There are numerous legal forms of VCS organisation to choose from. Check out this chart to see the names of each of them and whether they are incorporated or unincorporated.
There are pro’s and con’s to each type of legal setup. The one that’s most appropriate to you will depend on your circumstance and what you hope to achieve.
You can read more about each of the legal form on this chart in the rest of our ‘Setting Up a Non-Profit Organisation’ resources.
Incorporated and Unincorporated Organisations
Whether an organisation is incorporated or unincorporated is all to do with something called ‘legal personality’. The legal personality of an organisations refers to how the organisation is viewed and treated in terms of the law.
For example, nearly all adults in the UK have their own legal personality as they are responsible for themselves as autonomous individuals. Therefore, they are treated in terms of the law as responsible for their actions and as an individual in their own right when being held accountable for those actions.
This principle is applied to organisations too. Liability of the organisation can vary depending on whether the organisation is incorporated or unincorporated.
Incorporated
An ‘incorporated’ organisation has its own legal personality and is viewed and treated in terms of the law as an individual; it has ultimate liability over itself as opposed to liability for the organisation being distributed among its members or bestowed on any one individual. In short, an ‘incorporated’ structure allows people to come together and form an organisation which then takes on a legal status separate from that of its members.
Becoming ‘incorporated’ doesn’t mean becoming a corporation. Rather, in the charity world it usually refers to one of the ‘incorporated’ organisations shown in the diagram above.
An incorporated organisation can buy property, enter into contracts and bring/ defend court proceedings in its own name. Members are protected from any debts incurred by an incorporated organisation. What’s more, an incorporated charitable organisation must have a constitution which sets out the maximum amount each member is obliged to pay if the organisation is insolvent (often referred to as the “guarantee”). The cap is often a nominal £1.
Most groups tend to incorporate when the underlying risk outweighs the benefits of operating in an unincorporated capacity, i.e. they are managing large sums of money, supporting complex needs, or managing premises that may not make personal liability for its members feasible.
Make sure you check out all of our fact sheets on the numerous types of incorporated organisations here.
Unincorporated
An unincorporated association is an organisation set up through an agreement between a group of people who come together for a reason other than to make a profit (for example, a voluntary group or a sports club). In this case, the group of people who form this organisation, as individuals, have the legal personality of the organisation and are responsible and personally liable for it in terms of the law.
You don’t need to register an unincorporated association, and it doesn’t cost anything to set one up. However, it is important to note that even if you do not incorporate or register with the charity commission you are still liable for the organisations debts, contracts, or obligations to other stakeholders which, in terms of the law, makes you and your team personally responsible and accountable.
Another important thing to note is that registering with the Charity Commission as a Charity does not mean you are an incorporated organisation. You must either register as a Company Limited by Guarantee with Companies House, or a Charitable Incorporated Organisation.
An unincorporated association works for small operations with minimal risk (say, if you are managing a £1000 grant with a team of 10 people), but you are still recognised under the law so you must bear this in mind as time goes on and you begin to expand. Incorporating is a way of managing and mitigating risk as operations begin to grow!
Read more about unincorporated associations here.
Support
If you would like advice on which legal form to choose, you can come and meet with our VCS support team who can give you advice on the next steps. Get in contact with us: info@communitysouthwark.org
