SANDY ADIRONDACK
Legal and governance training and consultancy
for the voluntary sector
OTHER CHAPTERS
I. THE ORGANISATION

Ch.1: Setting up an organisation
Ch.3: Incorporated organisations
Ch.4: Charitable status, charity law & regulation
Ch.5: The organisation's objects
Ch.6: The organisation's name
Ch.7: The governing document
Ch.8: Registering as a charity
Ch.9: Branches, subsidiaries & group structures
Ch.10: Changing legal form
Ch.11: Collaborative working, partnerships and mergers
II. GOVERNANCE
Ch.12: Members of the organisation
Ch.13: Members of the governing body
Ch.14: Officers, committees & sub-committees
Ch.15: Duties & powers of the governing body
Ch.16: Restrictions on payments & benefits
Ch.17: The registered office & other premises
Ch.18: Communication & paperwork
Ch.19: Meetings, resolutions & decision making
Ch.20: Assets & agency
Ch.21: Contracts & contract law
Ch.22: Risk & liability
Ch.23: Insurance
Ch.24: Financial difficulties & winding up
III. EMPLOYEES, WORKERS, VOLUNTEERS & OTHER STAFF
Ch.25: Employees & other workers
Ch.26: Rights, duties & the contract of employment
Ch.27: Model contract of employment
Ch.28: Equal opportunities in employment
Ch.29: Taking on new employees
Ch.30: Pay & pensions
Ch.31: Working time, time off & leave
Ch.32: Rights of parents & carers
Ch.33: Disciplinary matters, grievances & whistleblowing
Ch.34: Termination of employment
Ch.35: Redundancy
Ch.36: Employer-employee relations
Ch.37: Employment claims & settlement
Ch.38: Self employed & other contractors
Ch.39: Volunteers
IV. SERVICES & ACTIVITIES
Ch.40: Health & safety
Ch.41: Safeguarding children & vulnerable adults
Ch.42: Equal opportunities: goods, services & facilities
Ch.43: Data protection & use of information
Ch.44: Intellectual property
Ch.45: Publications, publicity & the internet
Ch.46: Campaigning & political activities
Ch.47: Public events, entertainment & licensing
V. FUNDING & FUNDRAISING
Ch.48: Funding & fundraising: General rules
Ch.49: Fundraising activities
Ch.50: Tax-effective giving
Ch.51: Trading & social enterprise
Ch.52: Contracts & service agreements
VI. FINANCE
Ch.53: Financial procedures & security
Ch.54: Annual accounts, reports & returns
Ch.55: Auditors & independent examiners
Ch.56: Corporation tax, income tax & capital gains tax
Ch.57: Value added tax
Ch.58: Investment & reserves
Ch.59: Borrowing
VII. PROPERTY
Ch.60: Land ownership & tenure
Ch.61: Acquiring & disposing of property
Ch.62: Business leases
Ch.63: Property management & the environment
VIII. BACKGROUND TO THE LAW
Ch.64: How the law works
Ch.65: Dispute resolution & litigation
UPDATED INFORMATION FOR CHAPTER 2:
THE RUSSELL-COOKE
VOLUNTARY SECTOR LEGAL HANDBOOK

This page contains information that has appeared on Sandy Adirondack's legal update website for voluntary organisations at www.sandy-a.co.uk/legal.htm. For current updates, including potential changes that are in the pipeline, see the legal update website.

These websites for each chapter update the 3rd edition of The Russell-Cooke Voluntary Sector Legal Handbook by James Sinclair Taylor and the Charity Team at Russell-Cooke Solicitors, edited by Sandy Adirondack (Directory of Social Change, 2009). The websites are not intended as a comprehensive update and should not be treated as such.

To order a copy of The Russell-Cooke Voluntary Sector Legal Handbook, print out the order form at www.sandy-a.co.uk/bookserv.htm or send an email order by clicking . It costs £60 for voluntary organisations or £90 for others, plus 10% p&p.

To avoid spamming, an email address is not given on screen. If you can't see the word 'here' or have trouble sending an email by clicking on it, the address is bookservice at sandy-a.co.uk, with the spaces and 'at' replaced by the @ symbol.

The information here covers the law applicable to England and Wales. It may not apply in Northern Ireland and/or Scotland. These news items are not a full or definitive statement of the law and are not intended as a substitute for professional legal advice. No responsibility for loss occasioned as a result of any person acting or refraining from acting can be taken by the author.


Chapter 2
UNINCORPORATED ORGANISATIONS


The items below formerly appeared on the legal update website for voluntary organisations and are archived here. The content may be out of date and links may not work. For current updates to the chapter, see the legal update website for voluntary organisations at www.sandy-a.co.uk/legalstatus.htm.



UNINCORPORATED ASSOCIATIONS WITH LEGAL PERSONALITY AND LIMITED LIABILITY?

