Unincorporated or Company Status?

Choices

Voluntary Organisation

'Voluntary organisation' is the term used to describe an organisation which is formed when a group of people agree to come together for a particular purpose, often in response to a perceived need, or to bring about change. As it evolves the group may become legally constituted, elect or appoint a voluntary management committee and often seeks recognition as a charity.

A voluntary organisation is non-profit distributing, that is any financial surplus made on their activities is reinvested and not distributed to directors or shareholders.

Voluntary organisations come in a variety of legal forms or structures, and are known by a number of names. Charity, community organisation, non-profit, not-for-profit company, society, association, club, trust, foundation, and many more, are used both generally and specifically to describe voluntary organisations.

In these pages they will be referred to as "Association"

Unincorporated or Company Status?

There are two main types of trading "identity" suitable for Voluntary Organisations:
? Incorporating a limited company by Guarantee
? an unincorporated association

Voluntary "associations" (or organisations or groups) are being formed almost daily.  Their members all have to consider how to organise the association. They will be faced with having to decide what type of legal structure they wish to use for their particular association and, where necessary, drafting a suitable founding document.

They will  need to define a series of practical questions

• what is the purpose of the association - what the association has been created to achieve

• who can become a member

• who is to be responsible for managing and controlling the association

• what the 'managers' and 'controllers' will be authorised to do and how are they to be appointed

• whether the association can borrow money and give grants or loans to other associations

• how members meet and take decisions.

• will it require to have charitable status

A written agreement between the association and its members is frequently referred to as the association's constitution.

The chosen legal form will have a significant impact. If the association is an incorporated body such as a company limited by guarantee then it will be required to adopt a constitution which comprises two documents: the memorandum of association which regulates the company's dealings with the outside world and the articles of association which regulate the company's internal affairs.

Charitable Status

An association with the following appropriate objects may wish to consider obtaining charitable status by registering with the Charity Commissioners or Inland Revenue in Scotland.

• for the relief of poverty

• the advancement of religion

• the advancement of education

• other purposes beneficial to the community

The Commissioners will require to see the associations' constitution and a full statement of the proposed activities. The association will have to satisfy the Commissioners not only that the objects are exclusively charitable but also that the power and duties of the trustees are compatible with charitable status. For example, it must not be possible to alter the objects of the association to a non-charitable purpose and the trustees should not be entitled to any remuneration.

There are certain technical advantages in charitable status; the rule of certainty of trust and the rule of perpetuity against inalienability do not apply. The main advantages, however, are financial.
A charity does not pay income tax if its income is applied solely for charitable purposes. Similarly, a charity does not pay capital gains tax. There is also a mandatory 80 per cent. relief from rates with a discretion to the local authority to grant further relief.