Setting-up an Organisation/Group

Messrs G Owen & Co

Setting-up an Organisation/Group - What is involved?

Introduction: All organisations are different, and the voluntary and community sector is very diverse. There is no prescribed right way. However, there are wrong ways to approach this matter. It is not a intended as a exhaustive guide but hopefully the following will raise the pertinent issues, and point you to the appropriate next steps. For advice and information, make enquiries as to whether there is a local CVS (Community Voluntary Service) in your Borough / County. If not, contact us for support and guidance. Simply click on our heading above for more information.

Why do you want to set-up an Organisation/Group?

Are you clear about what the proposed organisation/group is going to do?

Have you checked whether there is somebody already doing this, or at least doing this in the same locality you propose to operate? Is the activity(ies) already provided or are if you set-up an organisation/group, will this duplicate what is already being provided. In some cases this may be appropriate. For example if you intend to open a crèche in a locality where one or more already exists, it may be that because of the limited number of children they can intake, (with legislative criteria for ratio of worker to child(ren)), there may be a waiting list which you can help with by set-upon a organisation/group providing crèche facilities.

However, if an Organisation/Group carry out the same activity(ies) exists, are they doing it so differently to how you would want? Would it be better to get involved to with an existing organisation/group? If another organisation/group exists see if there are good reasons behind this or try to persuade them to change their ways?

Is there an organisation which could perhaps develop or add to its work? Setting up and running any organisation takes time and effort that might be better put into an existing activity.

How to set-up an Organisation/Group?

There are many ways of constituting an organisation. See our other web pages on charities and limited companies. Consider the various issues posed.

Think ahead. It is quite technically and legally complex to change status later on. In the early stages it may make sense to stay as informal as possible, but if things start taking off look into registration issues sooner rather than later, to reduce the problems.

Once again, take legal advice if you can. This may be available via your local Council of Voluntary Service (CVS), an appropriate umbrella/support body or a law centre. If you can afford to pay, you can try a charity law specialist. However, we have been closely involved with a charity which was previously very badly advised on constitutional matters by such

they may overcomplicate things.

You may technically be required to register as a charity, e.g. if your activities are of a charitable nature and your annual turnover is above the ceiling limited under charity law, However, many do not and there are not any significant penalties at present. Funders may also require it.

When to set-up an Organisation/Group?

How soon are you likely to hit the need for an annual audit of the accounts?

When might you start employing staff, or will the organisation/Group always be volunteer run?

When might it end up paying rent on or owning premises? Both of these indicate a need to get limited liability.

Take a look at our other web pages on the Management, Administration, and Finance, (as well as roles, functions, responsibilities), to get a flavour of what issues might need to be thought through in the early stages, and what to come back to later. We have tried to give practical advice relevant to the smaller organisation, and indicate what only concerns larger ones, but there is still a lot here. The start-up period can get be protracted

try to strike a balance so that initial enthusiasm for your cause does not evaporate. A pragmatic, staged, approach is probably best.

What you need to consider Points for consideration in considering setting-up a organisation/Group?

What expertise do you have amongst those already involved, and what do you need to 'buy in' somehow? For example, accountancy, management, administration, the particular activity you are undertaking. There may be legal requirements here, depending on your type of activity and type of governing instrument (Constitution or Memorandum & Articles of Association) chosen.

What resources are you going to need? Money, premises, equipment, materials.

What ways can you get your new organisation/group noticed where it matters, whether to gain recognition and resources or to influence?

Think Food for thought in considering setting-up an Organisation/Group:

For yourselves, but also bounce ideas off others who are not so involved. They may see things that you are too close or absorbed to spot. Considered criticism, even when it seems unconstructive, can help separate potential reality from fantasy but can be hard to come by.

Do not get confused by the jargon used, especially as different parts of the sector can have different spins on the same word. If unsure about anything contact us and we can help clarify.

Action Once you feel ready, go for it!

So often we hear of people ‘talking’ about exciting and even excellent ideas for an organisation/group

but that is where is ends, talk

rhetoric! Providing your idea is supported by ‘evidence of need’ and you feel confident and able to take this on

go for it! If you are uncertain about anything, (and perhaps do not have an umbrella body in your locality), please do not hesitate to contact us for guidance

that it what we are hear for

to support YOU! There is a lot of training out there to help support and empower you to achieve and succeed, including through us @ Messrs G Owen & Co.

