Ready Steady Start
Choosing Your Legal Structure
by Hackney CVS
Organisation Development Team
Kishore Kanani
Funded by
Organised in partnership with:
Hackney CVS has achieved:
PROGRAMME
 What
are legal structures?
 Types
of Legal Structures
 The Advantages &
Disadvantages
What are legal structures?
What it says on the tin! A structure!
 Why is structure important?
 The legal aspect becomes an issue when a
group decides to write down rules on how
operate
 Structure, involves accountability why?

Types of Legal Structures
Community Groups and Voluntary Organisations
 Unincorporated Association
 Charitable Trust
 Charitable Incorporated Organisation (CIO)
 Charitable / Limited Company
Social Enterprises
 Community Interest Company
 Partnership and Limited Liability Partnership
 Industrial and Provident Society (Co-operatives)
 Development Trusts and Social Firms
Unincorporated association
A membership organisation
 It is the easiest, quickest and cheapest way for
a group to set itself up.
 This structure can be suitable for groups such
as play schemes, pensioners associations, arts
and campaigning groups.
 if your income grows larger than £5,000 than
you must register with Charity Commission

Advantages & Disadvantages
Unincorporated association
Advantages
 Simple and flexible
 Cheap to run
 Not accountable to any agency
but the Management Committee
 No need to submit accounts to
anyone outside (unless you
register as a charity or funders
demand it)
 Charitable aims, will make it
easier to register as a charity.
Disadvantages
 Funders prefer more formal
structure
 No separate legal existence - only
a collection of individuals
Cannot own property in its own
right
 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


Management committee
personally responsible for the
group's obligations, debts and are
liable.
Charitable Trust



A charitable trust is a legal form, set up by means of
a trust deed. Aims must be charitable and registered
with the Charity Commission.
Not a membership organisation but is run by a small
group of people, known as trustees, who make all
the decisions and have all the responsibility.
Trustees can be appointed for life when the trust is
set up, or can be changed regularly.
Advantages & Disadvantages
Charitable Trust
Advantages
 Cheap and simple to set up. no
registration fee
 Charity Commission publishes a
model declaration for a charitable
trust (trust deed). Property can
be held in the name of individual
trustees for use by the charity but
cannot purchase property in its
own name.
 Regulation by the Charity
Commission gives a 'seal of
approval' to its activities.
 Some Funders find formal and
stable structure reassuring





Disadvantages
Obligations to draw up your
annual accounts and report in a
particular way
A charitable trust is an
unincorporated organisation
which means that its trustees are
personally liable for its
obligations and debts.
You cannot carry out political or
campaigning activities, but your
group can have educational aims.
All decisions made by a small
group of people (The Charity
Commission suggests having
between 3 and 9 trustees).
Company Limited by guarantee
Most common type of incorporated body used
by groups in the voluntary and community
sector.
 Constituted by its Memorandum & Articles of
Association.
 Limited liability is important when considering
borrowing large sums of money, buying land
or buildings, or employing staff

Advantages & Disadvantages
Company Limited by guarantee
Advantages

Flexibility – Power from Companies Act 2006 to
alter both objects of a company and the
regulations.

(ii) Corporate identity – A legal entity capable of
owning property, or taking or defending actions
in court. own property in its own name.

(iii) Limited liability –A legal entity, its debts and
contracts belong to the company itself not to
members. Not personally liable. Liability in
event of going bankrupt, is limited to the
amount guaranteed when becoming a member
usually £1.00.

(iv) Involvement of members –Democratic
structure where members have ultimate control
over those managing the company. Directors are
answerable to members for conduct of the
company’s affairs and are capable of being
removed from office by a resolution.

(v) Continuity – until wound up, has perpetual
succession, ie it continues to exist, even though
its members may change, die or cease to be
involved.
Disadvantages

(i) Cost - of setting up is high. E.g. fee for
drafting the memorandum and articles of
association - the ‘governing document’.
Registration fee at Companies House and
producing the accounts in company format.
Annual fee for making annual returns. Dissolving
a company also involves time and expense.

(ii) Public Accountability - Companies’ details
are stored and open to the public. May not be
disadvantage to those voluntary organisations
who want openness and accountability to
general public and funders.

(iii) Bureaucracy – companies must comply with
the statutory requirements of the Companies
Act 2006 rules for the administration of a
company. Need to comply can be a burdensome
responsibility to voluntary management
committee.
Charitable / Limited Company


