What is the difference between legal structure and legal status?
Every organisation needs a legal structure or form in order to enable it to function. The legal structure sets out the objectives of the organisation and the rules as to how it will work. At present there is no specific legal structure for voluntary and community organisations. The different legal structures which are used include a company limited by guarantee, a trust, an industrial or provident society or a constitution. Of these legal structures only a company limited by guarantee has legal status. Legal status means the organisation has a separate legal identity which is recognised by the courts. It can act through the courts, and carry out activities such as employing staff and acquiring property.
What is a company limited by guarantee?
Its full title is a company limited by guarantee not having a share capital. All the profits are reinvested in the company. When the organisation is incorporated as a company it then has a separate legal identity or status. It can then carry out activities in its own name e.g. employ people, borrow money, buy or lease property, take or defend legal proceedings. This means the members are protected from being personally liable for the activities or debts of the company. For this reason a company limited by guarantee is the legal structure which is recommended for most voluntary and community organisations in Ireland. The disadvantages are that the procedures for becoming incorporated are complicated and require the assistance of a solicitor or an accountant and that can involve considerable expense.
How to become a company limited by guarantee.
There are various stages involved in becoming incorporated and information on this is available on the website of the Companies Registration Office at www.cro.ie It includes a document 'Company Incorporation: information leaflet no.1' which describes the documents needed and how to complete the Form A1 which is required to incorporate a company limited by guarantee. As stated above the services of a professional such as a solicitor is necessary to assist with the incorporation procedure.
First, the name of the company to be incorporated should be checked with the Companies Registration Office to ensure that there is no company registered with the same name. Then a memorandum and articles of association must be drafted. In order to be recognised as charitable the memorandum and articles should meet the requirements of the Revenue Commissioners (see below). The memorandum sets out the objects and powers of the company. It states that the liability of the members is limited to a nominal amount, usually one pound (Note: this has not yet been changed to euros on CRO website). It lists the names and addresses of the subscribers, numbering at least seven who are the first members of the company. The articles of association state the rules regarding accounts, roles of officers, the election of the board of directors, meetings, members etc.
What is a Constitution?
This is the simplest form of legal structure for a voluntary organisation and does not require registration. A constitution is a document that sets out the rules of the group. It includes the name of the group, the area where the group operates, its activities, membership, voting rights, committees and officers, and details about finance, meetings and how alterations of the constitution can be made. A sample constitution is attached and this can be easily adapted to suit the needs of most voluntary or community groups. The advantage of this type of structure is that it is cheap to draw up, it is informal and it is suitable for an organisation such as a small self-help group, club or society. The disadvantages are that it is an unincorporated body and has no legal status and is not suitable for an organisation acquiring property or employing staff. All members are responsible for the group's activities.