What is a voluntary group?

A voluntary group is a collection of individuals who work together to undertake certain activities for the benefit of the community

whatever or whoever that community might be. There are literally thousands of voluntary organisations/groups operating ranging from small specialist self help organisations/groups run by users through to national charities. They can operate on a national county, district or neighbourhood level each tending to have their own specific area of interest.

Voluntary organisations/groups generally exist because people perceive a need and work together to bring about change, or provide a service, for the benefit of the community. All organisations/groups of this kind should have a governing or managing body of some kind. This group is referred to in a variety of ways e.g. management committee, executive committee or board of trustees.

Please also read: Charitable Status | When is a Charity A Charity?

When a group is set up, there are two key issues to consider:

The legal structure for the group

Whether the aims and objects of the group are charitable

Legal Structures:

The rules governing a voluntary group are set out in a constitution, the precise form of which depends on the legal structure adopted. There are three main legal structures used by voluntary organisations/groups; an unincorporated Association, a Trust, and a company limited by guarantee.

An Unincorporated Association:

This structure is ideal for small organisations/groups with a membership, short term goals, low incomes, and which do not intend to employ staff or acquire property. Unincorporated Associations are quick and cheap to set up. Unless a group is applying for charitable status, no other agency need be involved. There are no fees to pay unless legal advice is sought on drawing up a Constitution.

However, an unincorporated association has no separate legal existence and remains for most purposes a collection of individuals. Any property or contracts would have to be held by individuals on behalf of the group, or any legal proceedings taken against the group would, in reality be against the individuals themselves, making them personally liable.

The issues surrounding liability can be quite complex and are beyond the scope of this guide.

A Trust:

Trusts are generally set up to manage money or property for a clearly defined purpose. They establish a formal relationship between three parties: the donors of money or property, the Trustees (normally 3) who become the nominal owners of the trust property and the beneficiaries

the people who will benefit from the trust. Trusts can be set up quickly and cheaply.

Trusts are essentially non–democratic organisations as there is generally no membership structure. Trustees can be personally liable for contracts entered into on behalf of the trust. They are not protected from personal liability

Limited Companies:

A company structure is an increasingly popular choice for voluntary organisations. It is often appropriate if a group is going to be managing staff, land, contracts and / or large amounts of funding. A company limited by guarantee is an incorporated organisation. This means that it has a separate legal identity distinct from that of its members.

Types of Company : There are two types of limited company

Company Limited by Shares:

In a company limited by shares members (shareholders) invest money in the hope of gaining profit. This kind of company is generally found in the commercial sector.

Company Limited by Guarantee:

In a company limited by guarantee there are no shareholders and any profits are re-invested in the company. All members would guarantee to pay a nominal sum, (usually £1 and almost always no more than £5) should the organisation become insolvent. This is appropriate for organisations which aim to pursue some social or political cause.

Advantages of a Company Limited by Guarantee:

Separate legal identity:

A company limited by guarantee is what is known as an incorporated organisation. This means that it has a separate legal identity as distinct from that of its individual Committee members. Therefore an organisation with this status can:

buy and sell property in its own name

take or defend legal proceedings in its own name

offer a degree of protection from personal liability for individual members and members of the managing body.

Liability:

There is a difference between the liability of individual members (people with a right to vote at an AGM) and the liability of the Directors (also known as the Board, the management committee or the committee)

The extent of members' personal liability is limited to the amount they agree to guarantee. Therefore individual members are almost totally protected against personal liability in an incorporated organisation

The Board of directors (also known as committee members) is responsible for running the company. The directors / committee members generally have no personal liability unless they:

Act fraudulently

Act in breach of trust

Continue to run the company when they know or ought to know it has no reasonable chance of avoiding insolvent liquidation.

Democracy:

Companies are generally democratic organisations. Required to have a membership with the power to elect and the power to remove officers and / or committee members. The structure works well for any size of group

Ownership of Property:

Because a company has a separate legal identity, owning and transferring property is relatively simple. Even when the committee or membership changes, ownership of the property remains in the name of the company, so there is no need for any documents transferring ownership.

Borrowing Money:

It is relatively easy for a company to borrow money because the lender knows that the organisation/group, rather than a changing group of individuals, is responsible for the repayment.

