Organisational & Legal Structures by HC120830214059


									                          Information sheet
     Legal structures for voluntary and community groups

Last update June 2011

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Legal structures for voluntary and community groups
Charitable organisations, voluntary associations and social enterprises in England have
a choice about the type of legal structure they adopt. Each type has its advantages and
disadvantages. This information sheet describes the different types to help you decide
which is most suitable for you organisation.

In the eyes of the law, an organisation is either:

       A collection of individuals working together, such as an unincorporated
        organisation or charitable trust


       A corporate body with a separate existence from the individuals belonging to it,
        such as a limited company or a charitable incorporated organisation.

Charitable status

Some, but not all of the structures covered in this information sheet can register as a
charity. For more information on how to register with the charity commission, see our
information sheet on ‘How to become a registered charity’.

Choosing and preparing a governing document

The governing documents most commonly used for voluntary and community
organisations are:

       constitutions (for unincorporated associations)
       memorandum and articles of association (for companies)
       rules (for Industrial and Provident Societies)

Main features

The following table lists the main features of the main structures available to community
groups, voluntary organisations and social enterprises.
 Legal structures

 Legal structure    Summary: most           Ownership,              Is it a legal          Can it be a
                    typical features        governance and          person distinct        charity and get
                                            constitution            from those who         charitable
                                                                    own &/or run it?       status tax
Unincorporated      Informal - no general   Nobody owns -           No - can create        Yes - if it meets
association         regulation of this      governed according      problems for           the criteria for
                    structure, need to      to own rules            contracts, holding     being a charity
                    make own rules                                  property and
                                                                    liability of
Trust               A way of holding        Assets owned by         No - trustees          Yes - if it meets
                    assets so as to         trustees and            personally liable      the criteria for
                    separate legal          managed in interests                           being a charity
                    ownership from          of beneficiaries
                    economic interest

                    Most frequently         Directors manage        Yes - members’         Yes - if it meets
Company limited     adopted corporate       business on behalf      liability limited to   the criteria for
by guarantee        legal structure, can    of members.             amount unpaid on       being a charity
(other than         be adapted to suit      Considerable            shares or by
Community           most purposes           flexibility over        guarantee (usually
Interest Company)                           internal rules          £1)

Community           Limited company         As for other limited    Yes - members’         No
interest company    structure for social    companies, but          liability limited to
(CIC)               enterprise with         subject to additional   amount unpaid on
                    “asset lock” and        regulation to ensure    shares or by
                    focus on community      community benefits      guarantee (usually
                    benefit                                         £1)

Industrial &        For bona fide co-       Committee / officers    Yes - members          No
Provident Society   operatives that serve   manage on behalf of     liability limited to
(IPS)               members’ interests      members. One            amount unpaid on
(Co-operative)      by trading or           member, one vote        shares
                    supplying               (regardless of e.g.
                                            sizes of respective
Industrial &        Benefit the             Like Co-op type, but    Yes - members          Yes - exempt
Provident Society   community other         new legislation         liability limited to   charity status
(IPS)               than just own           provides option of      amount unpaid on
(Community          members                 more secure form of     shares
Benefit Society)                            asset lock

Charitable          Expected 2011           Similar to company      Yes - members          Yes - must be a
Incorporated        Corporate structure     but with different      either have no         charity and must
Organisation        designed for            terminology (e.g. for   liability or limited   meet the criteria
(CIO)               charities               “directors” read        liability
                                            “charity trustees”)
Unincorporated Association

This is the most common structure used by community and voluntary organisations. It is
easy and quick to set up and there is no need for any external approval or regulation.
However, if the group has charitable aims and an annual income above £5,000, then it
is required to register with the Charity Commission. Unincorporated Associations have a
membership of individuals or other organisations, or a combination of the two.

An association’s governing document is usually referred to as a constitution. You can
use the charity commission model constitutions GD3 or GD4. These models are
available on the Charity Commission’s website at

Some advantages of an unincorporated association:

       Simple and flexible to set up with limited external regulation (however could be
        subject to Health & Safety, Charity Commission, HM Revenue & Customs etc.
        depending upon the activity undertaken).

       No need to submit accounts to anyone externally unless funders require it or if
        registered as a charity. However, accounts still need to be prepared.

       Ideal for small groups who do not intend to employ staff, or buy property.

Some disadvantages of an unincorporated association:

       Has no separate legal existence – it is a collection of individuals which means
        that contracts, funding agreements etc. may be difficult to sign up to.

       It cannot own property in its own right – individual management committee
        members have to do this on behalf of the group.

       Individual management committee members are personally responsible for the
        group’s obligations and debts and can be held liable, for example, if the
        organisation is taken to court.


A Trust is a special sort of unincorporated association, usually set up to manage money
or property. A Trust can register with the Charity Commission if it qualifies for charitable
status. It is run by a group of people, known as Trustees, who make all the decisions
and have all the responsibility. Trustees can be appointed for life when the trust is set
up, or can be changed regularly. Trustees must not receive any remuneration from the
Trust or any personal benefit from its activities. A Charitable Trust is a legal form which
is set up by means of a governing document called a “trust deed”. This structure is not
generally suitable for most groups. It is traditionally used by grant-giving charitable
The Charity Commission produce a Model Trust Deed (GD2) which you can download
from their website at

Company limited by guarantee

A company limited by guarantee does not have shares or shareholders, and cannot
distribute profits. Instead it has members, who may pay a subscription and are each
liable for a limited sum, usually £1 (the guarantee) if the company is wound up. The
members elect a board, or committee (the Directors), and can remove them but the
board has day to day control.

