlands Rewilding found out when, in 2024, it was forced to put up for sale the Ulva and Isle of Danna estates on the Peninsula, so that it could repay a loan taken out from the UK Infrastructure Bank which it has used to fund the purchase.
The directors of the company were bound by the Companies Act to ensure that the company remained a going concern, even where the land sales contradicted their regenerative goals. While the company set out a number of means to both repay the loan and ensure that the land can be regenerated, it accepted that some plots would still need to be sold "on the open market".
Approaches to legal structures
How then do we avoid the pitfalls of certain legal shapes? At North Star Transition, we have been exploring two approaches: (i) using common legal shapes in an innovative way and (ii) using specialised but less well-known structures.
An excellent example of the first approach is the clothing and outdoor company, Patagonia. Patagonia, or, to give it its full name 'Patagonia, Inc.' (Inc is a suffix which is short for 'Incorporated', a US parallel to 'Limited'), was founded in the 70s by Yvon Chouinard to sell rock climbing equipment. However, in 2022, Chouinard transferred 98% of the company's shares to environmental organisation, Holdfast Collective. The remaining 2% were transferred to a trust, the Patagonia Purpose Trust. This is all relatively straightforward. The innovation is that the Holdfast Collective received 100% of the non-voting stock, and the Patagonia Purpose Trust, 100% of the voting stock.
To explain the effect of this separation, it is helpful to understand that a company is owned by its shareholders (they each own a portion, a 'share'). Each of these shares will normally also give a right to vote, allowing shareholders to take part in the running of the business. Shareholder votes are normally restricted to serious issues such as issuing shares, dividends and changing the composition of the board. By splitting out the voting shares from the rest of the shares, and then giving those voting shares to a trust, Patagonia has neatly separated the rights to vote and the rights to profit, disconnecting the motivation for profit from the motivation for good governance. The Patagonia Purpose Trust is seemingly bound, constitutionally, to hold its shares and guide the environmental and philanthropic purpose of Patagonia, while the profits of those decisions go to the Collective, who distributes them to environmental non-profit organisations.
The Patagonia example is illustrative of a number of tensions that exist in legal structures, one of which is the ratio of ownership to decision-making. Patagonia shows us that we can escape the traditional shape of having investors drive decision-making towards greater profits by thinking about how to re-use common legal structures. In this innovative use of legal shapes, the agility of the company to make and share profits is maintained (Patagonia is, after all, a business), but the decision to use those profits is given not to investors, but to charitable purposes.
Coming back to the UK, our second approach is to use some of the available specialised legal structures. One is the 'community benefit society', a legal structure that only allows profits to be reinvested within the business or for other common goods. Under the Co-operative and Community Benefit Societies Act 2014, assets must also be used only for the benefit of the community and cannot be distributed to shareholders. By default, the decision-making of the society acts on the principle of one-member, one-vote. This bakes in a fundamental equality of members that prevents third-party investors from dominating decision-making. A similar structure is the 'community land trust', a legally incorporated body which has been developed to own and develop land for the benefit of the local community. An instance of this model is the Glendale Gateway Trust, established in 1996, which has purchased and now manages property worth £2.5 million, along with a community resource centre and food bank. The community land trust, as governed in part by the Leasehold Reform (Ground Rent) Act 2022, offers protections for the community such as requirements for local people to be involved in governance and restrictions on the future sale of land by way of asset locks.
The right structure for the right outcomes
People may assume that the legal structure is relatively unimportant when setting up a regenerative organisation. As this discussion shows, however, legal structure fundamentally shapes organisational outcomes and is a key determinant in whether a successful regenerative outcome can be advanced. Paying close attention to the advantages and disadvantages of each structure means that collaboration, growth and regeneration can be facilitated rather than inhibited. It should also be borne in mind that not all legal structures, adapted as many are for extraction, are appropriate for regeneration.
Questions to consider are: What parties are expected to be involved: community groups, public bodies, national or international businesses? Will the organisation need to hold assets such as leases, land or intellectual property? How will decisions be made at the organisation? Will members of the organisation be permanent or flexible? If the organisation makes a profit, how should it be distributed? What will be extracted from/regenerated by the organisation?
All of these questions, and more, should be borne in mind as you carefully consider which legal structure to use in the exciting journey of starting a regenerative project.