Legal Terms Explained

Legal Terms Explained

Legal structures for organisations in the voluntary and community sector fall into two main categories: unincorporated and incorporated. It is important to understand the differences between these and therefore the implications of the legal form that your organisation has, particularly in relation to the potential personal liability of Committee members.

Unincorporated organisations

An unincorporated organisation is the simplest type of organisation and the favourite legal structure chosen by new groups. However, the organisation does not have any independent existence in law. Therefore, the Management Committee members are personally liable for any debts or claims against the organisation that cannot be met out of the organisation's own resources. There are different types: associations and trusts.

1. Association
   
   An association is the simplest type of organisation to form, often chosen by new groups, branches or organisations that are purely voluntary (i.e. no paid staff). It is a membership organisation, established to work towards a common purpose. It is cheap to set up and run, but has no legal personality, therefore, its Management Committee has less protection against personal liabilities i.e. responsibilty for the consequences of its actions, or failure to act.
   
   More on associations
   
   
2. Trust
   
   A trust is more popular with grant-making bodies and organisations that will be run by a very small group of individuals, called “trustees”. This type of organisation has no legal personality, therefore, its trustees can be held personally responsible for the consequences of their actions, or failure to act. The trustee structure is self-perpetuating. A trust has no membership.

   More on trusts

Incorporated organisations

An incorporated organisation is an organisation that is set up as a legal entity in its own right. The Management Committee members do not normally have personal financial responsibility for contracts and debts incurred. This limited liability does not protect a Management Committee that acts improperly or fraudulently. There are different types such as companies and industrial and provident societies.

1. Company limited by guarantee
   
   This type of company is the most common within the community and voluntary sector. It is usually chosen by larger organisations, those that manage large sums of money, own land, deliver services under contractual agreements, or have employees. It is slightly more expensive to run and requires certain paperwork to be filed with Companies House. It offers its members limited liability i.e. some protection against personal liability.
   
   More on companies limited by guarantee
   
   
2. Industrial and provident society
   
   An industrial and provident society is set up for the purposes of permanent trading. By setting up this type of company, organisations can raise funds under a separate trading subsidiary, whilst providing some protection against risks or liabilities associated with its sale of goods, services or other types of trading.
   
   More on industrial and provident societies
   
   
3. Charitable Incorporated Organisation (CIO)
   
   A charitable incorporated organisation (CIO) is designed for charities wanting the business benefits of a legal personality (i.e. the ability to protect their charity trustees / Management Committee Members from personal liability for the charity’s debts) without the disadvantage of dual regulation under both company and charity law.
   
   This legal structure is likely to be regulated by the NI Charity Commission by 2008. For further information contact NICVA, Charity Advice Unit on tel: 028 90 877 777 or email cas@nicva.org.
   
   
4. Community Interest Company (CIC)
   
   This legal structure is designed for non-charitable social enterprises (i.e. those organisations wanting to operate flexibly in a business environment but for socially useful purposes.

   For further information contact the Department of Enterprise, Trade and Investment at www.detni.gov.uk

   
   

Charities

Not all voluntary organisations, however worthy their activities, are charities. For an organisation to be a charity it must be set up for public benefit (or a significant portion of the public), and it must have purposes that the law regards as exclusively charitable.

Being a charity brings additional responsibilities to your organisation or group, associated with charity law, and restricts the type of activities that you are able to undertake as a charity. Being a charity also has benefits such as tax exemptions and recognition that the organisation’s work is for the benefit of others.

Many voluntary organisations and community groups are unable to meet the criteria for charitable status, but their aims and purposes may still be considered to be philanthropic or benevolent. This means that, in law, they are not charitable although they run along the same lines as a charity.

More on charities