Registration Process:

Once the organisation's constitution is agreed, company registration (with the registrar of companies) takes two to three weeks provided there are no complications. The registration fee is low (£20

March 2002)

Disadvantages of a Company Limited by Guarantee

Accountability:

Companies are subject to more controls and bureaucracy than other legal structures. The Companies Acts regulates their activities.

Annual returns and accounts must be submitted to the registrar of companies. These are open to the public. Registers of members and directors / committee members must be kept for public inspection.

Changes of committee members:

Companies Limited by guarantee have to notify the registrar of companies whenever a Director leaves or another one is appointed. Companies must also notify the registrar of companies if they enter into any legal charge (e.g. if they borrow money from a bank and the bank has a mortgage over the company's property).

Memorandum & Articles of Association:

For an organisation thinking of changing from unincorporated to incorporated, it will have to change its Constitution to a Memorandum & Articles of Association. This will consists of two parts:

The Memorandum of Association, which describes the company's aims, powers and the extent of members' liability

The Articles of Association, which describes the company's rules, including procedures for electing the Management Committee and keeping accounts.

Constitution:

What is a Constitution?

A Constitution is a written description of what an organisation is, what it does, and how it does it. There are different terms used for a constitution depending on the legal structure of the group. An unincorporated association would adopt a ‘Constitution’ or a ‘set of rules’. A trust would adopt a ‘Declaration of Trust’. A company would adopt a memorandum and articles of association.

Why is a Constitution needed?

Very often an organisation can be operating for a number of years very informally without a Constitution (although a company must have one to be registered). There may be a point at which it is recognised that the group needs to formalise itself.

Examples of the types of catalyst for such a change could include

an identified need for service development, a need to work more formally with local authorities or the need to secure funding for a particular aspect of the work being done. The development of a written governing document for the organisation can help to ensure that:

1. the organisations/groups aims and objectives are clear and agreed
2. there is a clear process for decision making within the organisation
3. the organisation gains credibility with funding bodies
4. the lines of responsibility and accountability are clarified
5. the group can register with the Charity Commission
6. there is a process for formally appointing the people who run the group

Model and Standard Constitutions:

Before starting to develop a constitution it is important to think about whether the organisation will now, or at some point in the future, need to register with the Charity Commission. If this is likely to be the case then it is advisable to adapt one of the model Constitutions approved by them. This is because it is more difficult to develop a charitable constitution and homemade ones may result in considerable objections or lengthening of the registration procedure with the Charity Commission. The range of approved models include:

model constitutions for charitable unincorporated associations, trusts and companies produced by the Commission themselves

a constitution for a Community Association produced by Community Matters

the Pre-school Play organisations/groups Association standard constitution, which can be adopted by all play organisations/groups.

There are in addition a large variety of other models and standard constitutions designed for a range of specific purposes. For further information on the models that may be most suitable for your group, contact CVS.

If registration is not likely to be required, it may be simpler to develop a constitution from scratch. There is no obligation to use a standard or model governing document. Below are some guidelines on the minimum requirements for a governing document.

Questions to think about when developing a constitution

The name of the group

What are the aims and purposes of the group?

Who is the group set up to help?

Who should be entitled to become a member of the group (e.g. Do they have to live within a certain area? Is membership open to organisations/groups, individuals or both? Should members be between certain ages?)

What should people have to pay to become a member?

Should there be different types of membership for different types of people /organisations/groups?

How many people should be on the Committee? What is the smallest number and what is the largest number that should make up the Committee?

How will the committee be chosen or elected? Who should be allowed to sit on the Committee?

What sorts of things should the Committee be responsible for?

Are there other people who should be allowed to come to committee meetings? Should these people be allowed to vote?

How often should the Committee meet?

Are there any particular rules that should be set?

How long should people serve on the Committee for?

Should there be any people on the Committee with special responsibilities? (e.g. chairperson, secretary, treasurer) If so, how will these people be chosen or elected?

How will the Committee keep all the other members of the group informed about the decisions they make and the work they do?

How should the money and property of the Association be looked after?

What happens if the rules in the Constitution need to be changed, or new things have to be added?

What happens if the group is not needed any more? How can it be ended?

Steps to take when developing a Constitution?

Pull together a group of interested people, which could be done by calling a public meeting to establish the need for such a group. People who are interested in driving things forward are sometimes known as the steering group or the steering Committee.

