Development Trusts

1. What are development trusts?

A development trust is a business whose aim is to benefit the local community in
which it operates and which is organised and operates on partnership principles.
Development trusts engaged in a wide range of economic, social and environmental
regeneration, ranging from the restoration of property to advice and training. For
example:
To promote and support economic activity they:
 develop and manage workspace for small and medium sized businesses
 provide office space, shops and market areas and give business advice
 run job and training schemes
 promote tourism and encourage inward investment
To improve the local environment they
 improve and develop derelict land
 regenerate and manage public open space
 carry out local improvement schemes and restore buildings
 do education work with schools
To improve local services and amenities they
 develop and run sports and recreation facilities
 manage community centres and provide community offices
 promote local heritage
 run play schemes and child care centres
 develop low cost housing
 support community development
There is no one model for Development Trusts albeit they share common
characteristics of being concerned with the regeneration of an area, not for private
gain, aiming for long term sustainability, and community based and accountable.

2. Form and structure of development trusts

A development trust needs a legal and management structure which balances the
two elements of their work: carrying out a range of economically, socially or
environmentally useful projects whilst generating income to sustain their
operations. The form most trusts adopt is that of a company which does not
distribute profits - known as a company limited by guarantee or a ‘community
interest company’.
Company limited by guarantee
A company limited by guarantee is similar in some ways to a conventional company
limited by shares. Its operations are governed by the Companies Acts, and it has a
Board of Directors. However, instead of shareholders it has members, and instead
of buying shares and receiving dividends they offer a guarantee - usually a nominal
£1 - as the limit of their liability.

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Since there is also generally a provision that assets of the company can only be
passed to a similar company if it is wound up, there is no way to distribute profits
for private gain.
Funders and supporters of the Trust can be sure that any surpluses are either
ploughed back into the company to meet its objectives, or distributed for
charitable purposes.
Community Interest Company
A Community Interest Company (CIC) is a limited company with special additional
features created for the use of people who want to conduct a business or other
activity for community benefit, and not purely for private advantage. This is
achieved by a ‘community interest test’ and ‘asset lock’, which ensures that the
CIC is established for community purposes and the assets and profits are dedicated
to these purposes.
Registration of a company as a CIC has to be approved by the Regulator who also
has a continuing monitoring and enforcement role.
Other forms
A trust can also take the form of an Industrial & Provident Society.
Charitable status
Because of its not-for-profit nature, a company limited by guarantee with
charitable objectives can apply for charitable status. The advantages of charitable
status are it is politically neutral, it opens up sources of funding and that surpluses
generated in the course of operations are except from corporation tax. However, it
may be necessary for a company with charitable status to create subsidiary trading
companies to ensure that income generating activities do not jeopardise their
charitable status.
Constitution and membership
Each trust requires a constitution - memorandum and articles of association – which
define the purpose of the trust and the precise rights and duties of members.
The constitution can be drafted to allow organisations or individuals - or both - to
be members. Members can be given rights to elect the directors - or this right can
be restricted to a particular class of member, perhaps the main sponsoring
organisations.
The Board of directors of the Trust company take responsibility for the actions of
the trust, but provided they are not negligent, the personal liability of the
directors is limited to the extent of their guarantee (usually £1). In a charitable
company the Board of directors also act as Trustees of the charity, and as such
have additional responsibility to ensure Trust funds are only used for its charitable
purposes.

In general a trust needs one or more full-time paid staff to operate, most
commonly an executive director, project officers and an administrative assistants.
Many trusts also offer opportunities to volunteers to work on projects, help in the
office, produce publications or even run a shop if the trust has one.

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3. Setting up a development trust

This is a complex process likely to take a year and involve the very different
complexities of creating both a successful small business and establishing a
voluntary body. Setting up a Trust typically requires specialist legal expertise in
drafting the memorandum and articles. Key questions include:

