1) Governance-constitutions for your group

INTRODUCTION

The critical foundation upon which any governance is founded is the legal (or not) status of your organisation. There is a wide range of structures open to organisations which are active in the community. This page contains brief details of structures for not-for-profit organisations.

1) Community Groups and Voluntary Organisations This category covers a whole mass of organisations, ranging from small neighbourhood groups run by local people to larger voluntary agencies with staff. They may be working to improve their local area, campaigning for change or providing a service. Some will be charities.
2) Social Enterprises Social Enterprises. These have been defined as “a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners”. Most aim to be viable trading concerns, making a surplus from trading alone.
1. Community Groups and Voluntary Organisations
The four types of structure which your group may want to consider are:
Unincorporated Association
Charitable Trust
Charitable Incorporated Organisation (CIO)
Charitable Company
The first two are quick and cheap to set up. It is also fairly simple and cheap to set up a Charitable Incorporated Organisation but the registration process can be lengthy. Establishing a Charitable Company can be more time-consuming and expensive.
Whichever structure you choose, you must draw up a set of rules stating how your group will work (known as the governing document). There is a different type of governing document for each structure. The information on legal structures for community and voluntary groups looks in more detail at these four structures.

A few groups that think of themselves as community organisations may find that a business structure, such as a Co-operative or a (non-charitable) Limited Company, is more appropriate than one of the four structures usually adopted by community groups or voluntary organisations. For example, a large campaigning group may decide that it needs a more formal structure than its starting point as an unincorporated organisation and that a limited company is more appropriate. Or a small group of community artists may prefer to set themselves up as a form of co-operative.
Unincorporated Association
An Unincorporated Association is a membership organisation. It can be whatever its members want it to be, and carry out whatever activity you choose. It is the easiest, quickest and cheapest way for a group to set itself up. There is no need even to keep a membership list – anyone who is entitled by your rules to be a member can simply turn up and take part. It is ideal for many small groups, especially those without staff or premises. A large number of groups fall into this category (sometimes without knowing it).
You do not have to seek approval of any kind before setting up and you are free to draw up your own democratic constitution setting out the rules under which your group will be run. You do not have to register with any regulatory body, unless your group has charitable aims and an income above £5,000 per year you, in which case you are required to register with the Charity Commission. For more information about unincorporated associations see Legal Structures for Community and Voluntary Groups.
Charitable Trust
A Trust is usually set up to manage money or property for a charitable purpose and will need to register with the Charity Commission if its annual income is over £5,000. It is not a membership organisation but is run by a small group of people, known as trustees. A Trust is fairly cheap and simple to establish. For more information about Charitable Trusts see Legal Structures for Community and Voluntary Groups.
Charitable Incorporated Organisation (CIO)
A CIO is a charity which is also incorporated. In law it is recognised as a legal entity, which can enter into contracts, buy or lease property, and employ people. The trustees/committee members benefit from having limited liability. It is registered with the Charity Commission, and the accounting and reporting requirements are less onerous than those of a charitable company. Registration of a new CIO takes a minimum of 40 days, but converting an existing charity into a CIO can take 12–18 months. For more information about CIOs see Legal Structures for Community and Voluntary Groups.
Charitable Company
A charitable company is a limited company with charitable aims. It is an incorporated organisation which means that it has a legal identity separate from its members. In law, a limited company is considered to be a person and it can therefore own land or enter into contracts. The directors are agents of the company and are not personally liable for its debts.
Establishing a charitable company involves registering with both Companies House and the Charity Commission, and then submitting your annual report and accounts to both bodies annually.For more information about Charitable Companies see Legal Structures for Community and Voluntary Groups.
2. Social Enterprises
Businesses covering a wide range of activities are defined as social enterprises. Legal structures to consider are:
Industrial and Provident Society (Co-operative)
• Bona Fide Co-operative Society / Co-operative Society (including a Credit union)
• Society for the Benefit of the Community / Community Benefit Society
Limited Company
Community Interest Company (CIC)
Partnership and Limited Liability Partnership
Development Trust and Social Firm
Industrial and Provident Society (Co-operative)
A Co-operative is a business that is owned and democratically controlled by its employees but it is not a single legal structure. A Coop can be established as a Partnership or a Company Limited by Shares. But, the two most common forms are as a Company Limited by Guarantee or as a Bona Fide Co-operative Society / Co-operative Society.
An Industrial and Provident Society (IPS) is an incorporated organisation and its members benefit from limited liability. There are two types of IPS: a Bona Fide Co-operative Society / Co-operative Society and a Society for the Benefit of the Community / Community Benefit Society. An IPS must register with the Mutual Societies Registration section of the Financial Conduct Authority, the regulatory body. In general regulation is lighter than for Limited Companies and the accounting requirements far less stiff.
An IPS is run by its members and there are several sets of model rules. Profits must generally be ploughed back into the business. Where part of the profits are used for another purpose, that purpose should be similar to the main aim of the society, for example for philanthropic or charitable purposes. Where the rules of the IPS allow assets to be sold, the proceeds must be put into its business activities. A change in the law has now made it possible for a non-charitable IPS to have an “asset lock”, similar to a CIC above, to ensure that its assets are always used to benefit the community.
An IPS whose aims are wholly charitable is considered an ‘exempt charity’ – it cannot register with the Charity Commission and is not regulated by them, but it is generally bound by charity law. A charitable IPS already has an “asset lock” under charity law.
a) Bona Fide Co-operative Society / Co-operative Society
This is a business owned and democratically controlled by its employees and founded on seven basic principles, one of which is Concern for the Community. Although a co-op must make a surplus to be successful other motives may be equally important; for example, a recycling co-op will be based on concern for the environment. A co-operative must have at least two members.
A Credit Union is a specialist form of co-operative, regulated by an act of parliament covering financial services. It is a financial cooperative whose savers are its members. Money is saved in a common fund and can be used to make low interest loans to members. A Credit Union is run by a Board of Directors elected from among the membership at the AGM. There are other specialist cooperatives such as housing co-ops which are covered by separate regulation.
In 2010 a legislative change was made to change the name from “Bona Fide Co-operative Society” to “Co-operative Society”.
b) Society for the Benefit of the Community / Community Benefit Society
A Society for the Benefit of the Community / Community Benefit Society must show that its activities benefit the wider community rather than simply its members. It also has to demonstrate a ‘special reason’ for registration as an IPS rather than as a company.
In 2010 a legislative change was made to change the name from “Society for the Benefit of the Community” to “Community Benefit Society”. It is not yet known when this change will come into effect, but some authors and organisations are already using the term “Community Benefit Society”.
For more information about setting up and registering an Industrial and Provident Society, contact the Financial Conduct Authority.
Limited Company
This may be a Company Limited by Shares or Limited by Guarantee. Its Memorandum & Articles of Association must state that any surplus is put towards the company’s social purpose and usually defines the company as democratic and accountable to the community through its membership. In law, a Limited Company is considered to be a person and it can therefore own land or enter into contracts. The directors are agents of the company and are not personally liable for its debts. This is a flexible structure, suitable for a wide range of Social Enterprises, but regulation by Companies House is fairly strict and there are detailed requirements for annual reports and accounts.
Community Interest Company (CIC)

