Associations come in all shapes and sizes and form an important sector of activity in the UK. The UK has an estimated population of 66.5 million citizens and it is reckoned that 53m belong to some kind of membership organisation/association.

Estimates vary, but there are over 50,000 small to medium sized associations (including sports, social clubs and societies) in the UK and over 8,000 with memberships of more the 1000 individuals or organisations. Over 80% of membership organisations based in the UK are located in Central or Greater London and it is assumed that many (particularly those representing professions/trades and/or responsible for lobbying activity) are based there due to a traditional requirement to be close to central government.

Trade associations are formed to represent and promote business sharing a common activity or sector and also to represent professionals. Associations are not the same type of body as regulators, who are set up to control and monitor a defined business activity or trade.

Members of Associations have rights and responsibilities and the governance of Associations is controlled by law and by contract with members. Associations are usually established as distinct legal entities from their members. The reason for this is that an unincorporated group or association means that its members are personally liable for debts and contractual obligations.

There are different ways that Associations with a distinct legal personality from its membership can be set up, managed and funded. This help desk is an introduction to the topic and to get you familiarised with the more important issues.

Associations are a very significant type of organisation in the UK and their legal and organisational structure is what this help desk addresses. The top 100 membership bodies by membership make for interesting reading.

We always welcome your feedback so please do let us know what else you would like to know about using this Form.

Legal Structures 

There are number of legal forms that an association can take. Some, like a company limited by guarantee, prove more popular than others because of the legal characteristics and their ability to provide flexible and protective for their members and managers.

Choosing the legal form that is most suitable requires an understanding of the main basic legal forms that are available.

 

Company Limited by Guarantee (CLG)

A company limited by guarantee is much like an ordinary private company limited by shares.

  • It is registered at Companies House
  • It has Articles of Association
  • It must prepare and file accounts and an annual return
  • It has directors

The major difference between a normal limited company having shares and one limited by guarantee, is that the latter does not have a share capital or any shareholders.

Instead, a company limited by guarantee is controlled by its members.

As there are no shareholders, it is not possible to own a company limited by guarantee in the same way that a company with a share capital is owned by its shareholders.

The members of the guarantee company control it, but they do not have any shares in the company that they can sell or transfer to another person or entity

 

What does ‘limited by guarantee’ mean?

It means that the company is owned by members (as opposed to shareholders), who act as guarantors by agreeing to pay a set amount of money towards company debts if and when the company is wound up.

The member-guarantors therefore have their liabilities ‘limited’ by the amount of their guarantees, which can vary.

Often, members’ guarantees are set at a very low level, especially for not-for-profit companies and charities, to encourage and protect participation.

A very large number of membership organisations are also formed as companies limited by guarantee for this and administrative reasons.

 

Advantages of CLGs

For forming and running associations, companies limited by guarantee are especially useful because:

  • They protect the people running the company from personal liability for the company’s debts if and when it becomes insolvent
  • A corporate structure is familiar territory to many people involved in associations
  • They can be managed flexibly to suit the purpose(s) of the association- large or small
  • They are appropriate for not-for-profit objectives where financial surpluses are invested into the purpose(s) for which they are formed and not distributed to shareholders
  • There can be different classes of guarantee and voting and non-voting members
  • Directors can be held accountable for their actions by the members, removed and replaced where necessary
  • They can borrow money from banks and other financial institutions and also issue debentures for loans
  • They can grant security over assets, although this is not a common practise for associations
  • They are not prohibited from distributing profits by the Companies Act or any other law (but it is usual for profit distributions to be restricted or prohibited in the Articles)
  • Certain funding bodies, such as local authorities, insist on an organisation being registered as a company limited by guarantee


Disadvantages of CLGs

There are a few and include:

  • Not having shares or a share capital limits fund-raising capacity because shares cannot be issued and sold to members
  • They must raise their non-loan funds by levying subscriptions and/or joining fees

Formation of a CLG

The following requirements and regulations apply to incorporate a company limited by guarantee:

  • It must be registered with Companies House, the Registrar of Companies in the UK.
  • It must have at least one director and one guarantor. A sole individual may assume both positions, or there can be multiple directors and guarantors.
  • Information about all directors and guarantors will be available on public record.
  • It must have a registered office address, which is the official company address displayed on the public record.
  • Information about People with Significant Control (PSCs) in the company must be provided- normally these are the directors and guarantors.
  • A Memorandum of Association and Articles of Association are required
  • The Memorandum states the name of each member-guarantor and records their agreement to set up the company and become members.
  • The Articles set out the rules and regulations the company.

 

To get help forming an association by way of a company limited by guarantee please go to LawDoc4All.com for a range of legal documents for setting up clubs & associations.

If you need legal advice for your association, find your nearest solicitor here or call today on 0808 239 6697

Further help on the formation of trade associations can be found at smallbusiness.co.uk.

The Trade Association Forum is the ‘association of associations’ and provides  range of services and activities designed to assist in the strategic development and day-to-day running of organisations.

 

Unincorporated Association (UA)

Another way to set up an association is via an unincorporated association.

 

What does unincorporated mean?

An unincorporated association is not a legal entity in itself, like a limited company.

Rather, it is an organisation of two or more persons, who are the members of the association. The membership may change from time to time and members agree, usually in a written constitution, to co-operate in furthering a common purpose.

The affairs of an unincorporated association are usually managed by a committee chosen by the members.

An unincorporated association can be whatever its members want it to be, and carry out whatever activity the members choose.

More information on UAs is provided at Gov.uk.

 

Advantages of a UA

  • It is the easiest, quickest and cheapest way for a group to set itself up.
  • It is ideal for many small groups, especially those without staff or premises.
  • To set up all that is needed is a constitution, setting out the rules under which it will be run.

A large number of groups fall create unincorporated associations without realising they have done so.

 

Disadvantages of a UA

  • It cannot enter into contracts or own property in its own right.
  • Its members are individually liable for debts and liabilities incurred for the UA
  • If the UA starts to trade Corporation Tax Return has to be made and tax paid on profits

Please go to LawDoc4All.com for rules and constitution for an unincorporated association.

Association set up Route Map 

Use this route map to help decide on your association’s structure.

 

Regulating Associations

Associations must comply with whatever law they are set up under. Limited companies must comply with the Companies Act 2006 and its regulations.

Companies House is where filings are made about companies and where online help can be obtained, for example changing details about a company, closing down a company or filing an annual return.

 

Competition Law

Competition is regulated in the UK- see our Competition Help Desk.

If a trade association is used as a means to create or encourage an infringement of competition law, then both the association and its members can face serious consequences.

The Competition & Markets Authority (CMA) publishes a ‘‘dos and dont’s’ guide to help guide associations on this important area of national regulation, including:

 

  • Association can be liable for breaches of competition law
  • Breaches can have financial and consequences for an association’s reputation
  • Members must not discuss competitively sensitive information in or around association events, including in ‘unofficial meetings’ or at social events
  • Any standard contract terms and conditions must be clear, easily understood, in plain language and fair to consumers
  • Rules and admission criteria must be transparent, proportionate, non-discriminatory and based upon objective standards
  • Association rules or practices must not restrict members from advertising their prices or discounts, soliciting for business or otherwise competing with other members
  • Associations must not require members to provide the association with competitively sensitive information, such as information about pricing and/or output intentions
  • Associations must not establish irrelevant or arbitrary rules for the admission of new members
  • Associations must not adopt rules that restrict members’ advertising and promotional business practices, beyond ensuring such practices are legal, truthful and not misleading

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