Dissolution
Introduction
The dissolution procedure includes specific guidance on the issue of a community dividend if the organisation has received any public or charitable funding. The principle to be followed is that all parties should be reimbursed in proportion to their contribution to enterprise development. Public/charitable bodies, worker and consumer members, and other financial investors, are each to be rewarded in proportion to their contribution.
What about an Asset Lock?
While the theory behind asset locks – and common ownership – is that it will encourage democratic control of capital, in practice this has been hard to achieve. Based on research findings, a statutory or bespoke asset lock tends to be associated with a business culture that inhibits participative democracy and genuine worker / consumer ownership. Research has repeatedly suggested that individual and collective rights need to be balanced, and that share ownerhip (i.e. capital allocated to individuals and collective bodies) can both play a part in sustaining cultures that maintain entrepreneurial energy while prioritising collective benefits.
Economies dominated by common ownership (where capital is allocated to indivisible reserves under the control of a board) have not thrived as well as mixed economies that include individual shareholdings . At the same time, it can be recognised that introducing both individual and collective holdings is potentially more volatile. Where external investors are admitted, there is a risk of predatory behaviour by them. Where variable holdings are permitted, predatory behaviour is possible inside the co-operative. Maintaining a balance requires constitutional arrangements capable of adapting to changes in the size and influence of different organisational stakeholders.
In these rules, therefore, much more emphasis is given to the democratic control of capital than the principle of an asset lock. An asset locked company under the control of an unaccountable CEO (or Board) is as anti-democratic (and vulnerable) as a company where a large financial shareholding is in the hands of a single entrepreneur, or small group of investors. Unchecked, both lead to control of the enterprise’s capital by a small self-selecting elite rather than a wider membership. These rules reflect Carole Pateman’s views on participative democracy more than Joseph Schumpeter’s views on representative democracy. The General Meeting, and not the Board of Directors, is cast as the sovereign body for decision-making.
This said, in practice the rules provide for both asset and control locks to be enforced by any class of shareholder as needed (i.e. a shareholder class can force decisions about assets and social control to be subordinated to human decision-making processes rather than being left at the mercy of institutional or regulatory rules). As the sale, merger and dissolution of the enterprise depends on the support of all classes of shareholder, no social enterprise created under these rules can be dissolved, sold or reconstituted without the support of its founders, workforce, users and investment community. In short, the organisation cannot be removed from community ownership and control without the consent of the communities that created and sustain the enterprise. This is not the case with a Community Interest Company (CIC). In the case of Ealing Community Transport (ECT), despite incorporation as a CIC, and a notional asset-lock, the board were able to sell most of the business without the agreement or consent of other primary stakeholders. The position in these rules, therefore, is as follows. While decision-making rights to sell a business are a necessary condition for an organisation to be considered a social enterprise, it is only where that enterprise is socially organised (i.e. democratically controlled on the basis of one-person, one vote, with a voice for founder, labour, user and investor stakeholders) that ‘community interest’ can be protected in a meaningful way.
After meetings with social enterprise advisors and entrepreneurs, special provisions for dissolution have been added. These provide for the company accountant to make an assessment of the level of grant funding received by the enterprise in the course of its trading history and to treat this as community equity. The auditor will then calculate a community dividend which the Directors will pay to an asset locked body (typically a community benefit society, charity or community interest company), before dividing any remaining assets between Investor Shareholders.
The rationale for this is to avoid the rules themselves triggering transfers of wealth and assets between public, private and social economy organisations, unless such transfers are explicitly desired by members and decided in a democratic forum. Members can express their wishes by allocating shares to social economy organisations. If they do this, residual assets will be distributed to them. What these rules avoid, therefore, is accidental self exploitation (as might happen when rules are adopted before understanding the long-term implications of doing so). They also prevent members being deliberately exploited by external funders (as occurs when funders require wholesale changes to articles before any funding is provided, thereby ignoring the value of contributions ("sweat equity") members have made before they sought funding.
Any funder not satisfied by the power sharing and dissolution arrangements in these rules is likely to be favouring one set of interests or acting in accordance with ideological dogma. As this would breach the principle of ‘democratic control’, these rules only provide for an “asset lock” to the value of any public/community subsidy plus the assets that members of the company have specifically consented to give to asset-locked organisations.
Return me to the FairShares Articles of Association.
