Charities

Charities must be properly constituted. This involves adopting some kind of legally recognised. This usually involves a choice between being unincorporated or being incorporated (Limited Liability). Charitable associations and trusts are unincorporated bodies and all registered companies and industrial and provident societies are incorporated.

Traditionally, most charities have chosen the structure of an unincorporated association or charitable trust. However, the responsibilities placed on those in management or control under the 1990 Act are leading increasing numbers of bodies to opt for incorporation because of the greater protection it affords. Also, the increasing deregulation in company law in contrast to the increased regulation of unincorporated bodies can make company status attractive even to smaller charities.

The main reason for those involved in setting up a charity to choose incorporation is the benefit of limited liability status. The limited liability company has a "legal personality" quite separate from its members or office bearers. The limited liability company is responsible for meeting its commitments rather than the members or officers.

Members of the voluntary management committee of an unincorporated association can have unlimited personal liability.

Where there are substantial financial commitments involved with the association it may be beneficial to opt for incorporation, otherwise, should things go wrong, debts may have to be met from members' OWN resources.

Incorporated status can be seen as complex, expensive and inflexible. In the past this has dissuaded small or medium-sized associations from choosing that particular legal form/structure. This has led them instead to opt for what is still the most common form of association within the voluntary sector, the unincorporated association. This structure certainly has more flexibility since there are no statutory rules governing the kind of structure to be adopted, and its constitution may simply be a minute of the first meeting of those involved. However, the requirements imposed by the 1990 Act and the subsequent accounting regulations have narrowed the differences between incorporated and unincorporated bodies.

It is advisable to look at all the issues involved before deciding which legal structure to adopt