As I use the term, ‘legal structure’ encompasses several aspects of an organisation’s fundamental character. It certainly embraces its legal identity – whether it is a company, a charitable incorporated organisation, an unincorporated association, etc – but it also takes in aspects of governance: for example, is it a democratic membership organisation? a consortium? a subsidiary? can it issue shares? The choice of legal structure also needs to take account of the effect of regulatory regimes – for example, the extent to which a registered charity is permitted to engage in trading activity.
Adopting the correct legal structure is an essential element in creating and sustaining a successful organisation. It influences many operational matters: the personal liabilities of the members, fundraising capacity, the ability to borrow money, and decision-making processes. It will also have a major influence on how the organisation is viewed by the rest of the world.
An organisation will usually take particular interest in its legal structure when it is first setting up, and then when it finds itself in changing circumstances, perhaps as a result of growth, new funding patterns, merger or otherwise.
When seeking to identify the most appropriate legal structure for an organisation, we are essentially trying to answer two questions:
(1) What are the key characteristics of this organisation? Factors to consider include:
Core purpose and values
Membership - i.e. exactly who is to own the organisation?
How will it raise funds? Applying for grants, selling services, membership subscriptions, issuing shares, other?
Decision-making and governance
What it may do with income, assets and profits
Quite apart from anything else, discussing these fundamental issues is a useful and constructive exercise for any group, whether in a start-up situation or well-established.
(2) What is the most appropriate form of legal status for this organisation? Most in our sector will choose between:
Company limited by guarantee
Community Interest Company (limited by shares or by guarantee)
Charitable Incorporated Organisation
Community benefit or co-operative society – what used to be known as ‘Industrial & Provident Societies’
Each has its advantages and disadvantages, and one option is likely to be the most suitable for a given situation.
Once we have identified the answers to the above two questions, my job is to put all these various characteristics and provisions together into a single document that will lay down the basic rules for the organisation - the constitution, or governing document, and then make sure this document is properly adopted and, if necessary, filed with one or more regulatory bodies.
CHOOSING A LEGAL STRUCTURE
The process of selecting the most appropriate legal structure will vary to some extent, depending on the nature and size of the organisation and where it is starting from.
I have a range of tools and techniques to help with this process, so please do not hesitate to get in touch - whether you know just what you want or are completely new to the subject.
Feedback from clients over many years indicates that I can make this process mostly painless and possibly even rather interesting!
FREE BRIEFING PAPERS
I have available free briefing papers on a range of topics. Titles include:
Members and directors in a company limited by guarantee
Members and directors in a company limited by shares
CLG, Charity or CIC?
Charitable Incorporated Organisations
Trading by charities
Incorporating a charity
Please feel free to ask for copies.