An unincorporated association is an organisation set up by agreement between a group of people who come together for a reason other than to make a profit, for example, a voluntary group, a sports club or a charity.
Often these organisations do not have a written Constitution or Rules, or if they do, they are very brief.
An unincorporated association does not have a recognised legal structure such as a trust, limited company, partnership. Consequently, the officers and members have personal responsibility for any debts incurred and claims which may be brought against the association.
Structure
An unincorporated association is not a legal entity in its own right. If there is a Constitution or Rules, usually the members appoint a committee to represent them. If the association owns property, has a bank account or owns other assets, it will also be necessary to appoint Trustees.
When it is used
An unincorporated association is appropriate where the organisation does not need a more formal corporate structure, where personal liability is of little concern and the organisation has a wider membership. It is easy to set up and operate and is flexible which makes it an attractive structure to many organisations.
Legal Liability
When dealing with third parties, members of an unincorporated association are treated as individuals and their membership gives them no protection against potential personal liability to third parties. This means that every member has full personal liability for any type of claim against the association
In the event of a claim, it is usually the committee who will be pursued first The committee can then bring into the claim all other members. The types of claims will include such matters as debts owed to creditors or compensation owed to injured third parties if there is no insurance or the insurer has refused to cover the claim.
Members are also at risk of claims for situations including health and safety, employment and discrimination.
What can be done to give protection?
1. Remaining as an unincorporated association
- It is essential to ensure that the association has an up to date and effective Constitution and Rules. Members and the management committee need to be familiar with and conduct themselves in accordance with the Rules.
- If the association owns property it will need to be held in the names of trustees on trust for the members of the unincorporated association. Trustees will need to understand the duties and obligations of trustees and operate in accordance with the terms of the Trust Deed. It is important that the Trust Deed is up to date and reflects the names of the current trustees. This can be an onerous position for the trustees.
- Ensure there is adequate insurance cover, and nothing is done to make the insurance cover void.
- Provide training for all trustees
- Have an up-to-date risk assessment in place covering all types of risk such as health and safety, cyber attacks, and financial risk
- Review whether an unincorporated association is the best structure and if the members want more protection consider whether it would be better to use another legal structure
2. Incorporation as a Company Limited by Guarantee
Limited by guarantee companies are most often formed by non-profit organisations whose members wish to have the benefit of limited financial liability, for example a members’ association. A charity can also become a company limited by guarantee.
A company limited by guarantee does not have any shares or shareholders but is owned by guarantors (the members) who agree to pay a set amount of money towards company debts, usually £1.00
The benefits of companies limited by guarantee are:
- It is a distinct legal entity from its members and is responsible for its own debts.
- The personal finances of the company’s guarantors are protected. The guarantors will only be responsible for paying company debts up to the amount of their guarantees. This gives confidence to members and makes it easier to attract committee members.
- 'Limited' status builds trust and confidence amongst clients and investors. This type of professional credibility is valuable and can help a company achieve its objectives more effectively.
- The company can hold property and a bank account in its own name.
3. Community Interest Company (CIC)
A Community Interest Company is a corporate vehicle which is specifically for social enterprises and/or 'not for profit' projects.
A CIC has all the benefits of a company limited by guarantee but does have some restrictions, for example reporting to the CIO regulator which can make it less appealing to many organisations.
4. Charitable Incorporated Organisation
The charitable incorporated organisation (CIO) is an alternative legal form specifically for a charity.
A CIO has all the benefits of a company limited by guarantee but does have some restrictions which can make it less appealing to some charitable organisations.
A CIO is a corporate body but not a company incorporated under the Companies Acts; it is therefore not subject to company regulation.