Legal structures
Decision tree
If you are thinking about establishing a voluntary organisation or changing your organisation’s legal structure and are not sure which structure suits you best, this tool will help you.
If you need further support in this area, please contact your local county voluntary council or WCVA
Being a trustee is a voluntary role. It is this which makes an organisation a charity.
To reduce risk to your charity you must ensure that you follow the rules associated to such payments.
This document will help you to ensure that only payments which are allowed are issued:
Charity Commission Guidance: The rules associated to paying trustees and connected persons
If you need further support with this please contact Third Sector Support Wales (TSSW) who have trained Governance Practitioners to assist you.
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If your organisation is established as a Community Interest Company ( CIC) payments can be made to directors.
If payments are to be made the following must be taken into consideration:
- Directors may be paid ( including a salary for their services) but the remuneration received should never be more than is reasonable.
- All directors remuneration should be transparent
- If remuneration is too high the CIC regulator may take action.
To obtain further information on this please follow the links below:
Office of the Regulator of Community Interest Companies – GOV.UK
A charity is an organisation established for charitable purposes only and is subject to the control of the High Courts charity law jurisdiction.
This guidance will help you work out if being a charity is right for you:
Charity Commission: What makes a charity CC4
If you need further support with this please contact Third Sector Support Wales (TSSW) who have trained Governance Practitioners to assist you.
To be a Charity you have to have charitable purposes. This short video explains these in more detail:
If you need further support with this please contact Third Sector Support Wales (TSSW) who have trained Governance Practitioners to assist you.
Consider Unincorporated Association or Trust
Trustees are legally responsible for a charity’s management and administration. This document explains the liabilities of trustees in detail. If a charity is incorporated liability can be significantly reduced as long as Trustees follow the rules.
Vicarious Liability of Trustees
For Unincorporated associations and trusts liability is not limited. Trustees can however take out trustees liability insurance to assist them. However, just like incorporated organisations, if the trustees did not follow the rules they would still be held liable and the insurance would be invalid.
An unincorporated organisation (Community group)
Is usually established by a group of people who come together for a reason other than to make a profit. Good examples may be a small support group or a sports club. It doesn’t cost anything to set one up and you don’t need to register with anyone. However, any debts are the liability of the trustees. For further information on being an unincorporated organisation, please see this guidance note.
If an organisation with exclusively charitable aims for public benefit has an income of £5000 or over per annum they must register with the Charity Commission.
A Charitable Trust
Is a way for a group of people to manage assets such as money, investments, land or buildings.
If you need further support with this please contact Third Sector Support Wales (TSSW) who have trained Governance Practitioners to assist you.
Consider a Charitable Incorporated Organisation (CIO)
If you are planning of having an income over £5000 per year and be a charity, your organisation must be registered with the Charity Commission. You can also register a charity with less than £5000 income (for example if you are a new organisation but are planning to increase your income) if you become a Charitable Incorporated Organisation (CIO)
A Charitable Incorporated Organisation is a structure designed for charities who do not also want to be a company, as such, you do not need to register with Companies House, you will only report to the Charity Commission. Once you gain approval for your organisation you will be required to follow Charity rules. If you follow everything correctly your trustees will have limited liability.
This guide will help you to decide if this is the right option for you:
Charity Commission setting up charity structures
If you need further support with this please contact Third Sector Support Wales (TSSW) who have trained Governance Practitioners to assist you.
Consider Charitable Incorporated Organisation (CIO)
An incorporated charity is a legal form which gives the charity its own legal personality. This means that organisations can apply for funding in the charity’s name. Incorporation gives greater protection for trustees for personal liability. A charity that employs people, owns property and/or provides services (and therefore has increased liabilities) should be incorporated.
With incorporation comes regulation.
A Charitable incorporated organisation is designed for charities. CIO’s are required to register with the Charity Commission only. Trustees have limited or no liability for CIO debts and liabilities. You will need to send your accounts and annual return to the Commission each year regardless of its income. A CIO can have wider membership including voting members other than charity trustees (association model), or only have the trustees as voting members (foundation model).
A Charitable company limited by guarantee is required to register with the Charity Commission and Companies House and is therefore required to abide by both legislative requirements. Trustees have limited or no liability for a charitable company’s debts or liabilities. A Charitable Company limited by guarantee can be established with or without wider membership. A Charitable Company limited by guarantee cannot distribute its surpluses to its members of shareholders it can only apply its assets to carry out its charitable purposes and must operate in the best interests of the charity.
The following guidance will help you when making your decision on the correct charity structure for you:
CC22a How to choose a structure
If you need further support with this please contact Third Sector Support Wales (TSSW) who have trained Governance Practitioners to assist you.
Consider Charitable Company (Limited by Guarantee)
An incorporated charity is a legal form which gives the charity its own legal personality. This means that organisations can apply for funding in the charity’s name. Incorporation gives greater protection for trustees for personal liability. A charity that employs people, owns property and/or provides services (and therefore has increased liabilities) should be incorporated.
With incorporation comes regulation.
