1. Why do I need to choose a legal structure?
Your organisation’s legal structure determines:
- Who will run it and whether it will have a wider membership
- Whether it can enter into contracts or employ staff in its own name
- Whether its trustees are personally liable for what it does
Choosing the right legal structure for your charity or community group is an essential part of setting up a new organisation. This resource will cover the available options for charities and community groups. You can also read our guide on Legal Structures for Social Enterprises.
What is a community group?
A community group is an association of individuals from the same community, formed to advance a particular cause or interest
What is a charity?
To be a charity in England and Wales, your organisation must be established for charitable purposes and be doing so for the benefit of the public. There are 13 descriptions of charitable purposes, ranging from the advancement of education, to the advancement of the arts, culture, heritage or science.
In addition, your organisation must fall within the High Court’s charity law jurisdiction. The factors that indicate this includes; most of the trustees are living in England and Wales, and the organisation’s centre of administration is in England and Wales.
2. Unincorporated structures
An unincorporated organisation is one run by a committee of voluntary members who are personally liable for what the organisation does.
Because the organisation is not a corporate body, it cannot enter into contracts (for example, paid contracts to deliver services), employ staff or directly own land or property.
Unincorporated structures include:
- Unincorporated Associations
- Charitable Unincorporated Associations
- Registered Charities
3. Unincorporated Association
An unincorporated association is a membership organisation. It is not registered with the Charity Commission and it does not employ staff or own premises. As an unincorporated body, the committee members are personally liable for what it does.
You don’t have to seek approval before setting it up, nor have to register with any regulatory body. The members decide what activities the organisation will deliver. The members draw up a democratic constitution setting out the rules under which your group will run. Aims are wrote in a non-charitable way.
4. Charitable Unincorporated Association
A charitable unincorporated association is a type of organisation. It is the same as a non-charitable unincorporated association, except that its aims are legally charitable and it can demonstrate that its work is for public benefit.
Once the annual income of the organisation is more than £5,000, you are required to register with the Charity Commission. This involves submitting information to them each year.
To set up a charitable unincorporated association you need to ensure that your aims are legally charitable. This must be set out in your governing document (or ‘rulebook’).
The governing document lets trustees and other interested parties find out: your charity’s purpose, who runs it and how they run it, how trustees will be appointed, rules about trustees’ expenses, rules about payments to trustees and how to close the charity.
The Charity Commission has a model constitution for a small charity.
5. Registered Charity
A registered charity is a charity that has income of at least £5,000 per year. It is unincorporated i.e. not a corporate body. The trustees are personally liable for what the charity does.
The organisation won’t be able to enter into contracts or control some investments in its own name. Two or more trustees, a corporate custodian trustee or the charities’ land holding service will have to hold any land on the charity’s behalf.
In order to establish a registered charity, you must register with the Charity Commission, preferably using the Charity Commission’s model constitution for an unincorporated charity.
A Trust is a charity that has a set of assets, such as a sum of money or land when it is set up. The assets are held or managed by the charity. The Trust is not a corporate structure and does not have a wider membership. Some trusts are grant-giving organisations.
In order to establish a Trust, you must register with the Charity Commission, preferably using the Charity Commission’s Model trust deed for a charitable trust. You will need to state what assets you will start with.
7. Incorporated Structures
An incorporated organisation is an organisation that is considered a corporate body and can act as if it is an individual person in the eyes of the law.
Incorporated organisations can employ paid staff, enter into contracts, deliver services as part of a contractual agreement and can own land and property.
8. Charitable Incorporated Organisation (CIO)
A Charitable Incorporated Organisation (CIO) is a charity which is classed as a corporate body. There are two types – Foundation or Association.
In order to establish a CIO, you must register with the Charity Commission, preferably using the Charity Commission’s model Foundation or Association CIO constitution. You will need to keep a register of your trustees and/or members. In addition, you will need to send your accounts and annual return to the Commission each year, regardless of your income.