Updated 5/1/15. This information updates s.2.2 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The UK government consulted until 2 July 2012 on a Scottish Law Commission proposal to reform the law on Scottish unincorporated associations, giving them legal personality and limited liability within a new Scottish association with legal personality (SALP). Although this proposal was not included in the Queen's speech on 9 May 2012, it was announced after the speech that the government intended to bring forward a bill in a future session of parliament, when parliamentary time allowed.

By late 2014 there had been no progress. In its submission on 20 October 2014 to the Smith Commission on further devolution of powers to the Scottish parliament, the Scottish Law Commission suggested that the creation of such associations could be devolved to the Scottish parliament, rather than continuing to be reserved to the UK parliament. However, this was not included in the heads of agreement published by the Smith Commission on 27 November 2014 (www.smith-commission.scot).

The SALP legislation as proposed would apply only in Scotland, but the Law Commission for England and Wales said in 2008 that it would monitor the work of the Scottish Law Commission on this issue, with a view to considering whether it should in due course make similar recommendations in relation to England and Wales.

Normally, only individuals and incorporated bodies (such as companies, charitable incorporated organisations and local authorities and other public sector bodies) have legal personality (legal person-hood). Unincorporated organisations such as associations and trusts do not normally have legal personality.

An organisation with legal personality is considered to be a legal person, and within the bounds of common sense can do anything a human person can do. It can, in its own right, enter into contracts, rent or own property, take legal action and be sued. Organisations without legal personality, on the other hand, have to appoint individuals or incorporated bodies as holding or custodian trustees to hold property on their behalf, and any contracts or legal agreements will be treated as having been entered into by individuals (usually the members of the governing body) acting on behalf of the organisation. Legal action by the organisation must be taken by individuals acting on its behalf, and legal action against the organisation will be brought against individuals.

Incorporation nearly always gives limited liability to members of the organisation and its governing body. Because an incorporated organisation enters into contracts in its own right, it is liable for its own debts and financial commitments. If it does not or cannot meet its financial obligations, the people to whom it owes money (its creditors) take legal action against the organisation; if someone is injured, they will sue the organisation. Very occasionally they may be able to take action against the members of its governing body, but not against the members of the organisation.

If an incorporated organisation cannot meet its financial obligations, it goes into insolvent liquidation, and its assets are sold and distributed among its creditors. The organisation is insolvent, but the members of the organisation and in almost all cases the members of its governing body are protected from any personal liability for its debts.

Key points in the draft legislation for the Scottish association with legal personality are:

  • Draft bill clauses 1 & 2. To become a SALP an unincorporated association must have at least two members; it must be wholly or mainly managed in Scotland; and it must have a constitutive document (constitution) containing its name, its objects (which cannot include the making of a profit for its members), criteria for membership, procedures for election or appointment of office bearers or others responsible for managing the organisation (management committee), powers and duties of those office bearers and those responsible for managing the association, and amendment and dissolution provisions.

  • Draft clause 1(1)(b). An eligible association can become a SALP by the members resolving that it should have legal personality. Or it becomes a SALP automatically if the members have not resolved that it should not have legal personality In other words an eligible association is automatically a SALP unless the members have resolved that it is not.

    There will be no registration body for SALPs, and SALP status will automatically terminate if the SALP ceases to meet the criteria.

  • Draft clause 3(1). A SALP may sue and be sued in its own name. (In a non-SALP association, legal action has to be taken by or against individuals.)

  • Draft clause 3(2). A SALP may be liable to a member or members for losses incurred by another member in the course of activities carried out by that member on behalf of the SALP. (In a non-SALP association, a member who is injured or is owed money as a result of the association's activities cannot normally take action against the other members of the association.)

  • Draft clause 3(3) & 3(4). Unless legislation specifies otherwise, an office bearer or member of the SALP does not incur personal liability by reason only of acting as an office bearer or member; in other words they have limited liability for the acts of the SALP or for acts they carry out as an office bearer or member.

  • Draft clause 4. A SALP must include its name and official address on all documents, including those published electronically, but does not have to indicate on any documents that it is a SALP. The consultation document says it will be up to those who enter into contracts or other arrangements with an organisation to find out from the organisation if it is a SALP. A SALP must keep at its official address its constitution, the names of office bearers (or, if there are no officers bearers, the names of those responsible for managing the SALP), and the date the constitutive document was adopted if it is after the SALP legislation comes into effect. A copy of any information that has to be kept at the official office must be given within 28 days to any person who requests it. Failure to comply with these requirements makes the office bearers or the persons responsible for its management personally liable, along with the SALP, for any obligations undertaken by the SALP during the failure.

    Unless it is required under other legislation such as charity law or required by funders or the constitution, there is no obligation to provide other information such as annual accounts to anyone.

  • Draft clauses 5 & 6. If an association whose property is held in trust by trustees becomes a SALP, the trustees may transfer the property to the SALP. If property is held jointly by the association's members (which would be the default position if it is not held by named trustees), the members can transfer it to the SALP. Some transfers have to be registered with the Keeper of the Registers in Scotland (the Land Register).

