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Structure of community group
This module covers:
- The range of community structures available to you and which structures are most suitable.
It is important that you choose a structure for your community group that suits the operations you wish to undertake.
There are a variety of structures to choose from, and it is worth spending a little time ensuring you select an appropriate one as it could limit or help you in achieving your goals, as defined in your development plan. Many groups will operate through the community council network as a first step – this is a good way of involving the community, but you may find you are unable to administer funds through your community council. Be sure to look at your community council’s constitution.
The first step is to think about what you require from your group:
Protection of Directors
Some structures operate as a legal entity distinct from those involved in it – therefore protecting them from liability. Think about what level of liability you wish members, trustees or directors to have.
Operating your organisation as a charity can give you tax benefits but will also involve some restrictions on the operations your organisation can carry out. You can find out more about registering as a charity and the limitations and benefits this provides at www.oscr.org.uk
You can see the definition of charitable purposes here: http://www.scvo.org.uk/information/governan ce-structures/becoming-a-charity-in-scotlandpart- 1-charitable-purposes-and-publicbenefit/
Do you wish your organisation to undertake trading?
If you’re thinking of a joint venture or collaborative project with the developer, you will need to be able to trade. Charities are not allowed to trade as a main function but can set up trading subsidiaries to trade on their behalf and in this way you can gift the money from the subsidiary back to the parent charity.
Should the assets of the organisation be legally protected from being used for personal gain? Asset lock insists that the target community benefits from anything that belongs to the group; no one can come in and buy-out the company, and if it is dissolved, the assets have to be transferred to a similar organisation.
It is most likely that you will want to ensure that the wider community benefits from the organisation’s assets; not just those who have invested. It is possible to write an asset lock into any Articles, but it is a standard part of some organisational structures. Find out more here: http://www.getlegal.org.uk/the-legaljourney/ legal-forms-in-detail/industrial-andprovident- societies/asset-lock.html
Some community groups allow investors, trustees, directors or members to benefit from its operations. You may wish to adopt a model where individual directors can benefit in situations where you cannot find voluntary directors. For smaller funds it is likely that you would wish to adopt a model where individuals in the organisationcannot personally benefit.
Now that you should have considered the most important questions, we will look at what structures are available, to help you identify which is the most appropriate for your group.
The following structures are the most commonly employed:
If you have a small funding stream, you may not need to form an incorporated organisation – this will give you a more informal structure and more flexibility. If you have simple aims in your development plan and there is little scope of your funding stream increasing, you may be able to operate as an unincorporated organisation with a standard constitution.
Note that unincorporated organisations do not have a separate legal persona. Accordingly, difficulties arise over the extent of members’ and office bearers’ liability for the actions of the organisation. Furthermore, these organisations cannot benefit from the tax breaks from which registered charities can benefit.
You may have heard the term ‘development trust’ used as a generic term. Strictly speaking, a trust is not an organisational type but a ‘wrapper’ to identify the focus of an organisation. Trusts can be various types of organisation including Bencoms, CICs, and charities.
A company can be limited by guarantee, or by shares. This protects the trustees or directors of the company. Either the shareholders hold the liability (in return for a share of the profits) or the guarantee of the trustees (typically £1 each) defines the maximum liability where the benefit is focussed on the community. Companies limited by shares cannot be charities.
Community interest company
Asset lock and community benefit focus, can benefit individuals and cannot operate as a charity.
Industrial and provident society (co-operative)
This IPS is trading for the benefit of its members. A Co-op IPS cannot have charitable status.
Industrial and provident society (Community benefit society)
This IPS is trading for the benefit of the wider community and can become a charity if it meets the criteria.
Scottish charitable incorporated organisation (SCIO)
This is a new1 form of organisation that is specifically designed for charities. All activities must meet charity criteria. Asset lock inherent.
Where to look
Development Trusts – further information is available at www.dtas.org.uk
Limited Company – www.companieshouse.gov.uk
Community Interest Company – www.cicregulator.gov.uk
IPS (Co-operative and Community Benefit) – http://fsa.gov.uk/pages/doing/small_firms/msr/societies
Co-operative Development Scotland – http://www.scottishenterprise. com/microsites/co-operativedevelopment- scotland.aspx
1 Since April 2011