Russ Garrett

Back in February, Jonty and I started the Hackspace Foundation to provide a legal structure for our efforts to create a hacker space in London. I’m going to try and document this process to make it a little less daunting for other organizations (and because people keep asking me). This is naturally very UK-specific.

Types of Organization

The Hackspace Foundation is a membership association — the company is controlled and run by its members. The easiest way to set one of these up is to start an unincorporated association, which is basically just a group of people who have registered a business name, with which you can create a bank account. This is the easiest way to go about creating an organizational structure (and One Click Orgs is making it even easier), but unincorporated associations can’t enter into contracts, and therefore can’t sign a lease or get a loan.

In order to be able to do that, you need an actual legal structure — a limited company. There are two types of private limited company: Limited by Share Capital and Limited by Guarantee. Limited by Share Capital is the structure most profit-making companies have. Companies Limited by Guarantee (CLG) are the other option, and that’s what we used with the Hackspace Foundation. Most non-profit companies, including charities, are CLGs. Instead of having shareholders, a CLG has members, all of whom are liable to contribute a nominal amount (£5 in our case) if the company goes under.

In addition to incorporating as a CLG, there are certain other actions that can be taken to make sure people won’t profit from a company. Doing this will not only reassure prospective members, but may also help with grants and taxes.

A quick word about objects

The objects of a company are the purpose under which it trades, and are recorded in the company’s Memorandum of Association. Trading outside of the objects of a company is illegal. Starting in October 2009, a company no longer needs to have objects, however restricting the objects of a company to educational non-profit aims may help with getting grants and reducing tax.

Section 30 Companies

A Section 30 company refers to a company incorporated in accordance with section 30 of the Companies Act 1985. This rather odd section refers to the ability to omit the word “Limited” from the company name. However, it also adds restrictions on the objects you can use:

(3) Those requirements are that—
(a) the objects of the company are (or, in the case of a company about to be registered, are to be) the promotion of commerce, art, science, education, religion, charity or any profession, and anything incidental or conducive to any of those objects; and
(b) the company’s memorandum or articles—
(i) require its profits (if any) or other income to be applied in promoting its objects,
(ii) prohibit the payment of dividends to its members, and
(iii) require all the assets which would otherwise be available to its members generally to be transferred on its winding up either to another body with objects similar to its own or to another body the objects of which are the promotion of charity and anything incidental or conducive thereto (whether or not the body is a member of the company).

Section 30 companies are also exempt from sending details of their members to Companies House, and so are ideal for membership associations. The Hackspace Foundation is incorporated as a Section 30 company.

Community Interest Companies

Community Interest Companies (CIC) are a relatively new innovation which takes the Section 30 idea a bit further. Converting a CLG into a CIC is a one-way process which adds a statutory “asset lock” to the company’s assets. The company can only transfer its assets to another body for less than their market value if that body is also a CIC. This differs from Section 30 because a company can convert themselves back to a standard CLG from a Section 30 company (although this still requires a vote of all the members).

We haven’t gone down the CIC route with the Hackspace Foundation because we’re not ready to make that much commitment to our community-only business model just yet. We were also concerned about finding a relevant CIC to donate any remaining proceeds to if the company was wound down.

Charities

For completeness, I’ll just mention a few things about charities. Obviously being a charity is a bonus because donations are tax-deductible. However, charities are required to have a public benefit, and we don’t believe that hacker spaces necessarily pass that test. (The rules are quite complex.) Additionally, charities are required to submit more complex audited accounts, which are more costly.

Hopefully this is helpful to someone. We registered the Hackspace Foundation with UKPLC — they are cheap and very helpful, so I would definitely recommend them.

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Lots of people ask me what the goal is.

The goal is for you to be able to play any song, anywhere you are, in CD quality, for less per month than the price of a cd. If you’re too cheap to pony up, then you can listen to ads instead, but no more than 10m worth for every hour you listen. A light DRM in place is fine provided the technology exists to stream this anyplace you are. Who wants or needs downloads if you can just stream it whenever you want. Disks are so overrated. If the tech isn’t there do make that happen, then screw the DRM and let those that will pirate pirate and those that will pay pay. You’ll never get them to behave otherwise anyway.

That’s the goal. First person to make it happen wins everything.

This quote was written by Tom Pepper at Nullsoft about a decade ago. Today it became a reality (give or take the ads part, in certain territories, terms and conditions apply…).

Now let’s see if they do actually win everything. They’ve got my tenner a month.

Tags: music.

I’ve been reading Larry Lessig’s book Remix over the last few days, and one thing which struck me is his comparison of sharing economies against commercial economies. A sharing economy is something such as friendship, love, Wikipedia, or Linux, where no money is exchanged; A commercial economy is where money is exchanged.

Lessig notes, with lots of examples, that even attempting to compare a sharing economy with a commercial economy will end up in trouble. In sharing economies, “price is poisonous”:

You have, or have had, or will have, lovers. That relationship exists within a complex, sharing economy. The statement “Wow, that was great. Have $500″ isn’t gratitude in such relationships. It might be perversion, but if not matched by perversion on the other side, it will likely be terminal to the relationship. [...] Prostitution is sex within a commercial economy. Both sides seek the simplicity of cash.

At this point, something rang true for me. Way back in 2004, RJ and I were working on Audioscrobbler, while Martin and Felix were working on Last.fm.

Audioscrobbler was naturally a sharing economy: you contributed your listening data, and in return you received recommendations for new music and people who shared your taste. Last.fm’s premise was to make a personalized radio station. This unashamedly exists in a commercial economy, even if the price was free for several years.

In 2005 we merged these two sites — both sites were doing almost the same thing — and last month the shit hit the fan. We had created some kind of hybrid commercial/sharing monster, supported for the time being by investment and ads. Now nobody has any money to throw at anything, so we have to ask for money in an economical way: only asking for money in places where it makes up for our ads shortfall.

Sure enough, when we went from apparently being a sharing economy to charging for the bits which cost us the money, all hell broke loose. Despite this, in the countries we are charging, we’re running the equivalent of the good old Audioscrobbler service, plus a music streaming service with an identical, country-specific, business model to Spotify.

I wonder how many other startups which seem like sharing economies are going to have the same problem as Last.fm: staying true to their users’ impressions of the service and going under, or being forced to charge and potentially losing their users’ trust.

You can’t win, sometimes.

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