Choosing the right legal structure for your group

If you’re setting up a new community organisation, whether social, charitable, sporting, political or something else, you’ll need to consider which legal structure will be most appropriate for the group and its activities.

For example, will an informal unincorporated group be sufficient? Or will you need something more formal, such as an unincorporated group with detailed written rules, or an incorporated society, or a trust?

There are a number of different legal structures that may be open to your group, each with different advantages and disadvantages. This section discusses each of those forms:

• unincorporated groups
• incorporated societies
• trusts
• charitable trust boards
• companies
• industrial and provident societies.

Some key distinctions

With some of the legal forms discussed in this section, the decision-makers are accountable to a wider membership (for example, an incorporated society). With others, control can be limited to a very small number of people (a trust or company for example).

Another way of categorising the different legal structures is to consider whether it means the group will be an incorporated body – that is, have a separate legal identity.

Those two distinctions are discussed in more detail below.

Accountable to many people or to a few?

In many organisations the key decision-makers are accountable to a larger membership. These membership-based organisations are usually democratically structured and governed, and the governing body has an overriding obligation to serve the organisation’s purposes and objectives. The board or decision makers are elected and can be removed by the membership.

Examples are an incorporated society, which must have a minimum of 15 members, or an unincorporated group with a formal membership.

By contrast, some groups involve just a few individuals, who have decision-making power and are not accountable to any larger membership. For example, in the case of a trust, the decision-makers are the trustees, and strictly speaking there can be just a single trustee (although there are usually at least two). Trustees are not accountable to any membership, although when they deal with the trust property they’re accountable to the people for whose benefit the trust was set up. Trustees are appointed by themselves in the case of initial trustees and by each other as time goes on.

A company is another structure where decision-making power and ownership of the group’s property can be kept in the hands of only a small number of people. A company can be set up with just one shareholder and one director.

Incorporated or unincorporated?

Incorporated societies, charitable trust boards, companies, charitable trusts and industrial and provident societies can all be incorporated groups, in contrast with unincorporated membership groups and trusts.

Incorporation gives an organisation the following key features:

• Separate legal identity – An incorporated group has its own legal identity, separate from its members. The law treats the group as if it were a separate “person” in its own right, so that it can, for example:
• enter into contracts in its own name (if its rules allow this)
• buy, sell, own, lease and rent property (again, subject to its rules)
• execute legal documents (such as deeds and leases) in its own name, using its “common seal” (official stamp)
• borrow money and give the lender securities over property owned by the group (subject to the rules)
• sue and be sued in the courts in its own name.
• Continuing existence – An incorporated group has “perpetual succession”, which means it continues to exist as a separate legal entity regardless of changes in its membership. This gives a group a stronger reputation when it’s seeking grants or donations or negotiating contracts, as it gives the group a sense of permanence and credibility.
• Limited liability for members – If a group is incorporated, its members benefit from gaining “limited liability”. This means that when the group takes on any debts or other legal responsibilities, it can usually only be sued in its own name, and its members aren’t usually personally responsible.

The corresponding limitations of remaining unincorporated are discussed in the section in the section on unincorporated groups.