From the steering Committee, set up a working group to develop a Constitution (models Constitutions and support are available from CVS), or otherwise contact ourselves via e-Mail by click here.

Working group presents a draft Constitution to the Steering Committee.

Steering Committee puts forward comments & suggestions

Working group amends Constitution and re-presents it for further amendments or for adoption

Steering Committee agrees and adopts Constitution (the adoption of the Constitution needs to be minuted)

Steering Committee signs and dates Constitution

Bank account for the group is set up (Bank account name should be the same as the name on the Constitution)

Constitution formally approved at the first AGM. This meeting could double up as a formal launch of the group. This process does not cost anything. There is no need to register with any formal bodies unless the group intends to be a Company Limited by Guarantee or a registered Charity.

Charitable Status What is a Charity?

A group with wholly charitable aims has charitable status whether or not it is registered with the charity commission. In its strict legal sense, a charity is an organisation established for charitable purposes, and will generally be registered under the Charities Act 1993, albeit that under currently Charity Reform this will change over the next two years.

Charitable Purposes:

A group is charitable if all of its aims and objectives as stated in its Constitution are charitable (the Four Heads of Charity):

The relief of poverty

The advancement of religion

The advancement of education

Other purposes beneficial to the community

N.B: Public benefit is assumed under the first 3 heads but has to be demonstrated under the fourth.

As long as a organisation/group can demonstrate that its activities are beneficial to the community (or a substantial part of it) there is scope for extending the traditional charitable frontiers. The following activities could fall into this category:

Protecting lives or property of the community

Resettlement and rehabilitation of ex-offenders and drug misusers

Promoting industry, commerce or art

Promoting moral welfare

Providing public recreation and leisure facilities

Conserving the national heritage

However this is a complex area, and not all apparently charitable activities are in fact charitable in law. This is currently under review, which will result in legislative changes aimed at clarifying and extending the categories of charitable activity.

All money, property and other assets held by a charity are held in trust for the charity’s beneficiaries. The trust is between:

The people who have provided the money or property to the charity;

The governing body of the charity, who control the assets (trustees);

The beneficiaries (users, clients, members etc), who receive or use the charities benefits or services.

This is why charities are subject to trust law and why the members of the governing body have the responsibilities of charity trustees, even if they are called Committee members, directors, or any other title. Being a charitable trustee brings with it additional duties specific to the role. The Charity Commission can provide information on the duties and liabilities of trustees. A page on our web site also covers this specific issue which is worth reading.

Advantages of Charitable Status:

An organisation/group, which has charitable status, will be entitled to the following:

Tax advantages:

Exemption from income tax, corporation tax and capital gains tax, provided that the charities income is applied only too charitable purposes.

Exemption from inheritance tax.

Receipt from the HM Revenue & Customs – (HMRC) • Charities of the income tax paid on a deed of covenant from an individual donor.

Zero rating on certain supplies made by a charity, which is registered for VAT, and zero rating of certain supplies made to any charity.

Exemptions on having to pay stamp duty.

Rate Relief:

Relief of 80% (and often 100%) on rates for property which is wholly or mainly used for charitable purposes and where the ratepayer is a charity.

Note: Please see our web page entitled Rate Reliefs for Charities & other Non-Profit making Organisations/Groups:

Gift-Aid:

Recovery of tax on all giving by a tax-payer - current = 28p per £1 donated.

Note: Please see our web pages on Gift-Aid

[Click on respective logos]: Gift-Aid & Donation Form

-and- Gift-Aid (HM Revenue & Customs – (HMRC) • Charities)

-and- Gift-Aid Matters

Advice:

Advice from the Charity Commission on aspects of running the charity.

Fundraising:

Many funders particularly trusts, have a policy of grant aiding only registered charities. Having charitable status and in particular having a registered charity number also provides credibility when raising money from the public.

Disadvantages of Charitable Status:

Charities activities are restricted in the following ways.

Restrictions:

The charity’s assets can only be used for purposes set out in the governing document. This may restrict the charity’s involvement in certain activities, e.g. trading.

A Charity has limited powers to trade, it may sell its services as part of its charitable work, e.g. providing educational or community care services. It can trade if it is ancillary to the charity’s primary purpose. If the charity wishes to undertake non-primary purpose trading it can set up a separate non charitable trading arm but this will tax and rated in the normal way.