  • Draft clause 7. An unincorporated association becoming or ceasing to be a SALP does not create a change of employer, nor does it affect continuity of employment.

  • Draft clause 9. If a SALP ceases to be a SALP and is not dissolved, its property becomes assets held in trust by the office bearers or others responsible for managing the association, or otherwise held jointly by its members. Any liability enforceable against the SALP becomes enforceable against its office holders, or if it has no office holders those responsible for managing the association, or otherwise the members of the association.
The consultation posed a number of key questions, including:
  • whether there is a risk of SALPs creating a disincentive to incorporate or an incentive for currently incorporated organisations to disincorporate, and if so whether there should be a limit on the maximum size of a SALP;
  • whether SALPs of a certain size should be required to register, and if so what the registration body would be;
  • whether it is necessary or desirable to restrict the automatic reversion of rights and liabilities when an association loses SALP status without dissolving.
The consultation document, which included the draft Unincorporated Associations and Partnerships (Scotland) Bill, and the government's response in 2012 can be accessed on the Gov.uk website via tinyurl.com/7v4vusb.

Lord Hodgson, in his review of charity law in England and Wales in 2012, considered whether to recommend that limited liability be made available to trustees of unincorporated charities in England and Wales, but decided against [chapter 4 paragraph 4.37]. His reasons were that the limited liability of companies and other incorporated organisations is a trade-off against the rights that third parties have in their dealings with them, none of which would apply in the context of unincorporated organisations (this includes, for example, the right of public access to detailed information about the organisation); that the Charity Commission and high court already have the power to excuse from liability trustees who have fallen foul of the rules on breach of trust but who have acted reasonably and in good faith, which can address any unfair cases that arise; and that the forthcoming introduction of the charitable incorporated organisation (CIO) would allow unincorporated organisations to adopt a form that limits the liability of trustees.

The Charity Law Association, on the other hand, welcomed the proposals for the SALP, and in its response to the Scottish consultation suggested that preliminary work done by the Law Commission about introducing a similar legal form in England and Wales "could usefully be picked up again".

Overall, the CLA took the view that the introduction of the SALP proposals would be very positive for the Scottish charity sector, although it was concerned about over-complexity of a regime that involves organisations changing between SALP status and not, according to thresholds of turnover or membership.

In addition the CLA identified a number of legal issues that it said would need to be clarified, in particular whether changing from an unincorporated association (whether charitable or not) to a SALP would be a "cessation event" triggering a pensions liability for an association that is a member of an under-funded defined benefit pension scheme. It emphasised that if such a change of status would be a cessation event, and there is no way of changing this through legislation, "careful thought should be given to allowing adequate lead-in time (and education of the relevant sectors) so that associations wishing to opt out because of pension concerns have time to do so and do not find themselves landed with pensions debt because of the automatic operation of legislation that possibly the organisations were not even aware of."

For a copy of the CLA response to the SALP consultation, contact admin@charitylawassociation.org.uk.

Sandy's comment: I have a lot of concerns about the SALP proposals, perhaps because I am looking at them not only from the perspective of wanting to make life easier for voluntary organisations, but also from the perspective of a trainer/consultant who enters into contracts with organisations. I am not particularly keen on contracting with organisations with limited liability where, if they are not charities or companies, information about their financial situation is not publicly available and they do not have to provide annual accounts to me even if I ask for them. (At least if it is charitable, basic financial information will be on the OSCR website in Scotland, and there is a statutory duty for the charity to send accounts to any member of the public who requests them. But the information will not be available for non-charitable SALPs.)

If SALP status is to be conferred automatically, with no registration or formal recognition, I am also concerned about organisations taking on responsibilities and liabilities that they may not be aware of — not just pensions debt, as set out above, but also the obligation to disclose SALP status on documents, with the risk of a penalty if it is not disclosed, and the other requirements of SALP status. Though I acknowledge that apart from pensions debt, these obligations are likely to be a lot less serious than setting up an organisation, which is by default an unincorporated association, and discovering too late that as committee members you are personally liable for its debts.



| Home | About Sandy | Publications | Open training | Current courses | In-house training | Consultancy | Mentoring | Books by post |
| Legal update | Legal update (activities & services) | Legal update (employment & volunteering) | Legal update (equality & human rights) | Legal update (risk, finance, funding & property) | Legal update (legal structures & charitable status) | Legal update (archived items) |


2015 Sandy Adirondack.
To avoid spamming, an email address is not given on screen. If you can't see the word 'Sandy' or have trouble sending an email by clicking on it, the address is sandy at sandy-a.co.uk, with the spaces and 'at' replaced by the @ symbol.

SANDY ADIRONDACK
Governance and legal training and consultancy
for the voluntary sector

39 Gabriel House, 10 Odessa Street, London SE16 7HQ
Tel 020 7232 0726; fax 020 7237 8117
Email:
Web: www.sandy-a.co.uk