A Charitable incorporated organisation is designed for charities. CIO’s are required to register with the Charity Commission only. Trustees have limited or no liability for CIO debts and liabilities. You will need to send your accounts and annual return to the Commission each year regardless of its income. A CIO can have wider membership including voting members other than charity trustees (association model), or only have the trustees as voting members (foundation model).
A Charitable company limited by guarantee is required to register with the Charity Commission and Companies House and is therefore required to abide by both legislative requirements. Trustees have limited or no liability for a charitable company’s debts or liabilities. A Charitable Company limited by guarantee can be established with or without wider membership. A Charitable Company limited by guarantee cannot distribute its surpluses to its members of shareholders it can only apply its assets to carry out its charitable purposes and must operate in the best interests of the charity.
The following guidance will help you when making your decision on the correct charity structure for you:
CC22a How to choose a structure
If you need further support with this please contact Third Sector Support Wales (TSSW) who have trained Governance Practitioners to assist you.
Contact Business Wales.
If you wish to trade and reinvest profits for a social purpose the organisational structure for you would be a social enterprise ( A business with a social mission)
A social enterprise is a business that exists to achieve a social or environmental mission rather than just to make a profit for its owners or shareholders. Therefore it trades commercially like any other business but it reinvests most or all of its profits to benefit people communities or the environment.
If this is the format of organisation you are interested in establishing contact for support:
Consider Community Interest Company (CIC) Limited by Shares or Community Benefit Society.
If you wish to distribute profits to shareholders you should consider becoming a Community Interest Company or a Community Benefit Society.
A Community Interest Company Limited by Shares
A CIC limited by shares is a business which issues shares to its investors but is required to use its profits and assets for public good. It is registered with companies house but regulated by the CIC regulator.
To set up a CIC you will need
- A community interest statement explaining what the business plans to do
- An ‘asset lock’ Which is a legal promise stating that the company’s assets will only be used for its social objectives and setting limits to the money it can pay shareholders.
- A Constitution
- And submit an application to the CIC regulator
This guidance may help you with this:
Community Interest Companies guidance
If you wish to
- Pay dividends to investors
- Believe the ability to pay dividends will have a favourable effect on your funding or tax status.
- Understand the dividend cap limitations on the payment of dividends.
Then a CIC limited by shares may be the best option for you.
Please note: You must consider your choice carefully as once you have decided to be limited by shares you cannot change to limited by guarantee or vice versa.
Another thing to consider here is your planned income generating activities – the vast majority of charitable funders do not fund organisations limited by shares, and some still do not fund CICs limited by guarantee either.
If you need further support with this please contact Third Sector Support Wales (TSSW) who have trained Governance Practitioners to assist you.
If this is the format of organisation you are interested in establishing, you can also contact Cwmpas for support:
A Community Benefit Society
A Community Benefit Society is a registered society that conducts business for the benefit of the community and not primarily for the profit of its members.
This form of organisation is required to register and be regulated by the Financial Conduct Authority.
This guide from Cwmpas explains them further:
What is a Community Benefit Society FAQ
If you need further support with this please contact Third Sector Support Wales (TSSW) who have trained Governance Practitioners to assist you.
If this is the format of organisation you are interested in establishing, you can also contact for support:
Consider CIC Limited by Guarantee.
Community Interest Company
A CIC is a business set up to benefit the community, not just its owners. It trades commercially but must re invest most of its profits into achieving a social or community purpose. It is registered with companies house but regulated by the CIC regulator.
To set up a CIC you will need:
- A community interest statement explaining what the business plans are going to do.
- An ‘asset lock’ Which is a legal promise stating that the company’s assets will only be used for its social objectives and setting limits to the money it can pay shareholders.
- A Constitution.
- And submit an application to the CIC regulator.
This guidance may help you wish this:
Community Interest Companies guidance
Please note: You must consider your choice carefully as once you have decided to be limited by guarantee you cannot change to limited by shares or vice versa.
If you need further support with this please contact Third Sector Support Wales (TSSW) who have trained Governance Practitioners to assist you.
If this is the format of organisation you are interested in establishing you can also contact for support:
Consider Community Benefit Society or Co-operative Society.
A Community Benefit Society
A Community Benefit Society is a registered society that conducts business for the benefit of the community and not primarily for the profit of its members.
This form of organisation is required to register and be regulated by the Financial Conduct Authority.
This guide from Cwmpas may help you further
What is a Community Benefit Society FAQ
If this is the format of organisation you are interested in establishing contact for support:
Cooperative Society
A Cooperative Society is an organisation that is democratically owned and controlled by its members for their shared needs. Their members can be employees, customers, residents and it is these persons who decide how the co operative is run. They raise money through community shares.
A co operative Society has seven principles that tell it how to operate:
- Owned and controlled by its members
- Is democratic.
- Every member contributes financially.
- It’s an independent business.
- It offers education and training.
- It cooperates and works with other cooperatives.
- It supports the communities it works with
To become a cooperative society you must:
- Form a founding committee.
- Develop your business idea, vision and rules.
- Register with the Financial conduct authority.
If you need further support with this please contact Third Sector Support Wales (TSSW) who have trained Governance Practitioners to assist you.
