Do I have to establish a legal entity?
Establishing a legal entity is known as “incorporation”.
You don’t have to incorporate, and there are many unincorporated charities and associations. However, if you employ staff or enter into legal contracts, including property leases, it is highly advisable to incorporate.
Reasons to incorporate
- Incorporation means that the organisation itself assumes the legal and financial risks, which protects individual members of the organisation.
- Incorporation limits personal financial liability of members.
- Incorporation puts on public record who owns the organisation and how it is run.
- Incorporation opens up additional routes to finance.
How to decide which legal structure is right for you
There are a number of different legal structures to choose from. The following questions are all relevant when deciding this:
- Consider the legal / regulatory requirement e.g. Charity Commission, Companies House, CIC Regulator.
- Who do you want to be involved in the ownership/ governance of the organisation?
- How do you want to include your stakeholders?
- How do you plan to raise finance in the future?
- How do you want to be able to take management decisions?
Registering as a charity
Organisations that have an annual income of £5,000 or more and have charitable objectives are legally required to register with the Charity Commission.
Legal structure follows the strategy, not the other way around. Always take time to think through which legal structure will best suit your organisation’s needs and aspirations. Changing the structure may be an option in the future but it can be costly and time consuming.