One of the hardest parts of setting up a new organisation is deciding on the legal structure. It is a fundamental first step and should be given careful consideration as the structure will determine how the organisation must be run, whether it needs to formally register, the type of income it will receive, whether it can hold property or contracts in its name, payment of staff, regulatory responsibilities and so on.

Many people who are unfamiliar with the inner workings of the voluntary and community sector will likely assume that setting up a charity is the way to go. But what people often don’t realise, is that other legal structures may be better suited to the needs of the organisation, including not having a legal structure at all.

What to consider when choosing a legal structure

• How income will be generated e.g. through donations, trusts and grants, or through selling goods and services.
• Whether the organisation has voting members
• Whether the organisation will incorporate
• Whether the organisation will be charitable
• Rules and regulations of registering with the Charity Commission and / or Companies House.

More info here

Making the decision on legal structure can be really difficult! The pathway is not the same for everyone, and so we recommend taking some time to think about the pros and cons of different structures in relation to what you are trying to achieve as a group. If you have any questions then just get back in touch for a more detailed discussion.

The following information sets out the most common legal structures seen in the voluntary and community sector.

Charities

Are not-for-profit organisations with specific purposes defined in law to be charitable – and operate exclusively for public benefit. That means its money and any property it holds can only be used to further its cause. A charity can’t have owners or shareholders who benefit from it. Charities can make a profit or surplus. But all the surplus funds have to go back to the charity. Similarly, charities can and do invest their money in order to generate a return. But that return can only go back to the charity to spend on its cause. Charities are regulated by the Charity Commission and must comply with the regulatory requirements of the Charity Commission and Charity Law. If the charity is also registered as a Company, it will be bound by Company Law and registered with Companies House. To become a registered charity you must complete a registration from https://www.gov.uk/government/organisations/charity-commission.

CIO’s

Or Charitable Incorporated Organisations are a relatively new legal structure available for charities or charitable groups that wish to be incorporated. Before CIO’s the process to convert from a charity to a company was laborious. CIOs have been designed specifically for charities, allowing them to register just once with the Charity Commission as an incorporated form of charity which is not a company. This cuts out the need to register with and report to Companies House.

CIC’s

Or Community Interest Company is a special form of non-charitable limited company, which exists primarily to benefit a community or with a view to pursuing a social purpose, rather than to make a profit for shareholders. The primary advantage, as for other businesses operating as a limited company, is limited liability. This provides an important element of security for those who own and manage the business. At the same time, it provides some protection for any assets related to the social enterprise, which would not generally be available for an unincorporated entity. CIC’s can be not-for-profit but they are not charities and therefore need to register with Companies House: https://www.gov.uk/government/organisations/companies-house.

Unincorporated Association

An unincorporated association is a membership organisation. This is a simple structure that is easy, quick and cheap to setup. A lot of small groups will fall into this category and should consider whether or not their objectives are charitable i.e. has charitable aims and run for public benefit, over whether the organisation is primarily run for the benefit of its members. To setup an unincorporated organisation you will need to write a constitution. If you are a charitable unincorporated organisation with an income over £5000, you will also need to register with the Charity Commission. As unincorporated associations are not incorporated, they are not legally entitled to enter into contracts or own property. Examples of unincorporated associations include residents associations, luncheon clubs, gardening groups, reading clubs etc.

Charitable Trust

Charitable Trusts are usually set up by anyone who has decided to set aside assets or income for charitable causes. A Charitable Trust is typically run by a small group of appointed trustees who are responsible for holding and managing the trust’s assets. To set up a trust you will need a donor, trustees, charitable purposes and a trust deed. More information about charitable trusts can be found here