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A Charitable Company is a limited company with charitable
aims.
Incorporated organisation meaning a legal identity separate
from its members.
Directors not personally liable for its debts.
Membership organisation must be named and a list of
members forms part of the Company Register
Demonstrate, through Memorandum & Articles of Association
(its governing document) how it’s accountable to the
community and charitable in its aims.
Involves registering with both Companies House and the
Charity Commission.
Limited Company
There are two types of limited company:
 Company limited by guarantee
With no shareholders - any surplus is reinvested in
the company. Recommended by the Charity
Commission.
 Company limited by shares
Usually found in the commercial sector, where its
members (shareholders) are investing money in
gaining a profit.
Advantages & Disadvantages
Charitable / Limited Company
Advantages
 Suitable for larger organisation with
assets (e.g. equipment, a building)
and employs more than a few staff.
 Can take on legal obligations and buy
property in its own name.
 The organisation responsible for any
debts.
 Funders regard this structure as more
stable, as the company will continue
to exist even if there is a change of
people involved.
 Increases your chances if applying for
larger grants.
 Some funders will only fund to
registered charities.
Disadvantages
 Expensive to set up.
 Time consuming to run and annual
accountancy fees can be high.
 Regulated by both Companies House
and the Charity Commission.
 Have to notify of every change of
directors/trustees
 Draw up a particular form of annual
accounts and reports. SORP
 A Charitable Company cannot have
political or campaigning aims, but
you can have educational ones.
Charitable Incorporated Organisation
A CIO registered and regulated by the Charity
Commission. Requirements for reporting and for
annual accounts should be simpler and cheaper, in
particular for a smaller CIO. The Commission has
produced model forms of constitution for CIO’s
which will be simpler than the governing document
of a Charitable Company.
Is straightforward to convert Charitable Company into a
CIO and procedures to change the structure of
unincorporated association into a CIO.
Legal Structures
Social Enterprise
 Community Interest Company
 Industrial and Provident Society (Cooperatives)
 Partnership and Limited Liability Partnership
 Development Trusts and Social Firms
Community Interest Company
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Introduced in 2007 as new corporate structure for noncharitable social economy enterprises that want to use their
profits and assets for the public good.
The CIC may be a company limited by guarantee, a private
company limited by shares or a public limited company
limited by shares and is subject to company legislation.
One of key characteristics of a CIC is that is has an asset lock
which ensures that the company retains its assets for the
benefit of the community, as stated in the community interest
statement.
Advantages and Disadvantages
Community Interest Company


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Same advantages and disadvantages apply to a CIC as
listed for a company.
As the CIC is not a charitable organisation, it doesn’t
have the same restrictions on paying directors.
Directors of CIC’s can be paid therefore attractive to
social entrepreneurs which benefits the community
but also want to derive payment for their work.
Industrial and Provident Society (IPS)

An Industrial and Provident Society (IPS) is an incorporated organisation and
its members benefit from limited liability.

There are 2 types of IPS:
Bona fide co-operative society and a
Society for the benefit of the community.
1.
2.

An IPS must register with the Mutual Societies Registration section of the
Financial Services Authority, the regulatory body. In general regulation is
lighter than for Limited Companies and the accounting requirements far less
stiff.

Following the Co-operative and Community Benefit Societies and Credit
Unions Act 2010, names of industrial and provident societies were changed
as follows: Bona fide Co-operative Societies are now known as Co-operative
Societies; Benefit of the Community Societies are now known as Community
Benefit Societies.
Partnership and Limited Liability Partnership

A partnership is not generally considered to be a Social
Enterprise, though social aims can be spelled out in the
Agreement.

A Partnership Agreement is between two or more people and
defines how the business will be run. But there is likely to be a
problem if the business wants to apply for funding as it will be
difficult to demonstrate any wider social involvement.

Partners can be self-employed or employees of the partnership
and they are personally liable for debts.

There is also a form of Limited Liability Partnership (LLP) which is
safer for the partners; they are not personally liable for any
losses provided they have acted in a reasonable manner. An LLP
requires you to register with Companies House and to publish
annual accounts.
Development Trusts and Social Firms
These are two fairly common forms of Social Enterprise
but neither is a legal structure in itself.
1. Development Trusts are set-up to bring about local
regeneration and are often established as Limited
Companies with a broad membership. They see
their role as seeking "to move beyond provision of
welfare services, by setting up enterprises (social
businesses) encouraging self-help and reduce
dependency."
2. Social Firms are businesses set up specifically to
provide employment or training to disabled people,
and are usually limited companies or co-operatives.
Useful contacts
Charity Commission Direct

PO Box 1227
Liverpool L69 3UG
Tel: 0845 3000 218
Minicom: 0845 3000 219
Email: enquiries@charitycommission.gsi.gov.uk
www.charitycommission.gov.uk
Community Matters

12 - 20 Baron Street
London N1 9LL
Tel: 0207 783 7887
www.communitymatters.org.uk
The Financial Services Authority - registration of Industrial &
Provident Societies
25 The North Colonnade,
Canary Wharf,
London E14 5HS
Helpline 0845 606 9966
www.fsa.gov.uk
Companies House

Crown Way
Cardiff CF4 3UZ
Tel: 0870 333 3636
www.companieshouse.gov.uk
Clickdocs.co.uk

Their website at Clickdocs.co.uk has information on legal
structures, together with model governing documents
and application forms. They do charge for this service.

The CIC Regulator
CIC Team Room 3.68
Companies House
Crown Way Maindy
Cardiff CF14 3UZ
Tel: 029 20346228. This is a 24-hour voicemail service.
Email: cicregulator@companieshouse.gov.uk
Website: www.cicregulator.gov.uk/