Creative and cultural enterprises can choose from a range of creative business structures, including different legal entities. We need to be aware of the options available and the consequences of each. What’s the best structure: self-employed, not-for-profit company, or commercial enterprise?
A creative entrepreneur can operate as a self-employed ‘sole trader’, in a partnership, or set up a separate legal entity such as a company for the purposes of running a business. Self-employment, a commercial company, a partnership, a ‘not-for-profit’ company, a social enterprise or a charity are all possible and there are many examples of creative businesses and organisations set up in each of these ways.
Each of these structures has ‘pros and cons’ so it’s useful to examine all the options and be aware of the advantages and disadvantages of each. Before deciding on a particular structure, it’s advisable to consider the bigger picture and the long-term view. In particular, be aware of the consequences in terms of investment, ownership, control and reward.
For example, it might be easier to get a grant in the short term by choosing a ‘not for profit’ structure, but this same structure may prevent you from getting commercial investment in the future, and can also result in the founders losing ownership and control of their enterprise.
The simplest way to start is business is as a sole trader, which involves registering as self-employed with Her Majesty’s Revenue and Customs (HMRC). One of the biggest disadvantages of this arrangement is that the individual has unlimited liability for business debts since there is no legal separation between a person’s business and personal finances.
The alternative to this is a legal structure which limits the financial liability of its members to the amount they have invested or guaranteed, ie a ‘Limited Company’, either with shares (a ‘Company Limited by Shares’) or without shares (a ‘Company Limited by Guarantee without Share Capital’). The benefits of having shares include: (1) the option to attract investment by selling shares (as we’ve seen on the Dragon’s Den TV show), (2) there can be different levels of shareholding including a majority stake, and (3) investors can be rewarded by paying them a dividend on their shares.
The ‘Company Limited by Guarantee without Share Capital’ does not have shares so there can be no payment of dividends, which means that this type of organisation can be described as ‘non-profit-distributing’, a set-up preferred by some funders such as Arts Council England. This constitution means that profits cannot be distributed to shareholders but the company can still make a profit, so the terms ‘non-profit’ or ‘not-for-profit’ can be confusing. The downside of this structure is that nobody can have a majority shareholding, so its members are all equal in terms of ownership and control, and any well-earned bonuses to individuals can only be paid by the less tax-efficient Pay As You Earn (PAYE) route. (By the way, the ‘Guarantee’ is a promise from each member to pay a token amount, often £10, in the event of the company winding up.)
Creative organisations operating as social enterprises can register a company (one with or without shares) as a Community Interest Company (CIC) with the CIC Regulator. This gives the company the status of a CIC with additional benefits and responsibilities.
Partnerships of two or more people in business together usually have unlimited financial liability for each of the individuals concerned, unless constituted as a Limited Liability Partnership (LLP).
Charities are registered with and regulated by the Charity Commission and charities are usually constituted firstly as companies limited by guarantee before applying for additional charity status which confers benefits and restrictions in addition to those of a limited company.
It’s relatively easy and inexpensive to set up a company, either by applying directly to Companies House link or using one of many agencies such as the online Company Wizard which will register a company for you.
Of course you don’t have to choose only one structure. Entrepreneurs and organisations often have more than one legal entity. For example a charity might also have a subsidiary trading company, a commercial organisation can have a charitable arm, and an enterprise can be built up as a group of companies, to enable different investment options, involve different people and ‘compartmentalise’ business risks.
But before choosing a legal format for your enterprise, think first about your overall business strategy and then select the most appropriate legal structure(s) to suit your purposes and achieve your goals.
Creative business structures
There is more information about creative business structures in David’s books, other publications, videos and free resources.
David Parrish inspires and empowers creative entrepreneurs world-wide as an international creative industries speaker, consultant, trainer and author.
Business Adviser – Creative and Digital Industries
Creative and digital businesses grow with the help of David’s expertise in creative entrepreneurship. He shares his expertise through his speeches, training workshops, coaching and books on business growth.
David advises businesses on strategic development, marketing, leadership and growth in his capacity as a qualified and experienced business adviser and management consultant, working world-wide.
