Community Radio and Ofcom’s requirements


logo for the community media associationDear all

We write to remind you all of the need to submit all your reports to Ofcom in good time – the latest Ofcom Broadcast Bulletin has found 17 community stations in breach of their licence conditions, mostly due to late submission of reports and information. If you need help or advice on this or any other matters please do contact the CMA and we will do our best to assist.

This post was submitted by jaquid.



Accountability


A community radio station that is not truly madly deeply responsive to the needs of the community is not a community radio station. A community radio station that waits for the opinion of the community before it does anything will shrivel up and die through sheer inertia.

Somewhere between those two extremes lies the ideal balance of accountability and managerial freedom. Finding that balance is an ongoing and demanding challenge for any station. This is another area where what we ought to be doing as community radio stations is mirrored by what we are required to do by the Community Radio Order and the Ofcom criteria.

Your accountability structures will allow (and require) the station to genuinely represent and serve the needs and wishes of your community – and to prove that you are doing so. They will also guarantee that every volunteer, staff member and director is properly serving the needs of the station and therefore serving the community. There are a number of important organisational requirements for any community radio station:

  • A good legal structure. You need to decide how your station will be legally structured – as some form of social enterprise or as a charitable company (see below). Will your accountability functions be carried solely by the board or will there be another link, such as a representative steering group?
  • Clear distinction between authority and accountability. A station manager may not need permission to order a packet of paper clips, but must be able to explain to the community (if asked) why those paper clips were necessary.
  • Clear responsibilities. The structure of the station should specify whose job it is to buy paperclips.
  • A good board of directors. The board has the right to take on as much management responsibility as it likes. But if a director does want to be responsible for the purchase of paperclips, he is obliged to do so efficiently and reliably and to buy a suitable brand.
  • Clear internal communication. It should be very easy for anyone in the organisation to find out who bought those damned paper clips and why. Good, clear reporting is especially important between staff and board.
  • Good internal co-operation. If the staff, board and/or representational committee are in conflict, it will be almost impossible for accountability systems to be effective. Where possible there should be some crossover, so staff representation on the board for example is highly desirable. If your station is a registered charity this is legally forbidden (with very limited exceptions), but ‘observer status’ is a useful substitute. The station manager will usually be necessary participant as they control the flow of information – they are usually the person with the most detailed knowledge of paper clip supplies.
  • A sense of perspective. If your board of directors and staff spend much more than a nanosecond discussing the purchase of paper clips then, let’s face it, you have a problem.Sort out all of the above for the community and reporting to funders and other partners should be easy. They actually care about paper clips.

Company structures

There are several different ways in which a community radio station could be organised legally. There is no ideal solution, and different models would be better suited to different stations. There are advantages and disadvantages to all, and the benefits and drawbacks of each can be hard to weigh up.

Establishing your status and drawing up your constitution involves some of the most important decisions a community radio group will ever make, so you should discuss your precise circumstances with legal experts and specialist advisers. Your local voluntary sector umbrella group should be able to put you in touch with appropriate specialists. Ofcom will consider your application for a community radio license if your organisation meets two criteria:

  1. It is a ‘body corporate’ – that is, it has a legally recognised structure
  2. Its constitution prevents any profit from being distributed to shareholders

This means that your organisation must be one of the following:

  • A company limited by guarantee. This is a not for- profit registered company which doesn’t have any shareholders and doesn’t distribute a profit to its members;
  • A charitable company. This is a company limited by guarantee that has also registered as a charity. You could also be a charitable company with a trading arm;
  • A co-operative. Also known as an Industrial and Provident Society;
  • A Community Interest Company (CIC).

Your organisation could also be a registered company limited by shares if its constitution prevents the distribution of profit to shareholders. This option is not ideal, but it is legally acceptable to Ofcom.

Not-for-profit companies, co-operatives and CICs can all be described as social enterprises.

Company limited by guarantee

This is by far the simplest and quickest way to establish a not-for-profit company. Legally it is identical to any other type of company but with the restriction that profits must be returned into the organisation rather than be distributed to shareholders or directors. The advantages of this structure include:

  • Easy to set up;
  • Less regulated than a charitable company;
  • No restrictions on trading activities (unlike charitable companies);
  • Able to bid for grants available to non-profit organisations;
  • Structures can be created to represent the workers, volunteers and the community and to ensure that the board has to respond to suggestions from these groups;
  • Can borrow money to further its objectives;
  • Only one board, set of accounts, AGM etc. to worry about (unlike a charitable company with a trading arm);
  • Able to take advantage of the growing amount of funding available for social enterprises.

