What is the relationship between legal form, governance, and ethics? | Martin Paul Eve | Professor of Literature, Technology and Publishing
peter.suber's bookmarks 2021-12-06
"In the world of OA publishing, there have been further (not-so)shock waves reverberating this week as Knowledge Unlatched was sold to Wiley. One of the questions this raises is: how was it possible for this sale to go through and what could have been done to prevent it?
One of the first points to raise, and one that I have already made on Twitter, is that Knowledge Unlatched had to take a corporate form that protected its founder’s investment. Now, whether it’s what I would have done is a different matter, but it nonetheless takes a lot of guts to stake a huge amount (or, even, all) of your personal pension on an idea, which is what Frances Pinter did. But if you need the money back, you have to be able to sell the asset. So the fact that KU didn’t attract the not-for-profit investment affected the choice of corporate form.
What does being a charity or community interest company actually mean, though? It means, first, that your organization has an eleemosynary purpose. That is, it must be operated for the public benefit. Education, for instance, is a charitable object. It doesn’t even, in UK law, though, have to be education for everyone (the general public). Private schools can be (and often are) charities, despite only providing education to the subset of the “general public” who pay them. Hence, academic publishing can be a charitable purpose, even if it’s not openly accessible.
Second, it means that your organization is subject to certain types of financial control, but also benefit. In the UK, charities that raise money in fulfillment of their charitable purposes are not subject to corporation tax (though they are subject to VAT, under specific circumstances, and also to other taxes). They can also be converted only to organizations that share commensurate charitable objects. OLH, for instance, can merge with Birkbeck, University of London, because they share the charitable purposes of education for the public benefit.
Third, it also means that you will probably struggle for money. Charities are not allowed just to rake in tonnes and tonnes of surplus without question. They have to operate somewhat prudently. They also don’t have the mega-bucks of the big for-profit players, which means that they can usually be out-competed by these entities, which could, to be frank, starve the not-for-profits out, Uber-style, if they wanted."