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Brief Guide to Legal Structures
for Voluntary Organisations
Info
Sheet
D1
This information sheet is one in a series produced by Voluntary and Community Action
Trafford covering different aspects of running a voluntary organisation or community
group including: fundraising, volunteers, community development and the role of
management committees. They are designed for use by both management committees
and staff and hope that they will be beneficial to both. At the end of each guideline there is
a list of further sources of advice and reading matter.
Introduction
Most voluntary and community groups start off on a small scale - perhaps a few people on the
same housing estate, working together to try to improve local amenities. As the organisation
grows and the workload increases, these volunteers may decide to expand the organisation:
own or rent property, employ paid workers or acquire equipment such as a minibus.
In all organisations it is advisable to have a clear set of rules defining the aims, objectives and
responsibilities of the group and the individuals who are involved with it. These rules can be set
out in a constitution depending on the legal structure which the group adopts. For the purposes
of this information sheet, we have identified six main types of structure for voluntary
organisations:
1. An Unregistered Association.
2. An Unincorporated Association.
3. A Charitable Trust.
4. An Industrial and Provident Society.
5. A Company Limited by Guarantee.
6. A Charitable Company.
“Unincorporated”, “Incorporated” & “Charitable”
1, 2 and 3 are all “unincorporated” An unincorporated organisation is subject to the following
conditions: It has no separate legal identity and by law is regarded as a collection of
individuals. As such it cannot acquire property or enter into contracts in its own name.
Individual members of the group may be held liable for debts of the group.
4, 5 and 6 are “incorporated”. An incorporated has a separate legal identity, or “personality”,
which is distinct from its membership. It can hold property in its own name. It may carry out
legal proceedings in its own name - either by taking action against others, or by defending
action by them. Managers and committee members can be protected from personal liability.
Registered charities (2, 3 and 6) operate under different conditions, regulated by the Charity
Commission of England and Wales, according to Charity Law.
To be recognised as a charity, an organisation must:
 Only do things which are charitable in law (“exclusively charitable objects”)
 Have a structure which ensures that members and trustees cannot benefit at the
expense of the public or intended beneficiaries
 Be approved by the Charity Commission and/or Inland Revenue
1. An Unregistered Association:
For the purposes of this information sheet, we have created this category to distinguish
between Unincorporated Associations (those that are registered as Charities) and those that
are not.
Most small voluntary and community groups fall into this category. Such groups usually have a
small committee, simple constitution and a bank account in the name of the group.
Advantages
 It can be set up quickly and cheaply
 The group can be relatively
independent, with no obligations to
provide any information to outside
agencies, unless they provide funds.
 Flexible – your group can be as
democratic as you want
 It can be wound up quickly and easily usually by a general meeting of the
association’s members.
Disadvantages
 No legal identity – just a collection of
individuals
 The association cannot take legal
action or take out any form of contract
in its own name - it must appoint
individuals to represent the group.
 Members of the association’s
management committee may be liable
for debts incurred by the group.
2. An Unincorporated Association
For the purposes of this information sheet, we have created this category to cover Associations
that are Registered Charities.
This means a group of people who associate with one another to achieve common aims, that is not
incorporated. As with other forms of registered charity, they are more accountable, and have the
potential to be more stable and effective.
Advantages
 Saving money
o Statutory rate relief (80%)
o Some tax relief
o Free services from Charity
Commission
 Raising money
o From grant giving trusts and
institutions
o Public image and confidence
Disadvantages
 No legal identity – just a collection of
individuals
 Limitations on political and trading
activities
 Payments to committee members are
generally not supported
 Personal liability for breach of trust
3. A Charitable Trust
A charitable trust is a special sort of unincorporated association, generally set up to administer
money or property (or both), and which will be registered with the Charity Commission - only
groups with defined charitable aims can become trusts. Many trusts administer charitable
bequests. Some voluntary organisations choose to have trusts to hold property for them, or to
administer large amounts of money.
A Charitable Trust has a basic structure - a small group of trustees, who manage the money or
property in accordance with the trust deed. There is no membership apart from them
Advantages
 Trusts can be set up quickly and quite
cheaply.
 Trusts can raise funds and borrow
money to fulfil their aims
 Trusts may carry out trading activities
that are consistent with their objects –
 Administering trusts is relatively cheap
and simple. Accounts must be kept
according to trust law.
 Amendments can be made to the trust
deed fairly easily, provided that there is
provision for this in the deed
Disadvantages
 Trusts have to register with the Charity
Commission
 Trusts are unincorporated, so trustees
may be personally liable for contracts
entered into on behalf of the group,
and any losses resulting from their
actions which are in breach of trust.
 Trusts are non-democratic – they have
simple structures with few trustees and
no members.