The disadvantages include:

  • Missing out on the many funds which are only available to charities;
  • No exemption from VAT or tax, although some local authorities are willing to grant rates relief to not-for-profit companies (and other forms of social enterprise) as if they were charities;
  • Directors of the company can theoretically obtain personal benefit by drawing disproportionately large salaries.

Charitable company

The main advantages of registering your not-for-profit company as a charity are financial and include:

  • Tax, VAT and rates relief. Charities are exempt from corporation tax, get an automatic 80% discount on their business rates and don’t pay VAT on certain supplies;
  • Better access to funding, some of which is only available to charities;
  • Free advice from the Charity Commission on all legal and constitutional matters;
  • Ofcom requires less explanation and justification of the organisation’s non-profit/social gain status.

Between them, these add up to a significant financial advantage. However the drawbacks to charitable status will be felt elsewhere. These include:

  • Less flexibility in management structures;
  • Restrictions on the involvement of staff in station planning and activities;
  • Relatively cumbersome processes to establish and register yourselves (although if you base your Memorandum and Articles of Association on the Charity Commission’s model document or upon that of an existing community radio charity, it will be much easier);
  • Restrictions on trading activities. In particular, a charity is only entitled to earn a certain percentage (see Factbox 7.01) of its total gross annual income from trading (as opposed to revenue derived from its charitable activities). If it exceeds that limit all of its profits become taxable.

FACTBOX 7.01

Permitted income from trading for charities

Total gross income of the charity Maximum permitted trading (annual amount)
Under £20,000 £5,000
£20,000 to £200,000 25% of the charity’s total gross income
Over £200,000 £50,000
Source: Charity Commission

If you are a charitable company and you are heading for the dizzy heights of the Ofcom 50% commercial revenue ceiling then the restriction on trading activities can be alleviated by establishing a separate trading arm of the charity.

This trading arm is owned by the charity but is a separate legal entity. It will have a separate board, hold its own AGM, and produce separate accounts. The trading arm will donate profits to the charity (and get tax relief) but the charity cannot subsidise the trading arm. Even premises must be paid for at a market rate, so the trading company would have to pay rent to the charity (assuming they are based in the same building). Staff who are shared between the charity and its trading arm must draw two separate (part-time) salaries. So setting up a trading arm does introduce various administrative complications.

Co-operatives

Co-operatives (registered with the Registry of Friendly Societies and legally classed as ‘industrial and provident societies’) are trading organisations which work for the benefit of their members – whether they are its employees or, as with a community radio station, the wider community of volunteers, partners, staff and clients/listeners. Every member of a co-operative has an equal say in the running of the business. The freedom to trade is as wide with a co-operative as with a limited company. This might appear to be the perfect model for a community radio station, but in practice there are often great problems with co-operatives:

  • Very democratic, but highly unwieldy in their decision making and prone to schisms and executive deadlock;
  • Will not attract tax or rates relief;
  • May find it difficult to attract funding.

Community Interest Companies

From the summer of 2005 it will be possible to register your organisation as a Community Interest Company (CIC). This has been specifically designed as a legal structure for not-for-profit social enterprises with charitable aims. Whilst a CIC is still legally defined as a company, it has more clearly defined not-for-profit features which formally lock the company into using its assets and profits to benefit the community. This should offer several benefits:

The CIC structure offers the guarantees required by funders and lenders that money will be correctly used. This should make attracting funding and securing overdrafts considerably easier;

  • A CIC’s assets are more securely guaranteed and the company has better protection against abuse of resources relative to other social enterprises;
  • CICs may also qualify for additional tax relief under the Community Investment Tax Relief scheme;
  • CICs may also have a special status when mainstream services open bids for tenders. It has been proposed that they will be given a ‘must consider’ category – see the Department of Trade & Industry website for details.

It may be worth keeping a ‘watching brief’ in the short-term but once any teething troubles have been overcome, the CIC may soon become the natural company structure for new community radio groups.