Finding a legal structure to suit your group

This page provides introductory information about legal structures for community and voluntary organisations.

It includes structures suitable for groups run entirely by volunteers, and for organisations in which overall decisions are made by a voluntary management committee but day-to-day work is done by paid staff.

If you are looking for a legal structure that will allow paid staff to make all the overall decisions, see our sheet on Not-for-profit organisations instead.

For further help choosing a legal structure, also see our RouteMap.

Contents

Unincorporated association

An unincorporated association is a membership organisation. It can be whatever its members want it to be, and carry out whatever activity you choose. It is the easiest, quickest and cheapest way for a group to set itself up. This structure is suitable for groups such as tenants’ associations, film clubs, arts groups and campaigning groups. Many groups fall into this category (sometimes without knowing it).

An unincorporated association has members who take part in decision making about how the organisation is run, either through direct regular involvement or by electing a management committee to oversee the running of the group.

You do not have to seek approval of any kind before setting up an unincorporated association. You are free to draw up your own democratic constitution setting out the rules under which your group will be run. For more details about how to write a constitution see our information sheet Constitutions – step by step help with writing a constitution.

If your group’s aims, as outlined in your constitution, are legally charitable, this makes you a charitable unincorporated association. This is a type of charity, which means you will have to register with the Charity Commission if your income is above £5,000 per year. If your aims are not charitable, you don’t need to register with anyone.

Advantages

  • This structure is simple and flexible. You do not need to have your constitution approved by any outside body.
  • An unincorporated association is cheap to run. If your aims are not charitable, and you don’t get any grant funding, you won’t need to submit accounts or reports to anyone outside your group.
  • If your aims are not charitable, you have no obligation to any regulatory body and there are no particular rules about how you should run your group (so long as your activities are generally lawful).

Disadvantages

  • Some funders only give money to charities. You can overcome this problem by being a charitable unincorporated association.
  • Your group has no separate legal existence – it is a collection of individuals. This means that:
    • individual members of your management committee are personally responsible for the group’s obligations and debts
    • the group cannot enter into contracts – if it wants to rent premises or employ people, this is done, in the eyes of the law, by individuals on behalf the group
    • the group cannot own property in its own right.

Charitable unincorporated association

A charitable unincorporated association is a type of charity. It is just the same as a non-charitable unincorporated association except that its aims are legally charitable and it can demonstrate that its work benefits the public.

Charitable unincorporated associations with annual income over £5,000 are required to register with the Charity Commission, and submit information to them each year.

To set up a charitable unincorporated association you need to ensure that your aims are legally charitable. This must be set out in your constitution. The easiest way to ensure your constitution is suitable is to use the Charity Commission’s own model constitution for a charitable unincorporated association or model constitution for a small charity.

Advantages

  • Charities are recognised publicly as being for the wider good (not just the good of their own members).
  • Some grant funds are only open to registered charities.
  • This structure is simple to set up and cheap to run compared to other types of charity. If your income is under £5,000 you don’t need to register with any external organisation. If your income is under £25,000 the reports to the Charity Commission aren’t too long or difficult to prepare, and don’t require that you have your accounts independently examined.

Disadvantages

  • As a charity, your group has obligations. Among other things, you must draw up your annual accounts and report in a particular way.  For more information on annual reports and accounts see our information sheet Charity Reports and Accounts.
  • Your group has no separate legal existence – it is a collection of individuals. This means that:
    • individual members of your management committee are personally responsible for the group’s obligations and debts
    • the group cannot enter into contracts – if it wants to rent premises or employ people, this is done, in the eyes of the law, by individuals on behalf the group
    • the group cannot own property in its own right.
  • All charities have to comply with charity commission guidelines on political and campaigning activities.

Charitable trust

A charitable trust is not a membership organisation. It is run by a small group of people, known as trustees.

Trustees are responsible for appointing new trustees. This means people with particular skills could be invited to become trustees, rather than having to win an election.

The governing document for a charitable trust is known as a trust deed. Like all charities, the trust deed must show that the organisation has charitable aims and is run for the benefit of the public. Use the Charity Commission model trust deed to ensure you include the right information.

Charitable trusts with annual income over £5,000 are required to register with the Charity Commission, and submit information to them each year.

Like an unincorporated association, a charitable trust does not have its own legal existence. This means that actions taken by a charitable trust are the responsibility of the individual trustees. The trustees make all the decisions and have all the responsibility.

Advantages

  • It is cheap to establish and there is no registration fee.
  • It is simple to set up. The Charity Commission publishes a model declaration for a charitable trust (trust deed). However if you are at all uncertain about the trust deed it is sensible to get legal advice, as the deed is a formal document.
  • Charities are recognised publicly as being for the wider good (not just the good of their own members).
  • Some funders will give grants only to registered charities.
  • A charitable trust is run only by appointed trustees. This may be suitable for small groups run by the same people over a long time, which do not wish to have a wider membership.

Disadvantages

  • As a charity, your group has obligations. Among other things, you must draw up your annual accounts and report in a particular way. For more information on annual reports and accounts see our information on Charity Reports and Accounts.
  • Your group has no separate legal existence – it is a collection of individuals. This means that:
    • individual members of your management committee are personally responsible for the group’s obligations and debts
    • the group cannot enter into contracts – if it wants to rent premises or employ people, this is done, in the eyes of the law, by individuals on behalf the group
    • the group cannot own property in its own right.
  • There is not generally any formal method for users of your services to influence the work of the organisation. All decisions are made by a small group of people (the Charity Commission suggests having between 3 and 9 trustees). So it is not a suitable structure for a group which wants to encourage a large and active membership.
  • All charities have to comply with charity commission guidelines on political and campaigning activities.

