This article is about unincorporated associations. It tells you how to create and manage your association: what you can and can’t do.
An unincorporated association is an organisation that arises when two or more people come together for a particular purpose, but decide not to use a formal structure like a company.
Most clubs, societies, groups, and some syndicates are unincorporated, as are most voluntary organisations.
The advantage that being unincorporated gives, and what makes it such a popular choice for a club or society, is a greater freedom of operation than a company or a partnership. For example, there is no requirement to submit annual returns.
Although we use the word 'form' you do not actually form an unincorporated association. What you do is put together a set of agreed rules for the management and operation of the joint activity.
That could be written on the back of an envelope, but using a comprehensive document to do so is better as it covers many things and protects those who make decisions from action by those who do not.
Unlike an incorporated organisation (for example, a limited company) an unincorporated association is not a legal entity in law. So it has no legal rights and is not separate from its members. It follows that individual members are legally responsible for the acts and omissions of the entire organisation.
If the association acts through individuals or committees or any other delegated authority, then in most cases, those individuals are responsible to the person they deal with, for what they do in the name of the organisation. However, the position may be more complicated and will depend on the application of the law of contract and implied authority.
Unincorporated associations may also have trading or business objectives or carry on commercial activities.
Any contract which purports to be made by the association must in fact be made by one or more of its members because it itself is not a legal entity. In most cases, that means the managing committee is responsible, or the individual who set up the contract.
If an association has money, it will probably have a bank account. That will have been set up in law as an account in the name of two to four individuals. The bank will look to those people as individuals to run the account. Technically, they are trustees for their members, but the bank is not concerned with a beneficial interest. The same considerations apply whether contract involves a transfer of money or some non-monetary obligation.
The most obvious reasons for having a written constitution is that it provides a record of what was agreed. New members joining should understand far better what is expected of them, and disagreements as to how the organisation should be managed will be minimised.
The second reason stems from the fact that all members are collectively responsible for the actions of the association. Writing the rules down reminds all members what they may or may not do and therefore helps reduce the possibility that an individual acts in a way that jeopardises the interests of another member.
It follows that the downside of being unincorporated is that the members are never safe from liability incurred by others of them. The safest way to run a simple organisation is to make sure that the rules make clear that no member may commit the association to any contract or expense without consent of the body of members and that all expenses are funded in advance.
By providing clear guidelines as to how the organisation, club or society will work, a constitution safeguards the interests of members against each other and ensures on-going success.
For most clubs, it is impractical for every member to have a vote on every decision. Therefore, a management committee is usually elected to run the organisation on behalf of the members.
The authority of the voluntary management committee flows from the constitution or rules because every member has agreed to those rules when he signs up as a member. That leaves the office holders as agents for all the members.
It is important when setting up an unincorporated association to consider how office-bearers will be appointed, what duties, powers and responsibilities the management committee will have, and under what circumstances the appointment ends. You should write these into the constitution.
You should also consider at the start the criteria or eligibility for becoming a member, how a person becomes a member and importantly, how membership ends. You may want to give committee members the right to end the membership of individuals who behave in ways inconsistent with the rules or values of your organisation.
Over time the members may wish to amend the organisation's purposes or the arrangements for the conducting of 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. That often presents a problem if not all members can come together to vote, or if the decision is not unanimous.
Therefore, if it is important that decisions can be made quickly or regularly, it may be sensible to set out alternative arrangements for decision making (such as giving a committee powers to make certain decisions or letting a majority vote decide).
It may also be a good idea to set out when all members should meet regularly, for example, setting out that there will be an Annual General Meeting (AGM) or an Extraordinary General Meeting (EGM) of the members of the association. Decisions that do require the vote of all members can be made at these.
There is no requirement to register with any government department because these types of organisations are not bound by regulations. For example, they do not need to be registered at either Companies House or the Financial Services Authority.
If your organisation has charitable aims, you can apply to the Charity Commission for charitable status. If you are given this status, you will have to comply with the Commission's regulations.
Because it has no legal identity of its own and in legal terms is only a collection of individuals, an unincorporated association cannot itself:
- start a legal action
- borrow money
- enter into contracts in its own name
- hold property
So if you need your organisation to hold property (for example, a club minibus) you must set up a trust or allow certain members to hold legal title to (ownership of) the property and assets for the benefit of all of the members.
Because unincorporated associations have no separate legal identity, members have to sign loan documents 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 expand the enterprise.
- taking on employees
- raising finance or applying for grants
- issuing shares
- entering into large contracts
- taking on a lease or buy freehold property
However, there is nothing to stop you from starting an unincorporated association first and incorporating later on. Acting this way would usually incur less cost and less administration.
Net Lawman sells a number of documents for formalising your club or association.
Lastly, you may be interested in setting up your association as a company limited by guarantee rather than leaving it unincorporated.
You can form a company quite easily through an online incorporation agent, but we recommend that your company adopts a set of articles of association for a company limited by guarantee that has been customised for it. There is good reason why you should change your articles from the default.