Land Manager Collaboration for Environmental Delivery
Tristram van Lawick, Partner in our Private Property team and Edward Robinson, Legal Director in our Corporate division spoke at the October Country Land and Business Association webinar to discuss the different ways land managers can work together to engage with environmental markets and the range of formal collaboration agreements to consider.
Overview of Topics Discussed:
- What are the objectives?
- Is growth or profit important?
- How many parties will be involved?
- Term of agreement/arrangement.
- Seek early tax and legal advice: There will be tax consequences to any structure. What implications will the structure have on IHT planning?
Types of Business Structures:
Collaboration by Contract
- The collaboration or structure is purely a contractual agreement which works well in the short term for a small number of parties, each with a defined mandate for they work they are going to be carrying out. This is so the contract can divide the list of duties and responsibilities and govern how the reward will be split.
- Bank Account and an agreement: Each party decides who is responsible for each part of the agreement.
- No continuing administrative burden: Just a contract, no regular administration is needed.
- Limitations of legal protection: There is no separate legal identity in the structure to limit the liabilities of the parties involved.
- Not as easily scalable - joiners and leavers: Could require cancelling previous contract and writing up a new one if there is to be any changes to the agreement that hadn’t been detailed in the original contract. Amendments can only be made with the consent of all parties.
Company Limited by Shares or Guarantee
- This is designed for longer term organisations as it can run for an indefinite period. This structure is owned and controlled by shareholders but run by Directors. Parties that join are not necessarily required to be owners it but there are various benefits of ownership.
- Separate Legal Entity - Legal Protection: Can contract and operate, can assume liabilities and responsibilities. Can keep a gap between the individuals that are behind that company and the company itself, so that those who are behind it are not personally liable.
- Administrative burden - Companies House: Annual returns, confirmation statements, accounts that need to be filed etc, will require documents to be sent to companies house.
- Companies Act 2006 - Subject to Regulation: If something happens that is significant to the life of the company, you will be required to seek legal advice. Required to involve professionals.
- Responsibility of Directors - personal: There are circumstances where Directors may be personally liable if they fail to act in the best interests of the company. Directors should seek advice on this.
- Raising finance - issuing shares/bank debt: As it is a separate entity, there are more options to raising finance - can issue shares.
- Easily adaptable during growth: new parties are automatically bound to existing obligations of the structure.
Community Interest Companies (CIC)
- It is a strict requirement to demonstrate that the primary benefit of running this company is for the community. Specifically, not the directors, shareholders or employees. If you are not within those criteria, it is not possible to become a CIC.
- Community interest test - may be unsuitable if profit envisaged: Cannot be aiming for high profits.
- Companies Act 2006 plus additional regulation: Obligation to produce an annual report, how the CIC is doing on delivering the community benefit, whether there is any director pay.
- Third parties are more attracted to CICs as they are so trusted.
Cooperative/Community Benefit Societies
- Run for the benefit of members only.
- Restrictions on members profits/assets: restrictions on what can be done with the profits, all must go to the members and there is little opportunity to extract profit.
- Regulated by the Financial Conduct Authority rather than Companies Act 2006, which is a significant regulation.
- Requires advice at an early stage and lots of criteria to meet.
- Parties working together towards a common objective.
- No specific legal meaning - can cover contracts or companies.
- General Partnership - formation, liability: If two companies have been doing business together for a long period of time, they could have created a partnership without realising. Each partner is individually liable.
- Limited liability partnership: This is a separate legal entity from its members (partners), who are only liable for money they invest, plus any personal guarantees. The partnership is incorporated at Companies House and can only be used by profit-making businesses.
- Beware of unintentional partnerships.
- Heavily tax driven.
Risks and Challenges
- Finance and future funding.
- Enforcing agreements can put a strain on relationship between parties, they need the ability to be upfront and to cover all bases.
- Maintenance of assets - who does what? Particularly for land and property, there’s a need to know who is maintaining the assets.
- Landlord/tenant issues.
- Disputes: Build in a structure that states how you will deal with potential future issues.
- Tax advice: In almost all these structures, tax will be a deciding factor.
Please watch the full webinar here.