Legal structures

The legal structure of an organisation is very important for many reasons.

The structure defines the activities and decision-making process of an organisation.

This can be from members' voting rights to how a board of trustees conduct meetings.

In addition the structure will define how the organisation will need to operate within the law.

Choosing and Preparing a Governing Document

The Charity Commission produces a publication, Choosing and Preparing a Governing Document, which has information about legal structures for voluntary and community organisations.

The two governing documents most commonly used are constitutions and memorandum and articles of association.

If you need help with your organisation's objectives (called objects by the Charity Commission) you can also search the Commission's website for similar charities and compare their objects with yours.

Types of Legal Structures

Unincorporated Association

This is the most common structure used by community and voluntary organisations. It is usually suitable for groups with low incomes, which are not employing staff or acquiring property. The Charity Commission has information on this structure in their publication Choosing and Preparing a Governing Document.

Company Limited by Guarantee

This is also a commonly used structure, mostly because it allows the organisation to have separate legal identity, therefore reducing risk to trustees. It is usually appropriate for organisations that employ staff, own or lease property and enter into contractual agreements. The regulator for this structure is Companies House.

Community Interest Company (CIC)

This structure was introduced in July 2005. It is designed specifically for companies with social objectives called social enterprises. Besides having a suitable governing document, a CIC will have to pass a community interest test, which ensures that your company is set up for the benefit of the community. The CIC Regulator manages registration and provides guidance to organisations interested in this structure.

Charitable Incorporated Organisation (CIO)

The CIO is a new form of incorporated structure for charities. It will enable a single registration process for charities. At the moment, a charity wishing to incorporate will need to register with both Companies House and the Charity Commission. The new structure was introduced by the Charities Act 2006 and a consultation exercise has been conducted by the Commission and the Office of the Third Sector on sets of regulations and an order, and this completed on 10 December 2008. The responses received will shape the final versions of the Regulations, Order and model constitutions that will provide the legal framework for running the CIO. There is however some wait yet before the CIO structure is available for applications, with the date already put back a few times. The latest information from the Office of the Third Sector suggests it will be available for charities in April 2010. Click here to view the LVSC's response to the CIO consultation.

Industrial and Provident Society (IPS)

The structure tends to be used by co-operatives and credit unions. Worker's co-operatives, where employees own the company, and members belonging to an organisation working for the benefit of its members may use this structure. Members have an equal say in management and all other affairs. IPS are regulated by the Financial Services Authority.

Where to get help

Adopting a legal structure can be a complex area. It is recommended that you seek advice before making any decision about which structure to adopt.

Some second tier organisations provide guidance on governing documents. It's worth checking your local council for voluntary service to see what's available.

Islington Voluntary Action Council offers the following:

Model Constitution - this one is from the Charity Commission as well. The only difference is that you can work on it directly.

What's in a name - Structures of Voluntary Organisations

It introduces legal structures and explains some of the terminology generally used in the sector.

NCVO - Legal Structures for Voluntary Organisations

An overview of the different structures suitable for voluntary organisations produced by NCVO.

Publications and other resources

Co-operatives UK

This is a national member-owned organisation that promotes co-operative enterprise in the UK. They have done extensive work on legal structures, listed here for your consideration:

Governance and Participation: Developing Democratic Governance

This CD-ROM was developed by the Governance and Participation Project and covers legal structures.

Simply Legal - An introduction to legal structures for the social economy

This is a clear and straightforward guide to the different legal structures appropriate for voluntary and community organisations.

They also have a section on their website on legal structures. They refer to them as legal forms. Don't let that confuse you though, as they are referring to the same thing.

Co-operatives UK

Tel: 0161 246 2900

E-mail: legal@cooperatives-uk.coop