He helps clients by drawing on his own direct experience as an entrepreneur as well as his work helping hundreds of creative, digital, cultural and arts businesses around the world. His direct experience is backed up by academic qualifications and professional accreditations in business strategy, marketing and leadership. He is a Chartered Institute of Marketing ‘Chartered Marketer’. David has an MBA (with distinction). In addition, he is a Fellow of the Institute of Leadership and Management (FInstLM). He is also honoured to be a Fellow of the Royal Society of Arts.
David is a UK expert and international creative industries speaker. He has helped hundreds of businesses in more than 60 countries to achieve greater success on their own terms. This is achieved by using smart business development techniques that fit with their creativity, ambitions and values. His creative industries consulting focuses on the needs of creative industries businesses, cultural enterprises and arts organisations.
Successful creative enterprises integrate creativity and business. David’s T-Shirts and Suits® approach helps creative people (‘T-Shirts’) use smart business thinking (‘Suits’). His entertaining and inspirational speeches illustrate ways in which businesses can use creative business models and powerful business techniques to achieve greater success. His creative industries consulting with individual businesses guides them to success by combining their creative passion, strengths and goals with a winning business strategy tailored to their own needs, values and circumstances.
Creative Business Books, eBooks and Audiobooks
David has written two books and several other publications especially for creative businesses. He brings his own experience of setting up and growing businesses in the creative and cultural industries. David is actively involved in the creative and digital industries as a company director and management consultant. He also shares the learning he has gained from working with hundreds of successful creative enterprises around the world. His books are available in paperback, eBook and Audiobook formats. They have been translated into several languages and published in various countries in several continents.
What they say about David Parrish…
Here are a few examples of what people say about David Parrish. His clients worldwide say how they have benefited from David’s creative industries keynote speeches. They also recommend his business advice, training, presentations, lectures and books:
“It was a pleasure to invite David to give the keynote speech at the Third International Creative Industries Conference in Novi Sad, Serbia. His speech about ‘Creative Business in the Digital Economy’ was enlightening. It was ideal for our audience that included startups, government officials, investors and agencies from Serbia and other countries. David’s speech was also broadcast on TV to reach an even wider audience. We were delighted with the positive impact that David made on the creative industries here in Serbia.”
Tatjana Kalezic. Creative Industries Cluster of Vojvodina KVIK.
“The choice to work with David was definitely the right one. In less than two days time we had crafted a cohesive short term and long term strategy that provides for desired growth, protects our IP, enables investment, and allows us to retain creative control of our technology. David’s ability to listen to your situation, to understand it, and then determine a course of action based on your specific needs and goals is rare and a makes David a joy to work with.”
– Aric Wanveer. Zero Gravity Creations LLC, Baltimore, USA
“David Parrish was a special guest of Creative Industries Summer School held in Moscow. Creative entrepreneurs from all over Russia said that David’s presentation was very inspiring, entertaining and very useful for them. His presentation “Creativity and Business: How to Succeed as a Creative Entrepreneur” was amazing and I am sure it will help develop creative entrepreneurship in Russia. David is a very bright and powerful expert.”
– Olga Kizina. Director. Creative Industries Agency. Moscow. Russia.
“Workshop participants were very impressed and inspired by David’s speech and book because he avoided using jargon, gave clear illustrations to describe what creative business is about and explained the general principles of running a creative business. He talked about some important issues, such as intellectual property, business formulas, knowing your competitors, knowing your market, and being prepared to say No.”
– HsinYi Ku. British Council, Taiwan
“David writes about creative business better than anyone I know.”
– Wayne Morris. The Creative Edge. New Zealand.
“David Parrish is a very inspirational speaker. The way he illustrates his points is excellent. He makes you laugh and instantly you start to think about your own ideas and projects.”
– Eli Folkestadaas. British-Norwegian Chamber of Commerce. Oslo, Norway.
Read more testimonials about David’s work as an international creative industries speaker, consultant, adviser, trainer and author of two books, other publications and many articles.
David’s Background, Experience and Expertise
Dave Parrish has been directly involved in the creative economy and cultural economy for more than 20 years, as an entrepreneur, manager, company director, management consultant, business adviser, coach, mentor, trainer, writer, and international creative industries speaker. For an insight into his personal background, business experience, values and his own perspective on creativity and business, read his story.