There are various legal forms available for community groups, finding the right one for you is essential.
Each legal form has legal restrictions and advantages depending on your organisation’s purpose and intentions. There are a few important ideas to understand before deciding what legal form or structure is right for your organisation.
Incorporation & limited liability
Legal forms can be either incorporated or unincorporated. Incorporation means creating a legal identity for an organisation that is separate from its members – a ‘corporate body’. An incorporated form exists in its own right and can enter into contracts and own property in its own name and employ people. Incorporated organisations can meet its liabilities from its own assets and will limit the liability of its individual members. In this way, organisations that have a moderate to high level of risk may decide to incorporate to protect their members in the future.
An unincorporated organisation has no separate legal identity of its own. That means that those individuals enter into obligations, such as contracts, on behalf of their organisation and they are responsible for its debts and other liabilities. The central feature of most unincorporated businesses or organisations is personal liability for the owner, partner or member of the management committee.
If you are on the management committee of an unincorporated association your personal assets are at risk if the assets of the organisation are not sufficient to cover all the debts and liabilities.
Charity is a legal status for an organisation not a legal form or structure. Charity status will be additional to the basic legal form. Some legal forms and organisational types (e.g. community interest company and co-operatives) are incapable of being charities because they are designed to provide non-charitable benefits, for example members or shareholders may be automatically entitled to certain payments or distribution of profit. Read more on charitable status.
There are 6 steps to setting up a charity.
- Find trustees for your charity – you usually need at least 3.
- Make sure the charity has ‘charitable purposes for the public benefit’.
- Choose a name for your charity.
- Choose a structure for your charity.
- Create a ‘governing document’.
- Register as a charity if your annual income is over £5,000 or if you set up a charitable incorporated organisation (CIO).
A social enterprise is a business with primarily social or environmental objectives. Profits are principally reinvested for those objectives, with surpluses being returned to the business or the community it serves, rather than being used to maximise profit and owner or shareholder value.
The term ‘social enterprise’ does not have a formal legal meaning and is not a formal status with HMRC or other government agency. It is a general description that could be applied to many legal forms of organisation including those with charity status. These legal forms may be.