Name and status

 What is the name to be and is the word 'limited' to be omitted?
 Is it intended to apply for charitable status?
Objects and powers
 What are the objects?
 Is there any geographically defined beneficial area for the objects and if so
is it narrowly or broadly defined?
 Are there any special additional powers needed in addition to the usual?
Membership
 Is membership open to all living or working in the 'beneficial area'?
 Does the Board have a discretion to refuse membership?
 Is there to be any provision for junior members, group members, and any
special definition of group members?
 When is membership terminated - automatically on moving out of the
district, on arrears of subscription, any other?
 Does the Board have powers to end membership on its own or only suspend
with appeal to a general meeting?
The Board
 What is the composition of the Board?
 What is the Board of Directors to be called e.g. management committee,
council, etc?
 Is there any restriction on the normal full powers of the Board, e.g. limit on
borrowing?
 Is rotation on Board annual/bi-annual/ one third retiring each year?
 Can the Board co-opt additional members and if so how many?
 Can the Board remove any member, e.g. for failure to attend meetings
regularly?
 What are the individual Board officers, e.g. Chair, Secretary, Treasurer?
 Are Board officers elected by the Annual General Meeting or by the first
meeting of the Board following the AGM?
 What is the Board quorum?
 Does the chair have a casting vote?
Meetings
 How to calculate a quorum for general meetings?
 Does the chair have a casting vote?
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 Do employees get notice and minutes and can they attend meetings?
 Who other than members and auditors gets notice of General Meetings?
Dissolution
 Are there any special rules for passing of assets on dissolution?

4. Support and funding

Trusts may be started 'bottom-up' by local groups or individuals, or 'top-down'

through the support of a public or private sponsor. Whatever the starting point, an
effective trust must deal with a number of tensions:
 The trust must obtain revenue to fund its operations and activities. For start up
trusts this income is typically grant based. However, if it to be viable the trust
must have a plan for generating a trading income, which will often necessitate
require ownership or use of suitable assets.
 The partners on the Board will come from different backgrounds with different
priorities - there may be no initial team spirit.
 Projects and running the trust will demand a wide range of competencies from
the small team of staff and Board.
 While struggling to set up the business and develop the first projects, the trust
staff and Board must also gain the support of local groups and individuals.
Unless these issues are addressed in the setting up process the trust may spend
many years dealing with internal conflict or facing criticism from local people and
groups who resent the newcomer.

The four main building blocks in the process are:

 a clear vision of why the trust is being established, what it will do, and how
it will operate
 a business plan which turns this vision into a portfolio of projects, identifies
finance and other resources, and sets out an appropriate management
structure
 the formal constitution of the trust - its company memorandum and articles
of association
 access to resources. A trust getting started will need funds to cover its core
costs of staff, office and other overheads - probably £50,000 - £100,000 a
year depending on size. Unless the trust is being sponsored 'top down' the
steering group or Board will have to undertake the necessary initial fund-
raising. To do this they should prepare a proposal or bid document as a first
draft of the business plan to present to potential funding agencies and
supporters, setting out their vision and how they plan to realise it

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5. Critical success factors

The success factors for trusts are similar to those for partnerships in general. The
Development Trusts Association lists as key factors:
 Clear objectives
 Involving the community
 Commitment and clarity of partners
 Investment in people
 Ability to attract funding
 A commitment to the long term
 Planning to be flexible and responsive
 Effective communication
 Taking calculated risks
 Developing an asset base

6. Advantages and disadvantages of development trusts

The advantages and disadvantages in creating a trust depend on where you stand
and who you are - for example, within a council or quango considering sponsoring a
trust, as a funding agency, or in a local group or voluntary organisation.
The advantages for a sponsor include:
 a 'do-it' organisation able to develop economic, social and environmental
projects and attract a range of extra resources
 a means of fulfilling Government funding requirements for partnership and
community participation
 an organisation which may not require revenue support in the long term
 A structure which can be tailored to meet local needs for control and
accountability of different interests
The disadvantages could be:
 the time and resources needed to establish the trust
 subsequent time commitments in Board membership and liaison
 loss of direct control over projects
 a possible perceived threat to local politicians

From the community-level perspective, the advantages could be some or all of

those perceived by the sponsor, plus:
The advantages might include
 an ability to develop larger projects and attract new sources of funds
 an opportunity to develop new skills and confidence
 a chance to directly influence the future of the neighbourhood
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The disadvantages might include:

 time commitment required from individuals, with the associated personal
risk and responsibility in running a company
 the trust could compete for resources with other existing organisations
 unless there is some form of local accountability, the trust may lose touch
with local people and develop projects solely to suit those most closely
involved

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