Any investment made by a trustee on behalf of a charity must be made in the best interests of the charity, must suit the requirements of the charity (e.g. with regard to access to funds).

The Charity Commission has the power and authority to investigate charities where it thinks it appropriate.

Charities must not have directly political aims.

Members of the governing body cannot profit or benefit from the charity.

Other disadvantages:

Charities are public bodies, open to public scrutiny

All registered charities (unless excepted by law) must submit accounts to the Charity Commission and may be required by the Commissioners to have an audit carried out.

The Charity Commissioners have considerable powers to investigate complaints, and if there is serious mismanagement to step in and even bring legal action against the charity, the members of it governing bodies and its employees.

How to register with the Charity Commission:

Any organisation wanting to become a charity should obtain a copy of the Charity Commission's publication Registering as a Charity (CC21). This is available on the charity commission website

or a copy can be requested via the Charity Commission helpline 0845 333 888. This publication explains the nature of charities, their advantages as well as their limitations, the different legal structures available to charities and the registration process.

A group will need to have agreed on the most appropriate legal structure, developed aims that are solely charitable by law, developed and adopted a governing document, a trust must execute and stamp its trust deed and a company must have registered with Companies House

and set up a bank account in the name of the organisation/group.

There are minimum requirements for Charity Registration. They are as follows:

That the association’s aims or objects, as stated in its governing document, are solely charitable (see the 4 heads of charity)

That the association has one of the following:

A minimum annual income of £1,000 per year

Use or occupation of rateable land or buildings

A permanent endowment

A charity registration pack should then be requested. The Committee members (known to the Charity Commission as the Charity Trustees) must fill the Charity Commission’s application form and each Trustee must complete a declaration (currently, form DEC 1) in which they certify that they are willing to act as Charity trustees and that they understand what it means to be a charity trustee (this information is supplied within the application pack).

It is difficult to say how long the registration process takes. It depends on how straightforward the case is. If the answers on the application and/ or the supporting documents are unclear, the Commission may ask for additional information or may ask to meet with the Trustees. This may not be because something is wrong, but because the Commission does not have enough information to be certain that the organisation/group is indeed charitable in law.

LVSC (London Voluntary Services Council)

produces a book entitled “Voluntary but not Amateur”

setting out all of the steps involved in setting up a voluntary organisation/group. This we first read when first published and is strongly commended. You can order one from them on 020 7700 8107 or

Development Plan

[Including Work Plan]

[In Acrobat .pdf

Format]

(Association of Chief Executives of Voluntary Organisations.

The Code is designed for all those involved in the governance of voluntary and community sector organisations, and particularly for trustees and chief executives. It will also help staff, volunteers, members and service users to understand what they can expect from a well-governed organisation. Download your free copy using this link in Acrobat

.pdf format.

Download Adobe Reader: (To allow you to download and read both the Charity Commission and our PDF documents) just click on download Adobe Reader by courtesy of Messrs G Owen & Co

Microsoft Office OnLine:

With the help of converters and viewers from Microsoft Office Online, you can view our Microsoft Office files even if you have different versions of Office programs, or even if you do not have Office installed.

NOTE Disclaimer of liability

We make no representation or warranty of any kind concerning the accuracy or suitability of any of the information contained on this web site or page for any purpose or that the information is complete or current. This web site/page and its contents is provided on an 'as is' basis, and we expressly disclaim any warranties relating to fitness for purpose, merchantability, title and/or non-infringement.

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Links:

Where we provide links to other sites we do so in good faith and for your information only. We accept no responsibility for the content, suitability or accuracy of any linked site or any information on it, as linked sites are not within our control, nor do the views, opinions of statements expressed or made on any document or web site/page not attributed to us, reflect, or are those shared or expressed by Mr Gordon P Owen Messrs G Owen & Co.

Governing law and jurisdiction:

These terms and conditions will be governed by English law and will be subject to the exclusive jurisdiction of the English courts.

Mr G P Owen (Messrs G Owen & Co) have provided this the above sources and links in good faith and no responsibility can, or will be taken for the same. Any views or opinions presented are those of the author and do not necessarily represent those of other parties, (if any), involved. Messrs G Owen & Co accepts no liability or responsibility for any onward transmission or use of the web sites/pages or their domains.

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