Types of Voluntary Organisation

If you want to take on the role of owning, running and managing a local playing field, recreation ground, sports club or similar facility, it is important that you consider all the organisational options available, consider the different opportunities, risks and liabilities, and where appropriate take independent advice.  Local management of community assets is a challenging job.  You will need to provide a suitable vehicle for this to take place.

When setting up a community organisation there are several possible legal structures. Deciding which type of organisation is most appropriate is essential as each structure has its own advantages and disadvantages and will influence how far the asset can be used, developed and protected in the future.

The different types of organisations that can be used are grouped as follows:

An Unincorporated Association

This approach may have been the initial structure for campaigning to protect a facility or a site in the first instance. It tends to involve a small group of members with short-term goals and is appropriate where there is no intention to employ staff or acquire property. An Unincorporated Association is relatively quick and cheap to set up. Unless an organisation is applying for charitable status or registration as a Community Amateur Sports Club (CASC), no other agency need be involved. There are no fees to pay unless legal advice is sought on drawing up a constitution.

However, an unincorporated association has no separate legal existence and remains for most purposes a collection of individuals. Any property or contracts would have to be held by individuals on behalf of the group, and any legal proceedings taken against the group would, in reality, be against the individuals themselves, making them personally liable. The issues surrounding liability can be quite complex and you will need to be very clear about the risks involved.

A Trust

A Trust can be set up to manage land and property and to receive money for a particular purpose for the benefit of a wider community. They establish a formal relationship between the donors of money or property, the Trustees (normally three) who become the nominal owners of the trust property and the beneficiaries – the people who will benefit from the trust. Trusts can be set up quickly and cheaply. Trusts are non–democratic organisations as they do not tend to have a membership structure although trustees can agree to report regularly and consult with a wider group of people. Trustees can be personally liable for contracts entered into on behalf of the trust and are not protected from personal liability. You can, however, take out insurance to provide some financial protection.

A Limited Company

A company structure is an increasingly popular choice for voluntary and community organisations.

It is very appropriate if you intend to be managing staff, land, contracts and/or significant amounts of funding. A company limited by guarantee is an incorporated organisation. This means that it has a separate legal identity distinct from that of its members. This legal structure limits the liability faced by Directors in the case of insolvency, except in cases of negligence or recklessness. This is the most flexible legal arrangement but the main constraint is that shares cannot be issued.

You will need to register the company with Companies House and company law must be abided by.

Community Interest Company (CIC)

A Community Interest Company is limited by guarantee or share issue with several added features such as a community interest test, an asset lock and a cap on dividends. The legal form gives greater flexibility than charitable status but emphasises public benefit over private profit.

Each CIC must specify the community that is intended to benefit from any profits made by the company (this could be as wide as all the residents of a defined geographical area) and the CIC regulator must approve this. The asset lock enables capital gains to be directed to the specified community and the dividends cap limits the amount of profit private investors can take out of the business.

Industrial and Provident Society (IPS)

An IPS is a trading organisation that operates as a co-operative either for the benefit of its members or the wider community. An IPS is usually funded by share capital, but this takes a different form to limited companies. The value of the shares is fixed and does not go up and down with the value of the organisation.  An IPS is the only vehicle that can issue shares on a low-cost basis. Buying a share confirms membership and decisions are taken on a one-member-one-vote basis (regardless of number of shares owned) and there is an upper limit on the cash value of shares that can be held by one individual. IPSs are regulated by the Financial Services Authority (FSA).