Do you understand your legal structure?

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Understanding your group’s legal structure is vital to grant funding success, and you will need to provide this information to grant funders over, and over again.

If you are just starting out, or just setting up an organisation, think carefully about what will suit your needs both now and in the future.

Many groups start out simply as a group of individuals who have come together to solve a local problem.

Whether you are rescuing cats, providing a service for parents or running events and activities – at some point you will probably find yourself asking “Should we become a charity, social enterprise, community interest company – or one of the many other legal identities.

I need to stress – I am not a solicitor or an accountant and before you make your final decision you absolutely MUST research this properly. Contact your Local Authority Funding Team, a Third Sector Leaders organisation, your local Community Foundation – or speak to an accountant.

The information in this blog post is just to give you an awareness – it isn’t enough for you to make a final decision.

What you need to think about:

There are two broad definitions for groups which is worth understanding initially.

  1. Unincorporated Group – a collection of individuals working together for a common cause.
  2. Incorporated Group – a legal identity recognised in law.

There is no clear-cut, or perfect answer to which legal structure is right for you; it is a case of looking at the options and seeing which suits your unique needs the most.

NB: If you are a school, there are also many different types of structure – make sure you have a clear understanding; are you: Academy, Free School, Maintained School, VC, VE, and is this likely to change in the near future?

Ask yourselves the following questions:

Will we want to raise funds through selling things?

Do we want to apply for grants in the future?

How do we want to make decisions – will members be allowed to vote?

Do we need to be able to pay our management committee or Directors?

There will be many other questions you will need to consider, but these should get you off to a good start.

Different types of charity and Community Interest Companies

There are three main types of charity:

Unincorporated charities – which have a constitution that details what the charity does and how it operates. This is usually for smaller charities because the trustees are personally liable if anything goes wrong.

Incorporated charities (charitable companies) – this is when the charity is set up as a company with Companies House (usually as a limited by guarantee company although there are a very small number of limited by share charitable companies) and registered with Charity Commission as a charity.

Charitable Incorporated Organisations (CIOs) – are like a charitable company except they are only registered with the Charity Commission and not with Companies House as well. This reduces the dual registration and reporting that you have with a charitable company. This type of charity must be registered with Charity Commission regardless of its income whereas the other two types must only register when their income is over £5,000. Below that level they can register with HMRC as a charity to gain Gift Aid repayments.

 

There are two main types of CICs:

Limited by share CICs – where there are shareholders and directors. Directors can receive up to 35% of the surpluses as dividends. Charities cannot pay out surpluses to the trustees.

Limited by guarantee – and thereby does not have shares or share-holders and cannot pay dividends. It just has directors. Both types of CICs have caps on the interest they can pay on performance related loans.

With these two types of CICs there are then several model articles which have slight variations such as who can receive dividends (individuals, organisations or both), if the directors are also the members or if there is a large membership like a coop would have etc.

Community Amateur Sports Club (CASC)

CASC status allows local amateur sports clubs to register with HMRC and benefit from a range of tax reliefs, including Gift Aid, where they meet the qualifying conditions set out below.

It can be a big decision, so do get some expert advice – and you can find lots more information at the links below.

 

Further reading:

https://www.gov.uk/government/publications/community-amateur-sports-clubs-detailed-guidance-notes/community-amateur-sports-clubs-detailed-guidance-notes

http://bit.ly/2kxNYSQ

https://www.gov.uk/set-up-a-social-enterprise

http://charityofkeyinfluence.com/cio/

https://makeanimpactcic.co.uk/2018/02/whats-the-difference-between-a-cic-and-a-charity/

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