A Charitable Incorporated Organisation (CIO) with a Foundation model is a charity. It is classed as a corporate body, with the only members being the trustees. Only use this model if you don’t want a wider membership.
Trustees decide how the organisation is run and make all decisions on how it spends its money and how new trustees are appointed.
A Charitable Incorporated Organisation (CIO) with an Association model is a charity. It is classed as a corporate body with voting members other than the charity trustees.
A charity with this wider membership enables its members to vote on important decisions usually at an Annual General Meeting (AGM). Decisions include appointing committee members who will run the charity (usually for fixed terms) and making changes to the charity’s governing document.
CIOs are listed on the Business names index, held by Companies House.
9. Charitable Company (Limited by Guarantee)
A charitable company is a charity where there is a need to take the form of a company. This may be because of a risk that the organisation might incur large financial liabilities due to: employing staff, engaging in charitable purposes involving commercial risks, and/or controlling substantial assets. The company is usually limited by guarantee and can’t distribute its surpluses to its members or shareholders.
In order to establish a Charitable Company, you must register with Companies House and the Charity Commission. You will need to provide detailed information on finances and activities each year. The governing documents consist of a Memorandum of Association and Articles of Association. The Charity Commission have a model of these two governing documents.
When registering with the Charity Commission you will need to include a signed trustee declaration and a copy of the certificate of incorporation issued by Companies House.
10. Community Amateur Sports Clubs (CASC)
The Community Amateur Sports Club (CASC) scheme provides an additional legal structure option for sports clubs. It requires less regulation than if a sports club registers as a charity.
In order to establish a CASC, you will need to register with Her Majesty’s Revenue and Customs (HMRC) to receive “charity type” tax reliefs. As part of this process and ongoing, you will need to fulfill certain qualifying conditions such as evidence that you are providing facilities for eligible sports and encouraging people to take part in them.
11. Trading arm of a charity
Some charities engage in trading as a way to raise funds or to further their objectives.
Charity law allows charities to trade, if the trading falls into one of the following categories:
- Primary purpose trading
- Ancillary trading
- Non-primary purpose trading that does not involve significant risk to the resources of the charity
Where trading (other than trading in pursuit of its charitable objects) involves significant risk to a charity’s assets, it must be undertaken by a trading subsidiary. For more details, see Social Enterprises Legal Structures.
12. Converting your legal structure
Converting from a Charitable Company to a Charitable Incorporated Organisation (CIO)
Since 2018, it has been possible to convert from a charitable company to a CIO. Using this process means that the charity continues to exist but in a different form. Enabling you to keep the charity’s existing name and charity number. You should also be able to keep the charity’s existing bank accounts and in most cases, the new CIO should receive any legacies left to the original charitable company.
The main advantage of CIOs over charitable companies is that CIOs do not have to register with and send accounts to Companies House as well as the Charity Commission.
Converting from an Unincorporated Charity or Charitable Unincorporated Association
You might want to change your charity’s structure because your existing structure does not allow you to do something. For example, trustees of a growing unincorporated charity may decide to change to a corporate charity structure because the charity needs to employ staff.
An unincorporated charity is not a legal body in its own right so it cannot enter into contracts in its own name. The trustees have to enter into contracts personally – they can be liable if something goes wrong and they are at fault.
You might also decide to change to a corporate charity structure (‘incorporation’) because:
• you want to register the title to your charity’s land or property in its own name (rather than in a trustee’s name or in the Official Custodian for Charities)
• you are concerned about the level of financial risk your charity faces and want to give the trustees more protection (although the trustees must still act responsibly)
• your charity will deliver charitable services under contract (for example with a local authority)
Changing to a different charitable structure usually involves setting up a new charity, transferring your original charity’s assets and liabilities to it then closing your original charity. This can be complex, therefore we recommend requesting free support to discuss through the process and implications.