NPCA Toolkit 3.1


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NPCA Toolkit 3.1

  1. 1. NPCA Toolkit 3.1 Choosing a legal structure This section introduces the different legal forms that your National Association might adopt. This information is inevitably quite general as the laws determining legal structures and status vary considerably between different countries. We describe some common legal structures but these are not universal and their names and powers are likely to vary in your country. You can use the descriptions and questions in this section to help inform and guide your thinking, but you should then approach an experienced constitutional or corporate lawyer to help you prepare the formal legal documents that are suitable for an Association in your country. Why do we need a legal structure? Whenever two or more people or organisations come together to organise an event or offer some kind of services they are automatically regarded as a „partnership‟ or an „association‟. They are seen to be acting together, rather than separately. This is fine if all that you are doing is sharing information with each other or discussing palliative care amongst yourselves. However, when this informal group starts to make information or services available to a wider audience there is a need to be clearer about who is responsible and in whose name you are acting. Choosing a legal structure is all about defining WHO is responsible, WHY you are choosing to associate with each other, WHAT you are agreeing to do together, and HOW any risks associated with your association‟s activities are going to be managed. As soon as your association starts to engage in activities and services, the number of risks to which you are exposed begins to increase. You will need a bank account and someone to be responsible for the monies. If something goes wrong with your services, or you were to provide inaccurate information, who is going to be responsible? Who is going to make decisions on behalf of the association? If you employ someone, who will be their legal employer? These are all issues that the right legal structure should help to answer. Three main forms of legal structure Whilst the terminology varies around the world, there are generally three different types of legal structure to consider. They are of increasing complexity and robustness to suit the needs of evolving and growing organisations. Each is considered in turn: 1 Voluntary Association or Not-for-Profit Association This is the simplest form of organisation in which several people or organisations choose to band themselves together and form a “voluntary association” between themselves in order to share some activities. The members of the association may give themselves a name (e.g. the National Hospice Network) and they may open a bank account. You can create a written constitution that defines the purpose of the Association, who will run it and how these people are appointed or elected as officers or a committee, and the decision-making powers of the officers and committee. Whilst a voluntary association creates a new organisation in name, the major limitation is that it does not establish a new legal entity or corporate body. The officers and members of the voluntary
  2. 2. association retain individual and collective responsibility for all that happens; if something goes wrong, the officers and members become personally liable. A voluntary association is easy to set up but offers very limited protection to the members. 2 Incorporation as a company Larger or more complex National Associations, and particularly those considering the provision of information and services to members and others, should give serious consideration to becoming “incorporated”. This is a legal term that refers to the establishment of a new corporate body, commonly known as a „company‟. This is the legal structure that most businesses adopt and it can be equally used with non-business organisations such as health-care providers and national associations. By incorporating, the National Association establishes a legal entity that is separate from the individual members and officers. Contracts and agreements (including employment contracts) can then be entered into in the name of the new corporate body. The company is legally responsible for its activities and funds, rather than the individual officers or members. Provided they act properly and prudently, the officers and members are normally protected from any personal liability if things go wrong. It will require the services of a skilled lawyer to draw up the appropriate governing documents for a new company, and these must comply with all the current legislation controlling companies in your country. There may be more than one form of company. In Great Britain, for example, companies can be either:  Incorporated with a share capital – the company raises money by issuing shares that are bought and owned by subscribing members. The share owners control the company in proportion to the size of their shareholding. If the company fails, the shareholders lose their money.  Incorporated by guarantee – rather than issuing shares, the members each agree to „guarantee‟ the company by subscribing a nominal sum (often only £1) if the company fails 3 Charitable or Non-Profit status Some countries have legislation for the recognition and regulation of organisations that are regarded as Charitable or Non-Profit making because they provide a public benefit (such as health care, social welfare, alleviating poverty or distress, etc.) Many hospice organisations are likely to fall into this category. The legislation normally defines the types of activities that are regarded as charitable. Often the tax authorities or a government department or agency are responsible for the recognition and regulation of charitable organisations. Charitable status often automatically establishes a corporate status (legally separating the organisation from its members) and confers a degree of public recognition for the activities of the charity. However, the regulations will often define how the organisation is to be run and limit the range of activities that it can engage in. Political and lobbying activities are frequently excluded from charitable recognition. Charitable status often brings tax benefits either through reducing the taxation on its activities, or making it easier for people to donate money to the organisation. Pros and cons of different legal structures This table summarises the main advantages and disadvantages of each of the three main legal structures. You should consider the options and take into account the legal provision for voluntary organisations, companies and non-profit bodies within your own country. You are strongly advised to seek competent legal advice.
  3. 3. Voluntary association Incorporation Charitable status  Simple and easy to  Establishes the  Establishes the set up association as a legal association as a legal  Easy to change body in its own right body in its own right purposes and  Company can enter  Creates recognition of structures if everyone into contracts and the organisation as agrees agreements providing a „public  Requires minimum  Protects the officers benefit‟ which can Pros organisation and members from include services,  Low cost to establish personal liability if (non-political) they act responsibly campaigning, advocacy, etc  May have financial benefits in reduced taxation or favourable treatment  Members and officers  Needs a lawyer to  Needs a lawyer to remain personally draw up the draw up the liable if things go documents documents wrong  Organisation is  All activities much be subject to all laws charitable affecting companies  Restrictions on  More expensive to set trading activities up  Restrictions on any Cons  Accounts and returns political lobbying must be submitted  Some restrictions on each year who can serve as a  Some restrictions on charity trustee who can serve as a  May be subject to company director inspection by charity  More difficult to regulators change the governing  Very difficult to document of the change the purpose company of the charity  New or early-stage  Most National  Most National national associations Associations Associations  Associations only  Organisations  Organisations engaged in sharing thinking of providing engaged in Suitable for activities amongst services, employment fundraising who want themselves (rather people, campaigning any available tax than external bodies)  Organisations benefits  Associations not wanting to enter into  Organisations seeking exposing themselves contracts, purchase public recognition to any financial risk buildings or large assets, or to borrow money Choosing a membership structure As part of defining the legal format of the National Association, you will want to consider whether you require a membership structure, and if so, how this is to be organised.