As an “incorporated” organisation (a company) it means it has a legal identity separate
from its members and can, for example, own property and enter into contracts in its own
name. It can also give more protection from personal liability to company directors. This
structure is usually appropriate for organisations that employ staff, own or lease property
and enter into contractual agreements.

The governing document is referred to as Memorandum and Articles of Association.

Some advantages of a Company limited by guarantee:

      Ability to enter into contracts, accept grants, borrow money, insure risks, own and
       manage property, vehicles etc.

      Individual members have limited liability. However, directors do have a legal duty
       to act prudently and ensure the company manages its finances carefully.

      Suitable for larger organisations which own a building or other assets, or employs

Some disadvantages of a Company limited by guarantee:

      More time consuming to run and regulated by Companies House which includes
       sending them the company’s annual reports and accounts.

      More controls and regulations.

      Annual accountancy and other professional fees can be expensive.

A company which intends to register as a charity may want to adopt the Model
Memorandum and Articles of Association produced by the Charity Commission. You
can download this document (GD1) from their website at
Community Interest Company (CIC)

An increasingly popular choice of structure for social enterprises and has been specially
designed for them.

The CIC is a limited company with special features to ensure it works for the benefit of
the community. A particular feature of the CIC is that the assets and profits are
committed permanently to the community it benefits through what is called an “asset

CICs report to the Regulator of Community Interest Companies. The Regulator also
manages registration and provides guidance to groups interested in this structure. The
CIC Regulator’s website has a comprehensive Information Pack covering all aspects of
setting up a CIC.

The governing document for a company is called the memorandum and articles. Model
Memorandum and Articles of Association for a CIC can be downloaded from the CIC
regulator’s site at

Industrial and Provident Society (IPS)

An IPS is a corporate body registered under the Industrial and Provident Societies Acts.
The governing document is called the ‘rules’. IPSs are regulated by the Financial
Services Authority.

There are two types of IPS:

1. Bona fide co-operative

The IPS co-operative is mainly used by consumer co-operative, housing co-operatives
and credit unions. Its basic characteristics are:

          One member on vote
          Return on capital must be limited
          If profits are to be shared out among the members, this must be done using
           an equitable formula
          No artificial restrictions on membership

2. Community benefit society

The IPS society for the benefit of the community form is common among housing
associations and other forms of voluntary and community sector activity and can be
appropriate for democratic, non-profit-distributing organisations.

Its characteristics are similar to those of a co-operative, but includes a requirement to
primarily benefit people other than its members.
Charitable Incorporated Organisation (CIO)

The CIO is a new form of incorporated structure for charities. It will enable a single
registration process for charities. Currently, a charity wishing to incorporate needs to
register with both Companies House and the Charity Commission.

The CIO will give a charity the main advantages of a Charitable Company but it will be
registered with and regulated by the Charity Commission only. Requirements for
reporting and for annual accounts should be simpler and cheaper. It is expected that the
new structure of will be available to charities in Autumn 2011. Further information is
available on the Charity Commission website see Charitable Incorporated Organisation

Getting Help from regulators

Charity Commission
Charity Commission Direct
PO Box 1227
Liverpool L69 3UG
Telephone: 0845 3000 218

Community Interest Company Regulator
CIC Team, Room 3.6
Companies House
Crown Way
Cardiff CF14 3UZ
Telephone: 029 20346228

Companies House
Crown Way
Cardiff CF14 3UZ
Telephone: 0870 3333636

Financial Services Authority
25 The North Colonnade
Canary Wharf
London E14 5HS
Telephone: 020 7066 1000
Getting help from infrastructure support agencies

Ashfield Voluntary Action            Newark and Sherwood Community
The Council Offices                  and Voluntary Service
Fox Street                           67 Northgate
Sutton-in-Ashfield NG17 1BD          Newark
Tel: 01623 555551                    Nottinghamshire NG24 1HD
Website:    Tel: 01636 679539
Bassetlaw Community and Voluntary
Service                              Nottingham Community and
Dukeries Centre                      Voluntary Service
Park Street                          7 Mansfield Road
Worksop                              Nottingham NG1 3FB
Nottinghamshire S80 1HH              Telephone: 0115 934 9548
Tel: 01909 476118                    Email:

Cooperatives UK                      Rushcliffe Community and Voluntary
Holyoake House, Hanover Street       Service
Manchester M60 0AS                   Park Lodge
Telephone: 0161 246 2900             Bridgford Road                  West Bridgford
                                     Nottinghamshire NG2 6AT
Gedling Community and Voluntary      Tel: 0115 9816988
Services                             Website:
The Volunteer Centre
Arnot Hill House, Arnot Hill Park    Social Enterprise East Midlands
Nottingham Road, Arnold              Suite 28, Minerva House
Nottingham NG5 6LU                   Spaniel Row
Tel: 0115 926 6750                   Nottingham NG1 6EP
Website:       Telephone: 0115 871 4760
Mansfield Community and Voluntary
Community House
36 Wood Street
Nottinghamshire NG18 1QA
Tel 01623 651177

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