Charitable Incorporated Organisation (CIO)

A CIO is a charity that is incorporated, which means that it has a legal identity separate from its members. In law, an incorporated organisation is considered to be a person and it can therefore own land or enter into contracts. The trustees are agents of the CIO and are not personally liable for its debts.

This is a new structure which came into being in 2013. Many existing unincorporated charities have chosen to become CIOs so they can have the benefit of limited liability.

There are two different types of CIO:

  • An Association CIO is suitable for groups that have a wider membership who have voting rights.
  • A Foundation CIO is run solely by its trustees and doesn’t have voting members.

A CIO has to be registered with the Charity Commission. Registration for a new organisation wishing to be a CIO is fairly straight forward if you use a model constitution created or approved by the Charity Commission. The Charity Commission states that it will complete the process in 40 days in the most straightforward cases.

An existing unincorporated charity can become a CIO, but the process is a little more complex. We estimate it will take 12 – 18 months for many organisations. It is not possible to simply convert your existing charity into a CIO, as you are creating a new legal entity. You will therefore have to create and register your CIO, then transfer all your activities, assets and liabilities from the unincorporated charity to the CIO.

From 2018, an existing charitable company can convert to CIO structure directly, by writing a CIO constitution and completing an online application form. This became available to charitable companies with income under £12,500 from 1st January 2018. The process opens to larger charitable companies on different dates in 2018 depending on income, and will be available to all charitable companies by 1st August 2018.

For more information about CIOs we recommend Charitable Incorporated Organisations by Gareth Morgan, which is available in the Resource Centre reference library.

Advantages

  • A CIO is an incorporated organisation which means that it has a legal identity separate from its members – it can employ staff, lease/own property, or enter into other contracts.
  • Trustees have some protection, as they have ‘limited liability’ and any claim is made against the CIO rather than the individual trustees.
  • Charities are recognised publicly as being for the wider good (not just the good of their own members).
  • Some funders will give grants only to registered charities.
  • It is free to register a CIO, and there are no fines for late submissions to the Charity Commission.  In contrast, charitable companies must pay a registration fee to Companies House, and can be fined for late submissions.
  • Unlike charitable companies, accounts can be kept on a ‘receipts and payments’ basis for CIOs with an income below £250,000, enabling groups to use a simpler accounting system and reducing accountancy fees.
  • CIO structure is available to organisations which do not have members (unlike charitable companies, which have to be membership organisations).

Disadvantages

  • As a charity, your group has obligations. Among other things, you must draw up your annual accounts and report in a particular way. For more information on annual reports and accounts see our information on Charity Reports and Accounts.
  • The registration process is lengthy. This structure is not recommended for organisations wanting to set up rapidly, e.g. to respond to crises.
  • CIOs with income under £25,000 have to submit more information to the Charity Commission than unincorporated charities of the same size.
  • It may be difficult to get loans from banks because, unlike charitable companies, CIOs don’t need to keep a public record of liabilities.
  • If a CIO stops being legally charitable it will cease to exist and be forced to close. A charitable company would still continue to be a non-charitable company even if it lost its charity registration.
  • All charities have to comply with charity commission guidelines on political and campaigning activities.

Go to the Charity Commission website for more information about CIOs and updates on the registration process.

Charitable Company

A charitable company is a limited company with charitable aims. It is an incorporated organisation which means that it has a legal identity separate from its members. In law, an incorporated organisation is considered to be a person and it can therefore own land or enter into contracts. The directors are agents of the company and are not personally liable for its debts.

Establishing a charitable company involves registering with both Companies House and the Charity Commission. You then have to report to both every year.

Until 2013 this was the only option for an organisation which had charitable aims and also wanted the benefits of being incorporated. Such organisations can now choose between being a charitable company or a CIO.

To be classified as “charitable”, a company must demonstrate, through its Memorandum & Articles of Association (its governing document), that it has charitable aims and that its work is for public benefit.

The Charity Commission provides a model Memorandum & Articles of Association for a charitable company. A Memorandum & Articles of Association are a legal document, so it is sensible to get them checked by a solicitor before submitting them to Companies House.

Advantages

  • A company is an incorporated organisation which means that it has a legal identity separate from its members – it can employ staff, lease/own property, or enter into other contracts.
  • Trustees have some protection, as they have ‘limited liability’ and any claim is made against the company rather than the individual trustees.
  • Charities are recognised publicly as being for the wider good (not just the good of their own members).
  • Some funders will give grants only to registered charities.
  • A charitable company may be more likely to get a bank loan than a CIO as it is obliged to keep a public record of its liabilities.

Disadvantages

  • As a charity, your group has obligations. Among other things, you must draw up your annual accounts and report in a particular way. For more information on annual reports and accounts see our information sheet: Charity Reports and Accounts.
  • Charitable Companies must send annual reports and accounts to Companies House as well as the Charity Commission. This means there is more reporting to do than for other types of charity.
  • Unlike the Charity Commission, Companies House charge a fee to register a company. They also charge a fee for submission of annual accounts and reports, and impose fines if they are submitted late.
  • All charitable companies have to keep accruals accounts, regardless of their size. These are more complex than the ‘receipts and payments’ accounts required for smaller CIOs and unincorporated charities, and can therefore lead to higher costs for book keeping and accountancy fees.
  • All charities have to comply with charity commission guidelines on political and campaigning activities.

More information

Try our RouteMap to help you decide which structure is right for you.

For further information about setting up a community organisation, see our sheets on:

The Resource Centre’s Reference Library holds several books and other information on legal structures.

Updated January 2018

 

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