Legal structures
From Norfolk RCC
Depending on what legal structure an organistaion has effects it status is the law, its powers, obligations and the rules by which it operates. It is therefore important when creating a new organisation to get the legal structure right. Whilst a club or society can function perfectly well as an unincorporated association, free from any major regulation and deciding its own rules, a community owned shop, that will be trading reasonable amounts of money, needs to ensure its members have only limited liability as regards any debts and that appropriate safeguards are in place to ensure all actions are taken in accordance with the law. When starting a new organistion it is always best to seek professional advice however below are a number of this you should consider as well as links to other resources.
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Things to consider
Incorporation
Everybody over the age of 18 has a legal identity, they can buy goods, enter into contracts, get loans etc. in their own name. Organisations are not so lucky. An unincorporated trust for example (which most village halls are) relies on the legal identities of its trustees to do all these things. As a result the trustees share responsibility and have unlimited liability, meaning that should for example the organistion incur large debts ultimately an individuals assets could be used to pay those debts. For all those unincorporated charity trustees who worry about loosing their house this is very very unlikely, providing you act with due diligence and in the best interest of the charity. The charity commission now has the power to indemnify charity trustees who have acted in good faith but you will not be covered if you are found to have acted recklessly.
An incorporated organisation has its own legal identity and members enjoy only limited liability (a nominal amount often a pound in the case of a charitable company limited by guarantee or the value of any unpaid shares in the case a a company limited by shares. However should you act negligently or fraudulently limited liability will not protect you. In addition incorporated organisations generally have more stringent reporting and regulatory requirements (often meaning more forms, time, money etc.).
The key deciding factor when looking at incorporation is the level of liability and risk.
Many organisations are covered by public liability insurance should someone fall over a sue them (a common concern in todays 'o win, no fee' society) as long as there is no negligence (e.g. digging a big whole a leaving it uncovered). You should ensure that you have adequate insurance cover for the types of activities you undertake.
Incorporation only becomes necessary when your liability and risks become bigger. For example if you are handling large values of stock (e.g. a bar or a shop). Are you entering into large contracts which require you to provide payments or services? Some local authorities will only enter into service agreements with incorporated organisations. Do you employ staff and therefore have liabilities in terms of wages or redundancies (not usually a problem for a part time cleaner or caretaker).
If you are unclear whether or not you should incorporate then you should take professional advice.
Charitable registration
Some legal structures can register as charities whilst others can't. There are three main advantages to charity registration
- Exemption from certain types of taxation
- The brand of being a charity- gives you a certain image
- Access funding - some funding opportunities are only available to charities
However charitable status comes with certain reporting requirements as well as limitations on the types of activities you can undertake see http://www.charity-commission.gov.uk/ for more details
Access to Funding
Not all funding is restricted to charities but different funders will except different legal structures. If you are looking at one particular funder to help start off your activities it is worth checking what types of organisation they will fund. Any responsible funder will want to make sure you have an adequate structure in place to handle any funds and safeguard to ensure any money is appropriately spent.
Other resources
Table summarising the different aspects of many legal structures - originally on the DTI website
