Ready Steady Start

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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
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PROGRAMME

• What are legal structures?
• Types of Legal Structures
• The Advantages Disadvantages

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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?

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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

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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

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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.

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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.

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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).

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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

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Advantages DisadvantagesCompany 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 companys 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.

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Charitable / Limited Company

• 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 its
  accountable to the community and charitable in
  its aims.
• Involves registering with both Companies House
  and the Charity Commission.

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Limited Company

• There are two types of limited company
• Company limited by guaranteeWith no shareholders
  - any surplus is reinvested in the company.
  Recommended by the Charity Commission.
• Company limited by sharesUsually found in the
  commercial sector, where its members
  (shareholders) are investing money in gaining a
  profit.

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Advantages DisadvantagesCharitable / 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.

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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 CIOs
  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.

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Legal Structures

• Social Enterprise
• Community Interest Company
• Industrial and Provident Society (Co-operatives)
• Partnership and Limited Liability Partnership
• Development Trusts and Social Firms

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Community Interest Company

• Introduced in 2007 as new corporate structure for
  non-charitable 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.

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Advantages and DisadvantagesCommunity Interest
Company

• Same advantages and disadvantages apply to a CIC
  as listed for a company.
• As the CIC is not a charitable organisation, it
  doesnt have the same restrictions on paying
  directors.
• Directors of CICs can be paid therefore
  attractive to social entrepreneurs which benefits
  the community but also want to derive payment for
  their work.

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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.
• 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.

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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.

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Development Trusts and Social Firms

• These are two fairly common forms of Social
  Enterprise but neither is a legal structure in
  itself.
• 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."
• Social Firms are businesses set up specifically
  to provide employment or training to disabled
  people, and are usually limited companies or
  co-operatives.

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Useful contacts

• Charity Commission Direct
• PO Box 1227Liverpool L69 3UGTel 0845 3000
  218Minicom 0845 3000 219Email
  enquiries_at_charitycommission.gsi.gov.ukwww.charity
  commission.gov.uk
• Community Matters
• 12 - 20 Baron StreetLondon N1 9LLTel 0207 783
  7887www.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 WayCardiff CF4 3UZTel 0870 333
  3636www.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 [phone]. This is a 24-hour voicemail
  service.
• Email cicregulator_at_companieshouse.gov.uk
• Website www.cicregulator.gov.uk/