There are several types of organisational structure available to a voluntary sector groups and each structure will have a governing (legal) document which sets out the 'rules' for how the group will operate. Becoming a 'Charity' is a legal status but it is not a legal structure. All groups need to choose the appropriate legal structure before deciding whether or not to formally apply for Charitable status. (Below * denotes a legal structure which can register with the Charity Commission.)
Unincorporated Legal Structure
An unincorporated association* is the most common structure adopted by community groups. Any group of people which comes together in a formal context for some common purpose (not necessarily charitable) is an unincorporated association unless they have adopted some other legal structure.
A group does not need to register an unincorporated association, and it doesn’t cost anything to set one up.
An unincorporated organisation has no separate legal identity of its own. This means that individual members of the group enter into obligations, such as contracts, on behalf of their organisation and they are responsible for its debts and other liabilities.
A trust* is set up to hold money or property for clearly defined charitable purposes, which are set out in the organisation’s trust deed. A trust does not have members, but is made up of a number of named trustees. The trust deed will set out how trustees are to be replaced if they resign, die or become disqualified.
Incorporated Legal Structures
An incorporated organisation has a separate legal identity distinct from its members or shareholders. There are a number of different incorporated legal structures available to charitable organisations. However the only incorporated legal structures which can register with the Charity Commission to obtain legal charity status are Company Limited by Guarantee and Charitable Incorporated Organisation.
A Company Limited by Guarantee* has no shareholders, but will have members who guarantee to pay a stated sum (usually £1, £5 or £10) should the organisation become insolvent. Profits (‘surpluses’), if any, may not be distributed among the members, but must be used to further the company’s stated objects (activities it intends to carry out). This structure is commonly adopted by organisations seeking to achieve charitable and other social or political aims.
A Company Limited by Shares is owned by its shareholders. It seeks to make profits which are then distributed among the shareholders. Limitation by shares is the normal structure for commercial enterprises, but charitable organisations sometimes set up a wholly-owned subsidiary as a company limited by shares to pursue non-charitable objectives.
Community Interest Companies have been designed as a new form of limited company suitable for social enterprises. The assets of a CIC belong to the company rather than the members. This might be a suitable form for a trading arm of a charity, or for an organisation which wants to avoid the restrictions of charitable status.
Charitable Incorporated Organisation* is a structure for a charity which is incorporated but is subject to control only by the Charity Commission with no involvement of Companies House. Accounting procedures are straightforward and because of the way it is set up there is less risk of conflict of duty for directors.
A Registered Society is a society registered under the Co-operative and Community Benefit Societies Act 2014. This includes co-operative societies, community benefit societies and societies previously known as ‘industrial and provident societies’. A Registered Society has all of the advantages of incorporation but with less cumbersome legislative requirements. They can therefore hold property, enter into contracts and take legal action in their own name. Committee members are also protected from personal liability in most circumstances. Registered Societies are registered (but not regulated) by the Financial Conduct Authority (FCA). Registered Societies fall into two broad categories:
1. Co-operatives – these trade for the mutual benefit of their members, and the Registrar will judge the legality of their action by reference to co-operative principles;
2. Commmunity Benefit Society (bencom) – these trade to benefit the broader community, and the Registrar will refer to charity law. Bencom’s are granted charitable status by the taxation authority, HMRC, rather than the Charity Commission. The Registrar (FCA) will refer to charity law.