  4. 4. It is not essential for the National Association to be membership based. You can establish a voluntary association or a company where the initial officers and directors are listed in the constitution and then there are arrangements for the incumbent officers to stand-down and be replaced by other appointed successors. This is a simple arrangement and works well in the early stages of establishing a new organisation. In this form, the National Association can work effectively to provide information about palliative care, and offer a range of services such as events and courses, and made recommendations about national policies and standards. However, in building a powerful National Association, this approach has several limitations:  The Association is not really accountable to anyone (other than the directors themselves);  The Association cannot claim to be representative of palliative care professionals as it is unable to demonstrate any membership base; and  Consequently, the credibility of the Association may be challenged or dismissed. Many existing National Associations now choose to have a membership structure, so that they are accountable to those who work in this field, and can claim to represent their professional interests and expertise. For a membership Association, the constitution or governing instrument will make provision for one or more classes of membership. You should consider WHO you want to have in membership of your Association and then write the constitution accordingly. Typically, you might want to consider some or all of the following categories of membership:  Hospice members: each hospice organisation is eligible to join  Hospital members: individual hospitals can choose to join  Affiliate organisation members: related health care organisations can join  Professional association members: membership is extended to recognised groups of health care professionals  Individual members: individual doctors, consultants and health care professionals can join. In choosing the most appropriate categories, you should consider where you want the power to control the National Association to rest. This will be reflected in the different voting rights of each type of membership. For example, if you allow both hospices and individual members to have one vote each, the power of the individual members is likely to outweigh the voting power of the smaller number of hospices. As well as giving differential voting rights to each membership category, you can also specify differential access to the services of the Association. Many National Associations want to ensure that they are primarily accountable to their hospices, so their governing instruments ensure that the voting rights rest with the hospice members, and that most of the services are directed towards these hospices and those who work in them. The other associate and individual members serve to increase the overall constituency of the National Association, and extend its credibility, but do not form a significant audience for their services. Drawing up a constitution or governing instrument Whichever form of legal and membership structure you decide upon, you will need some form of written constitution that sets out what your Association aims to do, who can join, who will run it, and how it will be run. This document is sometimes referred to formally as the “governing instrument”. Different terms are used around the world. In Great Britain, for example, the governing instrument of a voluntary association is normally
  5. 5. called its Constitution, whilst for a company it is called the Memorandum and Articles of Incorporation. Several sample governing instruments of different National Associations have been published elsewhere in this Toolkit. The law in each country will determine what needs to be included in the governing instrument. In this section, we look at some of the more common headings and provisions. The ones marked with an asterisk (*) should be included; the others are more optional  Name*: The governing instrument normally identifies the Name of the body  Purpose: The general aim or purpose of the association is often identified  Objects*: Following the aims or purpose, the governing instrument may list a series of Objects which the association exists to fulfil. For charities, this is particularly important as each of these Objects must be „charitable‟ in its own right. Sometimes the Objects define a geographic area or community in which the activities are to take place. This is the section to take most care in drafting. You are normally advised to write the Objects quite broadly; this enables the activities of the Association to expand in future into areas that you may not want to engage in at the start. It‟s much easier to write the Objects broadly and then focus on a few areas than it is to try and expand the Objects later. If you engage in any activities that are outside the Objects, you could get into trouble with the company and charity regulators.  Membership: This section defines who is eligible to join the association. You may have different categories of membership, each enjoying different powers and privileges (e.g. individual members, hospice members, hospital members); see the section above for more information on membership.  Officers / Directors / Trustees / Committee*: These are the people who will run the association. You need to define how people attain these positions – whether they are elected or appointed, and what the process is for doing this.  Powers of officers: The governing instrument may define, in broad terms, the powers and authority of the officers, or of specific officers.  Limitations on officers: You may want to restrict the powers of the officers or committee to prevent them from doing something. The length of service of officers is often capped to ensure a periodic rotation of officers.  Sub-committees: You may want to consider the authority of officers or the committee to establish sub-committees, and how these are to operate and be accountable.  General meetings: A general meeting occurs when the members of the association are brought together. You may want to specify a frequency for such meetings, and their purpose e.g. to elect officers, receive reports, approve accounts, pass resolutions, etc. There may be provisions for how general meetings are to be convened.  Monies: You may choose to include provision for establishing bank accounts or investment arrangements, or to restrict how monies are to be used.  Changing the governing instrument: It‟s very useful to include a paragraph that establishes how the constitution can be changed – often by a proportion of the membership at a general meeting.
  6. 6.  Ending the association: Finally, you should consider what should happen if the association closes down at some point in the future, or is merged with another body. Typically this would require the agreement of a proportion of the membership at a general meeting; also, you may want to specify what is to happen to any money that is left over. Where to go for more advice  Consult any national body that represents the interests of voluntary, charitable or not-for-profit organisations to seek their advice  Consult any regulatory body for charitable or not-for-profit organisations in your country  Ask an experienced constitutional or corporate lawyer to draw up a legal constitution for your National Association.