Overview of organisational structures for cultural organisations

A brief description of: trusts, unincorporated associations, companies limited by guarantee, charitable incorporated organisations, and community interest companies.

Posted: 11/04/2014

Category: Organisational Structures

When setting up your social enterprise it is important to have the right legal structure. Luckily there is clear advice online:

1. Trust

• The governing document is a trust deed or a will. 
• There is no protection
  from liability for the trustees.

2. Unincorporated association 

• A group of individuals who come together to pursue a shared goal. 
• Such an organisation is not subject to any regulation by company law and its liabilities are
  usually unlimited. 
• The governing document is a constitution or rules and there is usually a membership. 
• The trustees are often referred to as the management committee. There is no protection from liability for the trustees, and consequently the Members can be personally liable.
• With the relative informality and
  flexibility afforded, an Unincorporated Association may offer an appropriate structure for
  Social Enterprise.

3. Company limited by guarantee (CLG) 

• A Company which does not feature any Share Capital (subject to historic exceptions).
•  The Members of a CLG undertake to pay an amount (usually a nominal sum e.g. £1 or
  £10 etc) to contribute to the assets of the CLG in the event of it being wound up. 
• As there are no shares, a CLG cannot pay Dividends. Consequently,
  a CLG is unlikely to be suitable as a vehicle for distributing Profits to Members or other
  investors, which may make it suitable as a vehicle for Social Enterprise. 
• A CLG can become a registered Charity if its objects are exclusively charitable, unless it is a CIC.
• The trustees (or directors) are protected in most circumstances
  against contractual liabilities. Charitable companies must register with
  Companies House and, usually, with the Charity Commission.

4. Charitable incorporated organisation (CIO)

• The CIO was created in response to requests from charities for a new structure which could provide some of the benefits of being a company, but without some of the burdens. 
• The governing document will be a constitution. 
• The trustees will be
  protected in most circumstances against contractual liabilities. 
• A CIO is registered with the Charity Commission and has a two level structure with Trustees governing the day-to-day activities of the CIO who
  are accountable to the membership. 

5. Community Interest Company (CIC)

• A Company subject to additional requirements (over and above those for registering a CLG) and the Community Interest Test, acting for the benefit of a defined community. 
• A CIC is intended as a specialist vehicle for Social Enterprise and cannot register as a
  Charity.
• A CIC’s Articles of Association must contain certain prescribed provisions, including a
  statutory Asset Lock. 
• Subject to the approval of, and on-going regulation by, the CIC Regulator, and is also
  registered with Companies House. 
• A standard CLG can be converted to a CIC if appropriate amendments are made to
  its Constitution. 
• A CIC limited by shares can potentially pay Dividends to Shareholders, subject to restrictions.