Community Interest Company CIC
A CIC is a limited company with special features to ensure that it works for the benefit of the community. It differs from a charitable company in that it can be established for any legal purpose which benefits the community, whereas a charity must have exclusively charitable purposes. A further advantage is that a CIC is subject to lighter regulation than a charitable company. On the downside, a CIC may not be eligible for funding which is available to charities.
CICs commit their assets and profits permanently to the community by means of an “asset lock”, ensuring that assets cannot be distributed to shareholders. They report to the Regulator of Community Interest Companies. A big advantage is that a CIC’s not-for-profit status is visible as well as assured.
It is worth noting that a CIC cannot register as a Charity, but that a Charity may set up its trading subsidiary as a CIC.
CICs have to register with Companies House as a company limited either by guarantee or by shares and then apply to the new Regulator for CIC status. The CIC Regulator’s website has detailed guidance notes on all aspects of setting up a CIC, or converting an existing limited company to a CIC. For more information contact the Office of the Regulator of Community Interest Companies.
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 Partnership 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.

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. Social Firms are businesses set up specifically to provide employment or training to disabled people, and they are usually Limited Companies or Co-operative Societies.
More information
At Cara Community Services we are happy to assist you in setting up a community and voluntary group and chose the most appropriate legal structure for your group.
For information about setting up a charity, see Charity Registration and Requirements.

Further help
For further help on other related topics, see our lists below :
Information for social enterprises and cooperatives
Information on setting up a company
Information on charities and charity law
Information on legal structures
Online tools to help with choosing a legal structure
Organisations that give loans to social enterprises and cooperatives

If you require any further assistance please  telephone john Brennan on 01803 852270 or email john@caracommunity.co.uk