Third Sector Legal Structures & Trading –
The Essentials
Giselle Davies, Partner
Tuesday 8 October 2013
Introduction
• Typical third sector structures; key features and
examples
• Legal structures handout
• The CIO; what is it...
Why does structure matter?
• (Non) existence of legal personality
• Potential trustee liability
• Plethora of possible str...
Typical legal structures
•
•
•
•
•
•
•
•

Trust
Unincorporated Association
Limited company
Industrial & Provident Associat...
Trust – Features & Issues
• Governing document varies (trust; deed; will;
conveyance; lease; scheme)
• Unincorporated = no...
Trust – Examples & Uses
• Privately set up (individual / families / companies):
• The Bute Charitable Trust RCN285226

• G...
Unincorporated Association – Features
& Issues

•
•
•
•
•
•
•

Governing document = Constitution and/or Rules
Member organ...
Unincorporated Association –
Examples & Uses

• Community / village association:

• Grangetown Community Concern RCN 51130...
(Charitable) Company – Features &
Issues

•
•
•
•
•
•

GD = Memorandum & Articles of Association
Registered at Companies H...
(Charitable) Company – Uses
•
•
•
•
•

Trades in furtherance of objects
Delivers services
Employs staff
Enters into contra...
(Charitable) Industrial & Provident
Society – Features & Issues

•
•
•
•
•
•
•
•

Governing document = Rules
Registered wi...
(Charitable) Industrial & Provident
Society – Examples & Uses

• Housing Associations

• Cardiff Community Housing Associa...
Less Common (Charity) Structures
Royal Charter Corporations
• Governing document = Royal Charter
• Incorporated
• Executiv...
Less Common (Charity) Structures
Statutory Corporations
• Governing document = statute
• Incorporated
• Charity trustees w...
Charitable Incorporated Organisation
•
•
•
•
•
•
•

Governing document = constitution
Wide membership or foundation models...
“Social Enterprise”
•
•
•
•

No legal definition
A variety of legal structures
May be a charity
Common features:• No distr...
Summary
•
•
•
•

See legal structures handout
No “one size fits all”
Tax treatments can differ
Possible to “convert” from ...
What is a CIO?
•
•
•
•
•

New legal form only for charities
Included in Charities Act 2006, in force in 2013
Corporate bod...
Is a CIO the right choice?
Advantages of CIO
•Charity Commission (not Companies House)
simultaneously grants
• Incorporate...
Is a CIO the right choice?
Disadvantages of CIO
•Set up time – 40 working day turnaround
•Lack of awareness outside sector...
Why would a new charity be a CIO?
•
•
•
•
•
•
•

Model constitutions available
Free registration at Charity Commission
Lia...
The CIO in detail - Model CIO
Constitutions

• Two versions available:
• Foundation model
• Association model

•
•
•
•
•

...
Which model Constitution to use
Foundation model
•Akin to trust or company where all members =
directors
•Use where truste...
Foundation Model
CIO
Trustees

Management
Function

=

Members
Constitution
& Dissolution
Which model Constitution to use
Association model
•Akin to unincorporated association or company
with wide membership
•Use...
Association Model
CIO
Trustees

≠

Members

Appoint / Elect

Management
Function

Constitution
& Dissolution
Both Constitutions must include
•
•
•
•

Name of CIO
Name of 1st trustees
Exclusively charitable objects for public benefi...
Both Constitutions must include
• If proxy appointment allowed, detail on
appointment, rights and termination
• If postal ...
Main differences between two
Constitutions
•
•
•
•

Foundation: members = trustees
Association: not all members are truste...
CIOs in practice
•
•
•
•

Members register
Trustees register
No charges register so internal register instead
Change “char...
Trading Subsidary Companies
•
•
•
•
•

Not always necessary
Needed to avoid tax on certain trading activities
Share or gua...
Trading Company not required for:
•
•
•
•
•
•
•

Charity “primary purpose trading”
Ancillary to primary purpose
Charity “s...
Trading Company – Examples & Uses
•
•
•
•

Trading outside HMRC charity exemptions
Charity shops selling bought in goods
R...
Trading Company – Examples & Uses
Guidance:
http://www.charity-commission.gov.uk/Publications/cc35.aspx
http://www.hmrc.go...
Any questions?

Cardiff

Derby

Nottingham
Thank you

Giselle Davies
DD : 029 2039 1797
giselle.davies@geldards.com
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  • Trading and legal structures

    1. 1. Third Sector Legal Structures & Trading – The Essentials Giselle Davies, Partner Tuesday 8 October 2013
    2. 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. 3. Why does structure matter? • (Non) existence of legal personality • Potential trustee liability • Plethora of possible structures • Essential distinction is (un)/incorporated
    4. 4. Typical legal structures • • • • • • • • Trust Unincorporated Association Limited company Industrial & Provident Association Royal Charter Corporation Statutory Body Charitable Incorporated Organisation “Social Enterprise”
    5. 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. 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. 7. Unincorporated Association – Features & Issues • • • • • • • 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. 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. 9. (Charitable) Company – Features & Issues • • • • • • 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. 10. (Charitable) Company – Uses • • • • • Trades in furtherance of objects Delivers services Employs staff Enters into contracts Examples: • • • • Ty Hafan WMC RVS National Botanic Gardens
    11. 11. (Charitable) Industrial & Provident Society – Features & Issues • • • • • • • • 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. 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. 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. 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. 15. Charitable Incorporated Organisation • • • • • • • 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. 16. “Social Enterprise” • • • • 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. 17. Summary • • • • 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. 18. What is a CIO? • • • • • 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. 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. 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. 21. Why would a new charity be a CIO? • • • • • • • 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. 22. The CIO in detail - Model CIO Constitutions • Two versions available: • Foundation model • Association model • • • • • 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. 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. 24. Foundation Model CIO Trustees Management Function = Members Constitution & Dissolution
    25. 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. 26. Association Model CIO Trustees ≠ Members Appoint / Elect Management Function Constitution & Dissolution
    27. 27. Both Constitutions must include • • • • 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. 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. 29. Main differences between two Constitutions • • • • Foundation: members = trustees Association: not all members are trustees No membership fees in Foundation No requirement for AGM in Foundation
    30. 30. CIOs in practice • • • • Members register Trustees register No charges register so internal register instead Change “charity” to “CIO” on publications
    31. 31. Trading Subsidary Companies • • • • • 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. 32. Trading Company not required for: • • • • • • • 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. 33. Trading Company – Examples & Uses • • • • 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. 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. 35. Any questions? Cardiff Derby Nottingham
    36. 36. Thank you Giselle Davies DD : 029 2039 1797 giselle.davies@geldards.com

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