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Martin Paul Eve

Professor of Literature, Technology and Publishing at Birkbeck, University of London

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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.

It does not mean, however, that charities cannot deal with for-profits or even sometimes dispose of assets to such entities. If a charity can show that the revenue from a sale of an asset was in fulfillment of its goals – because the money would be used for a particular charitable purpose – it could justify a sale of assets as a commercial activity in pursuit of its objects. And it could sell them to a for-profit entity. Admittedly, asset transfers on shutdown of a charity are much more tightly regulated. Community Interest Companies, by contrast, are far less tightly regulated. Charities also can, of course, avail themselves of the services of for-profit organizations. OLH can and does, for example, use commercial suppliers to fulfill some of our charitable purposes.

What does this mean for legal form as a governance mechanism? The basic gist is: it’s necessary but insufficient. If we really think that sound ethical governance is core to scholarly communications enterprises – and want to know how organizations will behave both today and tomorrow – then we need both sound corporate form and binding constitutional governance statement documents. That is, it can be good when our scholarly communications enterprises are charities. This gives some guarantee that they have a public benefit at heart (although, as noted, this can be limited education to those who pay, which still seems very wrong). But these entities also need unalterable, except by exceptional means, constitutional documents that specify how they will behave and what they will do. For instance, what is the policy of selling assets to for-profit organizations? What happens in the event of a shutdown/bankruptcy? What is the policy for accepting funding and from whom will it come? (What’s the due-diligence process?) What say does the community have in the operation of the organization? And how and who can change this constitutional document?

I don’t have this all figured out for OLH or other organizations in which I am involved. But it seems a good time to be taking stock and working out what this could look like for the future.