The main features of an unincorporated body are:
It is not, as such, answerable to any statutory body;
It cannot hold property to enter into contracts. These have to be held by individual management committee members on behalf of the organisation, at their own risk;
Management Committee members, and senior staff, can be personally liable for any debts incurred by the organisation;
It cannot sue or be sued. Members of the management committee would be sued in ay action against the organisation;
For any organisation employing a number of staff, and having responsibility for a sizeable budget, there is a degree of personal risk to management committee members and senior staff.
In order to seek to protect the personal assets of the members of
the management committee, whilst still maintaining a democratic form
of control,
the structure of a company limited by guarantee is widely used. This
does not affect the organisation’s charitable status, if it continues
to operate for charitable purposes only.
COMPANY LIMITED BY GUARANTEE
The company limited by guarantee has an identity, separate from its members. It can own property in its own name, enter into legal contracts sue and be sued. The company is responsible for its own debts, and the personal assets of the management committee, senior staff and members are not put at risk.
A voluntary organisation set up as a company limited by guarantee is registered as a company under the 1985 Companies Act, and it bound by the terms of that Act. Its management committee becomes a board of directors.
Becoming incorporated as a company places certain obligations on the company under the terms of the Companies Act. These include:
Appointing a company secretary
Notifying changes in directors or secretary to the Registrar within 14 days;
Keeping copies of all annual returns to the Registrar;
Keeping accounting records;
Having accounts professionally audited and submitted to the Registrar
HOW DOES THIS AFFECT THE MEMBERS?
The main reason for becoming a limited company is to safeguard the personal assets of the management committee, its staff and its members. The liability of members is limited to an amount they guarantee to pay towards any outstanding debts if the company folds owning money. This amount if very small, usually about £1.
WHAT ARE THE IMPLICATIONS?
There are initial costs: these consist of £150 to register the company and between £500 to £1,000 for the legal advice. There will also be the cost of the annual audit and employing a solicitor as Company Secretary - at least for the first year of operation.
An implication for the membership is that unincorporated bodies cannot become members themselves. They will be required to nominate an individual to join the company on their behalf and act as their representative. This will apply to the majority of organisations who would wish to join your organisation.
The management committee are, in effect, directors of a company responsible to Companies for the legal running of the company, and financial penalties can be imposed on them personally for not carrying out any of the duties under the Companies Act e.g. submitting annual accounts on time, submitting annual returns on Directors, continuing to operate knowing that there finances do not permit this.
RECOMMENDATION
SCVO and VONEF recommend that as soon as an organisation employs staff,
or enters into contracts for leasing equipment or property, it should
consider being incorporated as a limited company.
