Step 1: What, how and who
You need to have a good idea of exactly what you intend to do. Here are some questions to consider:
- Will your group offer a service to a community or will it solely benefit its members?
- What are the aims of the group?
- What do you want to achieve?
- What geographical areas are you going to cover?
In order to move onto the next step, you will also need to have gathered at least two other people who are committed to your group. This will make up your management committee, (also known as Board of Trustees or Board of Directors). You will need to have a discussion about the different roles on a committee – Chair, Treasurer and Secretary being the main ones.
If you feel you have a great idea but need other people's support, you can speak to our team to see if there are other people in your area who share your passion.
Who will you work with?
If you are providing a service then you may want to identify a specific group of people with whom you are going to work, for example people affected by a specific issue or living in a defined area. If you are going to work with several groups, then you need to think carefully about any possible conflicts of interest. You should also think about what area you will cover - for example, will you only cover a specific local neighbourhood or a whole town or city? Be realistic with your resources and where you can make the most impact. Don't try and overstretch yourself.
Are you overlapping with other groups?
Once you have put in some consideration on how it might work, you need to research and find out if there are any existing groups that do similar kinds of work in your given area. It is much harder to find support and funding if you are duplicating what other groups are doing.
So make sure that your big idea is new or unique in some way before you start. If there are already groups doing the same work, perhaps you could get involved with them.
If you have a new idea and are ready to go, can you work with other organisations to create something new or benefit from their experience and connections? If you are in a similar geographical area, then you could perhaps share premises and work together for the benefit of both groups.
Action Together works with hundreds of local voluntary organisations and we host networks across Oldham, Rochdale and Tameside.
Step 2: Deciding on your structure
Once you have at least three people who are committed to running your organisation you need to decide which legal structure will best suit your organisation.
Your legal structure can have a huge impact on any future activities, such as fundraising, trading or contracting because your legal status is closely linked with how you are governed and regulated. It can also affect your legal rights as an organisation.
Unincorporated
If you are a community group, local club, or association that is not registered with the Charity Commission, your type of organisation is known in legal terms as an ‘unincorporated association’. This means that even if you have your own name as a group, you are simply a group of people coming together under a shared interest or activity and you have no separate legal identity. Since your organisation is not a separate legal entity in the eyes of the law, individuals take personal liability for any risk or debts and you cannot enter into any legally-binding contracts in the organisation’s name.
Registered Charity
If your organisation has charitable aims and is for the benefit of the public, you might like to register as a charity. The Charity Commission regulates and administers all registered charities in the UK, offering much guidance through their website. (link to Charity Commission website here)
Registering as a charity is not a legal form in itself. In order for your organisation to become a separate entity in the eyes of the law, organisations must become ‘incorporated’, choosing a legal structure that is right for them. The following ‘incorporated’ forms introduce the main types of legal structures within the voluntary and community sector.
Charitable Incorporated Organisation (CIO)
A CIO is a legal structure regulated by the Charity Commission that was introduced to help simplify the process for setting up a charity. A CIO is governed by Charity Law (not Company Law) and the liability of trustees is limited (rather like being a director of a limited company).
There is no minimum level of income required to register as a CIO so a new organisation can immediately apply to be registered at the Charity Commission.
There are two forms of CIO:
Association model – this has a wider membership, including voting members other than charity trustees
Foundation model – the only members are the trustees and there is no wider membership
Company Limited by Guarantee (CLG)
A CLG is essentially a private company that reinvests any profits back into the company.
It has its own members but does not have shareholders or shares – because of this they can apply for charitable status. A CLG means that an organisation becomes incorporated as a legal entity in its own right.
In order to become a CLG you will need to register with Companies House as well as the Charity Commission (this is often done at the same time). This means that CLG’s have to comply with both Charity Law and Company Law.
Co-operative or Community Benefit Society (CBS)
CBS’s are organisations that carry out a business, trade or industry either as a co-operative or for the benefit of the community.
They are more expensive to set up than a charity and are generally less common as a legal form because their governance structure is more complex.
There are two different types of CBS. The more common type is a co-operative society, which is run for the mutual benefit of its members. In a co-operative, any surplus is still ploughed back into the organisation. The difference is that co-operatives are owned and run by the people who work there, its customers, or by a group of businesses that have come together to form a consortia under the co-operative model.
The other type of CBS is a community benefit society run solely for the benefit of the community, although there is much overlap between the two.
Community Interest Company (CIC)
A CIC is a type of company designed for social enterprises that want to use their profits and assets for the public good. CICs are intended to be easy to set up, with all the flexibility and certainty of the company form, but with some special features to ensure they are working for the benefit of the community. CICs are formed for a wide range of purposes and vary in size accordingly. CICs cannot be a charity and governance arrangements can vary greatly.
CICs must register with Companies House and also satisfy a Community Interest Test to show the primary purpose is to provide benefits to the community, rather than to the individuals, who own, run or work in them. Each year CICs are required to send a copy of their annual accounts to Companies House (like other companies), but also must produce an annual Community Interest Report as well, outlining their activities for the community and how they are involving their stakeholders in their activities.
In addition, assets and profits have to be used for the community interest so there will be a limit on the levels of distribution of profits or assets that may be made to members – this is known as the asset lock.
Step 3: Your governing document
Each legal structure has a governing document also known as a (Constitution, Trust Deed or Memorandum and Articles of Association or The Rules) relevant to it.
Your governing document is like a set of rules and includes things like:
- What the charity is set up to do (objects).
- How the charity will do those things (powers).
- Who will run it (charity trustees) - your charity trustees (also known as your management committee or board).
- What happens if changes to the governing document need to be made (amendment provision).
- What happens if the charity wishes to wind up/close down (dissolution provision).
- How the charity trustees will run the charity.
- Internal arrangements for meetings (such as your Annual General Meeting).
- Voting procedures and financial procedures etc.
The following list shows which governing document relates to each legal structure.
Unincorporated
Governing document: Basic constitution
Registered charity
Governing document: Small charitable constitution or memorandum and articles of association
Company Limited by Guarantee (CLG)
Governing document: Memorandum and articles of association
Co-operative or community benefit society
Governing document: The rules
Charitable incorporated organisation
Governing document: Constitution
Social enterprises and community interest companies (CIC)
Governing document: Memorandum and articles of association
Charitable trust or foundation
Governing document: Trust deed
Help is at hand!
We haven’t provided you with template constitutions to download and complete yourselves as we recommend you contact the Development Team to help you make sure you get the right legal form and constitution for your group. Please contact Email: development@actiontogether.org.uk or Tel: 0161 339 2345
Step 4: Taking your group to the next level
Financial Management
When you have decided upon your legal structure and adopted your governing document you will also need to set up a bank account with a minimum of two named people responsible for signing any cheques. These two people must not be related.
You also need to ensure you have a clear and robust financial system.
Risk Management and Insurance
It is up to your management committee, board, or trustees to identify and manage risks for your organisation, as well as understand their own legal obligations because there are certain types of activity where insurance is required by law. Your trustees, for example are responsible for approving your organisation’s approach to risk management and deciding what risks to insure against and when. It is their responsibility to make sure that your organisation has the appropriate insurance cover for any work or activity carried out.
Finding the right type of insurance will depend on the size of your organisation, type of work, where the work is carried out, number of staff or volunteers, etc. Common types of insurance include public liability insurance, buildings insurance, contents insurance, event and appeals insurance and professional liability insurance.
Policies and Procedures
We can help you to establish policies and procedures that are appropriate and necessary for the smooth running of your organisation.
For more information please contact the development team at Email: development@actiontogether.org.uk or Tel: 0161 339 2345.