Giselle Davies of Geldards at the Third Sector Funding Conference 2013.

1. Third Sector Legal Structures & Trading –
The Essentials
Giselle Davies, Partner
Tuesday 8 October 2013

2. Introduction
• Typical third sector structures; key features and
examples
• Legal structures handout
• The CIO; what is it and when to use it
• Subsidary trading companies; why and how
• Q&A

3. Why does structure matter?
• (Non) existence of legal personality
• Potential trustee liability
• Plethora of possible structures
• Essential distinction is (un)/incorporated

4. Typical legal structures
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Trust
Unincorporated Association
Limited company
Industrial & Provident Association
Royal Charter Corporation
Statutory Body
Charitable Incorporated Organisation
“Social Enterprise”

5. Trust – Features & Issues
• Governing document varies (trust; deed; will;
conveyance; lease; scheme)
• Unincorporated = no legal personality
• Contracting party = individual trustees
• Possible personal liability issues
• Usually privately set up or follows public appeal
• Rarely used for trading

6. Trust – Examples & Uses
• Privately set up (individual / families / companies):
• The Bute Charitable Trust RCN285226
• Grant making:
• Waterloo Foundation RCN1117535
• Trusts of land:
• Kenfig Corporation Trust RCN 214084
• Public appeals:
• The Aberfan Memorial Charity RCN 701570
• South Wales Miners Welfare Trust Fund RCN 507439

7. Unincorporated Association – Features
& Issues
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Governing document = Constitution and/or Rules
Member organisations
Charity trustees = Committee / Council / Executive
Unincorporated = no legal personality
Contracting party = individual trustees
Possible personal liability issues
May have custodian / holding trustee(s) for
property
• Often trade in furtherance of objects

8. Unincorporated Association –
Examples & Uses
• Community / village association:
• Grangetown Community Concern RCN 511306
• Common purpose (welfare, history, music etc):
• Abergavenny Local History Society RCN 1098582
• Branches:
• 1691 Local Women’s Institutes registered at
Charity Commission
• Church / Chapel congregations:
• Various including Jehovah’s Witnesses

9. (Charitable) Company – Features &
Issues
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GD = Memorandum & Articles of Association
Registered at Companies House
Limited by guarantee / shares
Incorporated = a legal “person”
Contracting party = the charity
Directors = charity trustees (ignore what they are
called!)
• Directors have some liability protection
• Wide or restricted membership / shareholding

10. (Charitable) Company – Uses
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Trades in furtherance of objects
Delivers services
Employs staff
Enters into contracts
Examples:
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Ty Hafan
WMC
RVS
National Botanic Gardens

11. (Charitable) Industrial & Provident
Society – Features & Issues
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Governing document = Rules
Registered with FCA (not Companies House)
Incorporated = legal personality
Executive Committee = Charity trustees
Contracting party = the Society
Liability similar to company directors
Members / shareholders
Traditionally intended for third sector trading

12. (Charitable) Industrial & Provident
Society – Examples & Uses
• Housing Associations
• Cardiff Community Housing Association IP21667R
• Community service providers:
• Community Lives Consortium IP26673R
• Beneficiary Co-operatives
• Co-operative Schemes for the Elderly Ltd
IP025165

13. Less Common (Charity) Structures
Royal Charter Corporations
• Governing document = Royal Charter
• Incorporated
• Executive Committee / Board = Charity trustees
• May have members
• May be trading in furtherance of objects
• Various uses and examples eg BBC; National
Museum of Wales; Arts Council of Wales

14. Less Common (Charity) Structures
Statutory Corporations
• Governing document = statute
• Incorporated
• Charity trustees will be executive body
• Various uses and examples – eg education;
religion; public benefit
• eg Cardiff & Vale College
• May be trading in furtherance of objects

15. Charitable Incorporated Organisation
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Governing document = constitution
Wide membership or foundation models
Registration with Charity Commission only
Registration grants incorporation
Contracting party = the C.I.O
Trustee liability = similar to company directors
“Conversions” from other structures possible

16. “Social Enterprise”
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No legal definition
A variety of legal structures
May be a charity
Common features:• No distribution of profits / use profits for benefit of
community
• Conducts a trade
• Social Enterprise Mark

17. Summary
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See legal structures handout
No “one size fits all”
Tax treatments can differ
Possible to “convert” from one to another if
have to but not easy, cheap or quick
• Vital to select correct structure
• Is the CIO a panacea?

