Understanding your legal structure
The management committee/board must ensure that the organisation understands and complies with its own governing document, relevant laws, contractual obligations and the requirements of any regulatory bodies.
(Supporting principle to Principle 2 of The Code of Good Governance)
Most groups and organisations in the community and voluntary sector describe themselves as community groups, voluntary organisations, or charities. Whilst these are helpful everyday references, these categories do not explain the actual legal structure of an organisation.
What are legal structures?
All organisations have a legal form i.e. how they are defined and established in law. This legal structure is based on how your group or organisation has been formally set up or constituted, and impacts on:
- how your organisation operates;
- what a Management Committee is allowed to do;
- the role and responsibilities of a Management Committee;
- the rules for the organisation (e.g. constitution or governing document); and
- the personal liability of Management Committee members.
In order for a Management Committee to function effectively, it must be familiar with all of these areas. See checklist for Management Committee members for a self assessment tool to check your level of knowledge about your organisations legal structure.
Forming a new group?
If your group or organisation is just starting out you may want some guidance on how to set up and options available that are appropriate to your particular circumstances.
The most common types of organisations formed within the community and voluntary sector include:
- Association (e.g. community association);
- Trust (e.g grant-making organisation);
- Company limited by guarantee (e.g. charitable company); and
- Industrial and provident society (e.g. community business).
These groups each fit within an overarching legal structure that divides organisations into two categories:
- those that are unincorporated (i.e. association; trust); and
- those that are incorporated (i.e. company limited by guarantee; industrial and provident society).
This distinction is significant particularly because it determines the personal liabilities taken on by individual Management Committee members. (These terms are covered in more detail in the section Legal Terms Explained.)
Organisations whether incorporated or unincorporated, may also be charities. Whilst being charitable is different from your legal structure, it restricts some activities under law, but brings a range of benefits such as tax exemptions.