Unincorporated associations are commonly known as Community groups and are suitable for smaller organisations with little or no assets.
Many new groups set up as an unincorporated association and may decide to register as a CIO (or other incorporated body) over time as they grow or evolve. It is easy, cheap and quick to set up an unincorporated association.
- Unincorporated associations are not required to register with the Charity Commission unless their annual income is over £5k and their aims are exclusively charitable.
- They are governed by a management committee.
- Provides a democratic process with a flexible structure.
- They must have a constitution which sets out how the group will be run and its purposes.
- Unincorporated associations cannot enter into contracts.
- If an unincorporated association wants to rent premises or employ people, this is done in the eyes of the law by individuals on behalf the group.
- Individual members of the management committee are personally responsible for the group’s obligations and debts, and are liable if, for example, the group is sued.
This is a type of registered charity. To become a CIO, you will need to register with the Charity Commission.
Your organisation must operate for the public benefit and have purposes that are exclusively charitable (See here for more information on charitable purposes).
The advantages of becoming a CIO are that the organisation is a legal entity and that trustees are not personally liable for any debts.
There are also significant tax benefits available such as Gift Aid for CIOs.
You do not have to have a minimum level of annual income to register as a CIO.
- Your organisation must be set up before registering with the Charity Commission.
- CIOs are registered with and regulated by the Charity Commission and will have a unique charity number.
- You will need to report on activities and finances to the Charity Commission each year (note that there are strict deadlines and that fines will be imposed if these are not met).
- A CIO is governed by a board of trustees.
- Trustees are not personally liable.
- A CIO must have a constitution as its governing document, which is the legal document that creates the charity and says how it should be run. (Essential to use the charity commission template).
- A CIO must keep a register of all Trustees updated on-line with the Charity Commission.
- There are two types of CIO:
- Association – A wider membership with voting rights.
- Foundation – Trustees are the only members (No wider membership).
A CIC is a limited company, it is not charity.
CICs are social enterprises that exist for the benefit of the community rather than private shareholders.
CICs need to register with the CIC Regulator which is based at the Companies House. Your organisation must operate for the public benefit rather than private profit or community benefit.
Directors are protected with limited liability.
CICs differ from commercial companies as there are caps on whether or how much surplus funds can be distributed to members or shareholders.
There are seven different structures to choose from.
- You will need to report on activities and finances to both the CIC Regulator and Companies House each year (adhering to deadlines for both organisations).
- They need to pass a Community Interest test to set up and continue running.
- Its legal governing documents are the Memorandum and articles of association.
- Directors can take a salary.
- The organisation can run much like a normal business, it is a limited company.
- Unlike a CIO, a CIC receives no tax concessions.
- Continuity of purpose – Funds invested and any assets will continue to benefit social and charitable ends even if the CIC no longer exists. There is an Asset Lock in place.
- Quick to set up and a light touch regulator.
If you are undecided between a CIO and CIC and need further help, see here or contact your Community People Community Development Coordinator.
A Charitable trust is usually set up if the organisation is to manage money, property or land for a charitable purpose.
It is fairly easy to establish a Charitable Trust.
- A Trust will need to be registered with the Charity Commission if it’s annual income is over £5k, and will need to report on activities and finances to the Charity Commission each year.
- A Trust is governed by a board of Trustees.
- A Trust will have a Trust Deed as its governing document.
- A Trust does not require a wider membership.
- A trust is less regulated than other incorporated structures.
- Trustees are personally liable for any debts – there is no limited liability.
- Trusts cannot enter into contracts.
A charitable company is a limited liability company, incorporated and registered both with Companies House and the Charities Commission.
- A charitable company is an incorporated legal entity(Unlike an unincorporated association or trust) and can own property, will be liable for its own debts, and can enter into contracts with other organisations (IE no need for trustees to do this on their behalf).
- The charitable company is run with charitable articles, has directors and members but the directors will also be trustees for the purposes of the charity element of the organisation.
- The persons running the company are protected by limited liability.
- A charitable company can own property and sign contracts in its own name. This is an advantage if your charity has employees, owns property, signs contracts to complete work, has long-term financial commitments such as a lease or runs risky activities.
- Charitable companies must make returns and submit accounts on an annual basis to both Companies House and the Charity Commission which is its main disadvantage. It must also comply with both charity and company law.
