What is the best legal entity for my organisation?
Some of the key factors that should affect your choice of organisational structure include:
- Simplicity – some organisations are informal, whilst others require registration and regulation.
- Cost – although a few structures involve the payment of an application fee, preparation of all of the required documentation can (for some) become a drain on resources.
- Speed – some structures can be created overnight, others may take months to become operational.
- Privacy – only a limited number of structures can be kept completely private (subject always to any tax obligations) whilst others require regular publication of reports and accounts.
- Profits – some structures allow for the distribution of an organisation’s profits to its members, whilst others are obliged to retain their profits (or surpluses) for future use.
In law, an organisation is either recognised in its own right, or it is made of other people or bodies. This means that some organisations are no more than a group or association of individuals, whilst others have a separate corporate body. This means different organisations have different governance structures by default:
- Legal identity – formal incorporated organisations have their own legal identity, and can hold assets, enter contracts and be sued in their own name, rather than the name of their members or promoters.
- Membership – many of the available structures invisage a body of membership of varying size. Some limit who may apply for membership, others are open to all who agree to abide by an agreed constitution and perhaps to act in the best interests of the organisation.
- Regulation – some organisations are regulated by Companies House, the Financial Conduct Authority, the Community Interest Company Regulator or the Charity Commission of England and Wales. An external regulator can provide supporters and funders with reassurance, but compliance costs should be understood.
- Liability – some structures protect members from personal liability if the organisation experiences financial problems. Those structures may also protect its directors / trustees if they have complied with the organisation’s constitutional documents and all relevant laws and regulations.
- Control: some structures separate the responsibility for the day to day running of the organisation from those with responsible for strategic decisions and from those with the ultimate control of the decision making processes.
A table of structures, and their main differences appears here.