18. What is a CIO?
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New legal form only for charities
Included in Charities Act 2006, in force in 2013
Corporate body not unlike a company
Automatically charitable
Attracts same tax treatments as charitable
companies

19. Is a CIO the right choice?
Advantages of CIO
•Charity Commission (not Companies House)
simultaneously grants
• Incorporated status AND
• Charitable status
•Absence of Companies House involvement means:
• Only 1 regulator – Charity Commission
• No knowledge of company law needed
• No fines / penalties for late filing

20. Is a CIO the right choice?
Disadvantages of CIO
•Set up time – 40 working day turnaround
•Lack of awareness outside sector
•Applicable legislation not gathered in one place
•No charges register – how will funders be satisfied?
•Requirement to file regardless of size
•Loss of charity status means organisation
immediately ceases to exist
•Must have two signatories (unlike company)

21. Why would a new charity be a CIO?
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Model constitutions available
Free registration at Charity Commission
Liability protection for trustees
Own legal identity
It can contract, employ, own property
Don’t need to understand “company” law
Possible lighter touch regulation

22. The CIO in detail - Model CIO
Constitutions
• Two versions available:
• Foundation model
• Association model
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See Charity Commission website
No interactive model available
Use of model recommended by Commission
Language determined by principle office
No Welsh translation available (yet)

23. Which model Constitution to use
Foundation model
•Akin to trust or company where all members =
directors
•Use where trustees = members
•Run by small group of people
•Trustees will make key decisions
•No time limit on length time trustees serve
•Trustees will usually appoint trustees

24. Foundation Model
CIO
Trustees
Management
Function
=
Members
Constitution
& Dissolution

25. Which model Constitution to use
Association model
•Akin to unincorporated association or company
with wide membership
•Use where charity wants a wider voting
membership
•Members will make certain decisions
•Members will appoint some / all trustees
•Trustees serve for fixed terms

26. Association Model
CIO
Trustees
≠
Members
Appoint / Elect
Management
Function
Constitution
& Dissolution

27. Both Constitutions must include
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Name of CIO
Name of 1st trustees
Exclusively charitable objects for public benefit
“Standard charity trustee provisions”
• (retirement, removal from office, meeting procedure,
personal benefit)
• “Standard member provisions”
• (retirement, termination of membership, general meeting
procedure)
• If to have a seal, details as to how it is applied

28. Both Constitutions must include
• If proxy appointment allowed, detail on
appointment, rights and termination
• If postal voting allowed, details as to how operates
• If alternatives to decision at GM or resolutions at
GM, detail alternatives
• If alternatives to decision at trustee meeting or
resolution at trustee meetings, detail alternatives
• If weighted voting, what weighting is
• Whether electronic communications are permitted

29. Main differences between two
Constitutions
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Foundation: members = trustees
Association: not all members are trustees
No membership fees in Foundation
No requirement for AGM in Foundation

30. CIOs in practice
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Members register
Trustees register
No charges register so internal register instead
Change “charity” to “CIO” on publications

31. Trading Subsidary Companies
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Not always necessary
Needed to avoid tax on certain trading activities
Share or guarantee company can be used
Investment by the charity
Arms length relationship - agreement / contract
with parent
• Trading company gift aids donations to the
charity to save tax

32. Trading Company not required for:
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Charity “primary purpose trading”
Ancillary to primary purpose
Charity “small” trading
Charity lotteries
Charity sale of donated goods
Charity letting of rooms (with no services)
Permitted “events”

33. Trading Company – Examples & Uses
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Trading outside HMRC charity exemptions
Charity shops selling bought in goods
Ring fencing risk
Activities outside main objects eg for an
associated “social enterprise” / CIC

34. Trading Company – Examples & Uses
Guidance:
http://www.charity-commission.gov.uk/Publications/cc35.aspx
http://www.hmrc.gov.uk/charities/guidance-notes/annex4/sectiona.htm#10

35. Any questions?
Cardiff
Derby
Nottingham

36. Thank you
Giselle Davies
DD : 029 2039 1797
giselle.davies@geldards.com