Voluntary Organisation Characteristics

When deciding on organisational structure key features you will need to consider include:

  • Whether to opt for an incorporated structure
  • How assets and liabilities are to be dealt with and protected
  • The degree of local involvement, democracy and/or consultation that is most appropriate
  • Reporting and regulatory requirements and associated administration and costs

Each organisational model has its own advantages and disadvantages and you will need to come to a view with appropriate professional advice as to what model will best suit what you want to achieve and how you want to operate. The main issues, in summary, are as follows.

Liability

In unincorporated organisations members can face personal liabilities for debts and actions taken against them which could be a major concern if you are taking on land and buildings and trading. Likewise trustees also carry a personal liability if things go wrong.

Incorporated organisations have a separate legal identity as distinct from that of its individual committee members and can:

  • Buy and sell property in its own name
  • Take or defend legal proceedings in its own name
  • Offer a degree of protection from personal liability for individual members and members of the managing body

There is a difference between the liability of individual members (people with a right to vote at an AGM) and the liability of the Directors (also known as the board, the management committee or the committee). The extent of members' personal liability is limited to the amount they agree to guarantee. Therefore, individual members are almost totally protected against personal liability in an incorporated organisation The Board of directors (also known as committee members) is responsible for running the company. The directors/committee members generally have no personal liability unless they:

  • Act fraudulently
  • Act in breach of trust
  • Continue to run the company when they know or ought to know it has no reasonable chance of avoiding insolvent liquidation
Democracy

Whilst unincorporated organisations tend to be democratic this will depend on the rules set out in their constitution. Trusts can be far less democratic unless trustees choose to hold themselves accountable to a wider group of people. Companies are generally democratic organisations where there are members offering a guarantee or shareholders with the power to elect and the power to remove officers and /or committee members.

Ownership of land and property

Unincorporated organisations will find it difficult to own land and property without some personal risk falling on individuals as will be the case with trusts, however because a company has a separate legal identity, owning and transferring property is relatively simple. Even when your committee or membership changes the ownership of the property remains in the name of the company.

Raising and borrowing money

Unincorporated organisations will generally be restricted to raising funds from membership fees, activities, grant aid and low risk trading depending on charitable status. Incorporated organisations however will find it easier to seek major grant funding and trade subject to charitable status and a company will generally find it easier to borrow money because the lender knows that the organisation, rather than a changing group of individuals, is responsible for the repayment.

Accountability

Companies are subject to more controls and bureaucracy than other legal structures as the Companies Acts regulates their activities. Annual returns and accounts must be submitted to the registrar of companies. Registers of members and directors/committee members must be kept for public inspection. Companies Limited by guarantee have to notify the registrar of companies whenever a Director leaves or another one is appointed. Companies must also notify the registrar of companies if they enter into any legal charge (e.g. if they borrow money from a bank and the bank has a mortgage over the company's property). Organisations registered as charities will also be accountable to the Charity Commission.