Each legal form has legal restrictions and advantages depending on your organisation's purpose and intentions. There are a few important ideas to understand before deciding what legal form or structure is right for your organisation.
Incorporation & limited liability
Legal forms can be either incorporated or unincorporated. Incorporation means creating a legal identity for an organisation that is separate from its members – a ‘corporate body’. An incorporated form exists in its own right and can enter into contracts and own property in its own name and employ people. Incorporated organisations can meet its liabilities from its own assets and will limit the liability of its individual members. In this way, organisations that have a moderate to high level of risk may decide to incorporate to protect their members in the future.
An unincorporated organisation has no separate legal identity of its own. That means that those individuals enter into obligations, such as contracts, on behalf of their organisation and they are responsible for its debts and other liabilities. The central feature of most unincorporated businesses or organisations is personal liability for the owner, partner or member of the management committee.
If you are on the management committee of an unincorporated association your personal assets are at risk if the assets of the organisation are not sufficient to cover all the debts and liabilities.
Charity is a legal status for an organisation not a legal form or structure. Charity status will be additional to the basic legal form. Some legal forms and organisational types (e.g. community interest company and co-operatives) are incapable of being charities because they are designed to provide non-charitable benefits, for example members or shareholders may be automatically entitled to certain payments or distribution of profit. Read more on charitable status.
In most organisations there are two main constitutional stakeholders; the members and the individuals who sit on the board or governing body of the organisation. Sometimes these are the same people.
By members we mean any individual or other organisation that has some relationship with your organisation that enables them to exercise some right or power in relation to it. Some examples include the power to amend its constitution, to wind it up, to appoint and remove individuals to the board. Sometimes, for non-charities, this might include the right to receive a financial return from the organisation.
These rights or powers are usually defined in either law or the governing document or constitution that your draft and can vary widely depending on the legal form.
Sometimes things can be confusing when the word members is used for individuals who do not have any constitutional rights but simply have a contractual right to receive certain benefits from an organisation e.g. access to facilities or a newsletter. It is important that organisations maintain a clear understanding of the different types of membership.
Overview of legal forms
The following table summarises the most common legal forms available for charities, social enterprises and voluntary organisations. For more detailed help, NCVO have partnered with BWB solicitors to bring GetLegal - a website providing legal documents and other support for charities and social enterprises. The help for new organisations section outlines the legal journey and has a handy decision tool to help you decide the best legal form.
The Charity Commission also has guidance on Charity types: how to choose a structure.
Incorporated legal forms
|Who controls?*||What governing document?||Who is the regulator?||Limited liability?||Profit distribution?||Charitable status available?|
|Charitable Incorporated Organisation (CIO)||Board of trustees||Constitution||Charity Commission||Yes||No||Yes, automatic|
|Company Limited by Guarantee (CLG)||Board of directors||Memorandum and articles of association||Companies House (and Charity Commission if it has charitable status)||Yes||Usually no||Yes|
|Company Limited by Shares (CLS)||Board of directors||Memorandum and articles of association||Companies House||Yes||Yes||Very rarely|
Community Interest Company limited by shares (CIC CLS) or guarantee (CIC CLG)
|Board of directors||Memorandum and articles of association||Companies House and CIC Regulator||Yes||Yes, but must benefit wider community. Can pay limited dividends to private investors.||No|
|Community Benefit Society (BenComms)||Management committee||Rules||Financial Conduct Authority||Yes||
|Cooperative Society||Management committee||Rules||Financial Conduct Authority||Yes||Yes||Very rarely|
|Limited Liability Partnership||Partners||Partnership deed||Companies House||Yes||Yes||Very rarely|
Unincorporated legal forms
|Who controls?||What governing document?||Who is the regulator?||Limited liability?||Profit distribution?||Charitable status available?|
|Unincorporated Association||Management committee||Constitution||Charity Commission||No||No||Yes (if purposes are solely charitable)|
|Charitable Trust||Board of trustees||Trust deed||Charity Commission||No||No||Yes|
*The members of the governing body of a legal form may actually be known by many different names including as trustees, directors, board members, governors or committee members. For example, the directors of a company limited by guarantee with charity status are very often called trustees instead.
NB - A social enterprise is not a legal form. Read our explanation of the term 'social enterpsie'.
Setting up more than one legal form
Sometimes it is desirable to set up more than one legal entity for an organisation. Usually this is because an activity cannot be carried out by law under the first legal entity; tax efficiency, ring-fencing risk, or the need for the clear separation of the management of different operations.
Examples of this include:
- A social enterprise or business with an associated charity to run the parts of its operation that can receive charitable status.
- A charity and its wholly owned trading subsidiary.
- A social enterprise with one or more subsidiary companies. Businesses often set up subsidiary companies to ring-fence particular risks. For example, one company may own property and lease it to a related operating company that deals with the service provision, which is run from the building.
- A federation consisting of one umbrella organisation and a number of local organisations. Each local organisation may have the umbrella organisation as its sole member. In addition, the local organisation may be linked to the umbrella body through a contract that franchises the business model and/or licenses use of the brand name and logo.