This type of structure allows people to come together and form an organisation which then takes on a legal status separate from that of its members. This process is called “incorporation”. As a result, the incorporated organisation can buy property, enter into contracts and bring and defend court proceedings in its own name. Members are protected from any debts incurred by the incorporated organisation. The constitution will set out the maximum amount each member is obliged to pay if the organisation is insolvent (often referred to as the “guarantee”). The cap is often a nominal £1.
Note: Although the resulting organisation provides automatic protection for its members, the managing committee (board of directors or trustees) are only protected if they comply with the organisation’s governing document and all relevant statutory rules and regulations.
Charitable Incorporated Organisations (CIO) and Companies Limited by Guarantee (CLG) are incorporated organisations.
Most companies in the UK are incorporated and limited by shares. This means that member(s) invest in the company to provide some working capital to fund the company’s commercial activities. While this structure is well-suited to the needs of industry and commerce, and is sometimes used to form a trading subsidiary to a charitable organisation, it does not suit the principal activities of non-profit making organisations.
CLGs do not require an upfront investment, but instead members promise to pay a defined, usually nominal, amount if the company is wound up with outstanding debts.
Other incorporated organisations include: