Introduction
This article is about unincorporated associations, what they can and can’t do, how to form and manage one. If you require an agreement to run an unincorporated association, that is, an unincorporated charity, a trust, a members club or other similar venture, we have template documents available at the end of this article.
The unincorporated association is the most common form of organisation within the voluntary sector. Members have a contractual rather than statutory relationship, all of whom have agreed or "contracted" to come together for a particular purpose. (Of course, the word “unincorporated” simply means that the founding members have not constituted the group in the formal manner required by the Companies Act). Common examples of such associations are a local sports clubs, investment clubs, a residents association, voluntary organisations and some syndicates.
Is an unincorporated association recognised at law?
Often referred to as a club, society, institution or group, an unincorporated association is recognised at law as a legal body. If constituted for purposes which benefit the public, it can become a charity. You can register its name with the Registrar of Business Names and it can hold its own bank account. Beyond that, it is the individual members that are legally responsible for the acts and omissions of the entire association.
Unlike an incorporated association (for example, a limited company) an unincorporated association has no legal rights at law because it is not perceived as a separate entity, unlike a limited company. It has no existence or personality separate from its individual members.
How to form an unincorporated association
Unincorporated associations are run informally. They are relatively straightforward and cost nothing to set up. Members make their own rules for managing the organisation which are usually laid out in their democratic “constitution”, a rather formal name for “the rules”. The constitution, or unincorporated association agreement is a written document, signed by the members.
Duties and management
A management committee is usually elected to run the organisation on behalf of the members.
Unincorporated associations do not need to register with or be regulated by either Companies House or the Financial Services Authority. They enjoy greater freedom of operation than a company, for example, there is no requirement to submit annual returns.
Normally the constitution agreement will deal with the appointment of office-bearers such as a chairperson, secretary and treasurer and the election of members of the voluntary management committee. The duties, powers and responsibilities of those appointed and elected will normally be set out in the constitution, as will rules governing membership.
The authority of the office-bearers and the voluntary management committee derives from the contractual written agreement between the members of the association. The office-bearers and the committee simply act as "agents" of the members, exercising the powers and duties delegated to them.
Over time the members may wish to amend its purposes or the arrangements for the conducting its affairs. Unless there are any express rules governing the changing of purposes or rules it is presumed that changes can only be made with the consent of all the members of the association. Any such changes will normally be made at an Annual General Meeting (AGM) or an Extraordinary General Meeting (EGM) of the members of the association.
If your unincorporated association has charitable aims, you can apply to the Charity Commission for charitable status. If you are given charitable status, you will have to comply with the Commission’s regulations.
Unincorporated associations may also have trading or business objectives or carry on commercial activities.
What can an unincorporated association not do?
Although an unincorporated association cannot own property, you may be able to set up a trust to legally hold ownership of property and assets for the members who are to benefit.
Because it has no legal identity of its own and in legal terms is only a collection of individuals, an unincorporated association can not:
· start a legal action,
· borrow money;
· enter into contracts in its own name;
· hold property.
Personal risk
Because unincorporated associations have no separate legal identity, members have to sign loans and contracts as individuals and carry the risk personally. This way of working is unlikely to offer a long-term solution if you intend to sign contracts or expand the enterprise. If you plan on:
· take on employees
· raising finance, applying for grants or opening a bank account
· issuing shares
· entering into large contracts
· taking on a lease or buy freehold property
you should consider incorporation. Why? Although there is more formality, it will help you to gain access to a wide range of financing sources that will not put your personal assets at risk.
Relevant Net Lawman document templates:
Other relevant Net Lawman articles
· Partnership: a guide
· Partnership or company?
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