Which legal form to choose for an Energy Community?

Establishing an Energy Community requires several decisions regarding the form of the community, the objectives, and the legal form. Choosing the legal form should be based on the financial goals, the mission, the involvement of the members, and several other factors which we’ll get into more detail. The legal form will significantly impact the community's operations, governance, financial management, and interaction with external entities. Various legal forms are available for energy communities, each with its pros and cons.

Cooperative: member-owned form

This form focuses on the benefit of the members and the goal is to improve the member's life through collective efforts.

Pros:

The profit is divided between the members or reinvested in the community.
The members have equal decision-making rights.
It can be a for-profit or a non-profit organization.

Cons:

Limited access to capital, as they can’t issue shares like corporations.
The minimum capital contribution is 3000EUR among all members.

Non-profit organization: focus on the mission

The goal is to focus on the social and environmental impact instead of generating profit for the members. Non-profits come with tax advantages and are eligible to receive donations.

Pros:

Tax benefits are applicable.
Eligible for donations that for-profit entities cannot access.
Focuses on the sustainability goals of the community.

Cons:

Relying on donations and grants can be limiting.
The members and investors can’t receive profits.

Limited Liability Company: a flexible approach

This is a flexible option that is based on combining the elements of partnerships and corporations with providing protection to its members.

Pros:

Operations flexibility to meet the needs of the community.
Profit can be generated.
Protects members' personal assets from business liabilities.

Cons:

Different tax regulations are applicable.
Complex to establish.

Association

This form is based on the agreement of a minimum of three members with their own legal personality to act and this is a voluntary legal form.

Pros:

Open to both private and public individuals and legal entities.
All members can have the same voting right.
Focuses on other goals than profit.
Not designed to gain profit, the income must be used to reach further goals.
Assets cannot be distributed among members or transferred to for-profit entities.

Cons:

Not designed to gain profit, the income must be used to reach further goals.
Assets cannot be distributed among members or transferred to for-profit entities.

Other factors to consider

The Community’s Objectives: Align the legal form with the community’s mission, whether it focuses on profit distribution, community benefits, or a combination of both.
Governance Structure: Define the level of member involvement in decision-making and choose a form that supports democratic governance.
Funding Needs: Consider the community's capital requirements and the ability to attract investment, grants, or donations.
Regulatory Environment: Ensure compliance with local regulations and reporting requirements for the legal form.
Tax Implications: Evaluate the tax benefits and obligations associated with each option.