 Transferring property can be difficult
and expensive
4. Industrial & Provident Societies
These have all the benefits of incorporation. Groups which carry out a business, trade or industry
may register under the Industrial and Provident Societies Act 1965, provided that they are either a
bona fide co-operative or are acting for community benefit.
The main rules for co-operatives are:
 Everyone who works in the organisation should be able to become an equal member.
 The business must be conducted for the mutual benefit of the society’s members.
For groups which aim to benefit the community the rules are:
 The organization is non-profit making.
 There are rules which forbid it from distributing its assets to the members.
 It must show that it will benefit non-members.
Advantages
All the advantages of incorporation, as stated
earlier.
 There should be no legal fees for
registration.
 It is relatively simple to convert an
industrial and provident society into a
company limited by guarantee.
 Industrial and provident societies which
benefit the community may qualify for
charitable status.
Disadvantages




An unfamiliar structure, even to some
voluntary sector specialist legal
advisors.
Registration process slower and
governing document subject to more
scrutiny than are charities.
Registration substantially more costly
than for companies.
Winding up process can be complex
and confusing.
5. Company Limited by Guarantee
If an organisation has various substantial commitments such as employing staff, entering into
contracts, handling a substantial turnover, holding property, leasing vehicles etc. It might consider
registering as a limited company.
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 if
it is wound up (the guarantee). A limited company has a special governing document called a
Memorandum and Articles of Association.
The companies Acts lay down rules about such things as annual general meetings, accounts, and
audit. Setting up a company and meeting these rules, involves a lot of paperwork, is quite
expensive and is therefore usually undertaken by larger organisations.
Advantages
 Limited companies are incorporated
bodies, so the organisation has a
separate legal identity. This enables it
to hold property and take legal action in
its own name.
 Members personal liability is limited unless they act fraudulently or in
breach of trust.
 A limited company can also register as
a charity if its objects are exclusively
charitable.
Disadvantages
 Regulated by Companies House
 Annual returns submitted to companies
house
 Have to notify Companies House of
change of committee members
(directors)
 Need to keep register of members
6. Charitable Companies
Many medium and large voluntary organisations choose to register both as Charities and as a
Company Limited by Guarantee – as a result they are accountable to, and regulated by, both the
Charity Commission and Companies House. Such organisations benefit from the advantages of
Charitable Status (Saving money, raising money and protecting assets) and the benefits of
Incorporation (legal identity and limited liability for directors). However, they also suffer the
disadvantages of both (limitations on political and trading activities and heavy administration
requirements).
Charitable Incorporated Organisations
Under the proposed new Charities Act, a special form of incorporated body for charities will be
created called the Charitable Incorporation Organisation (CIO) registered and administered solely
by the Charity Commission. Charities that are already limited companies will be able to convert to
CIOs if they wish. The main advantages are likely to be a simpler governing document, and no
longer having to deal with Companies House at all – only the Charity Commission, so there should
be less bureaucracy.
Governing
Document
Constitution
Governing
Body
Committee
Legal Status
Unincorporated
Association
Constitution
Committee /
Executive /
Trustees
Unincorporated Individual
Liability
Trust
Trust Deed /
Declaration of
Trust
The Rules
Committee or Unincorporated Individual
Board of
Liability
Trustees
Trustees
Incorporated
Limited
Charity Commission Cheap &
simple
Non democratic
Financial Services
Authority
Democratic
Unfamiliar
Memorandum
& Articles
Board of
Directors
Incorporated
Limited
Companies House
Legal identity
Regulation
Memorandum
& Articles
Board of
Directors
Incorporated
Limited
Companies House
& Charity
Commission
Dual status,
dual benefits
Dual regulation
Unregistered
Industrial &
Provident
Society
Company
Limited by
Guarantee
Charitable
Company
Support Available to Groups
If you would like further help and support with
the structural needs of your organisation,
VCAT can help in a number of ways: VCAT: Advice and assistance in developing
constitutions, registering as a charity or
company
Liability
Unincorporated Individual
Liability
Reporting
Advantages
Disadvantages
To members and
funders
Simple,
No legal
independent & identify.
flexible
Individual
liability
Members, funders,
Saving money Limits on
Charity Commission & raising
activities
money
Other Useful Information Sheets Available:
VCAT produce a range of information sheets that cover
different aspects of running a voluntary organisation or
community group including: fundraising, volunteers, legal
issues, community development and the role of
management committees.
The production of VCAT’s
Information Sheets has
been possible thanks to
funding from
These information sheets are available free of charge
from www.vcatrafford.org
or by calling 0161 905 2414.
Voluntary & Community Action Trafford
Park House, 73 Northenden Road,
Sale, Manchester, M33 2DG
Voluntary & Community Action
Trafford is a Registered Charity
No: 1098222 and a Company
Limited by Guarantee
No: 439986