step 1 - get startedstep 2 - make a planstep 3 - decide on membershipstep 4 - decide on charitable statusstep 5 - consider the risksstep 6 - decide on a structurestep 7 - write your constitutionstep 8 - next steps

A company is a membership organisation formed and registered under the provisions of the Companies Acts. It is incorporated and benefits from limited liability for its members.

It’s a structure that can be chosen by voluntary organisations that employ staff, regularly enter into contracts, manage investments, and/or own property and other assets, because limited liability helps to minimise the threat of personal liability for the directors.

It is regulated by Companies House and subject to the Companies Acts and other legislation. If a company is charitable then it will be subject to charity law and regulated by OSCR as well.

If you are considering this structure and are planning to apply for charitable status, why not consider setting up as a Scottish Charitable Incorporated Organisation? This is a corporate body which provides limited liability for its members and is suitable for organisations that want to become charities, but do not want or need the complex structure of company law.

Advantages Disadvantages
It’s a private limited company that has guarantors rather than shareholders, so it’s suitable for voluntary organisations. The members agree to pay a fixed amount known as a guarantee (usually £1) towards the company’s debts if it goes into liquidation. There are formal registration procedures to be followed in relation to creating a company, in addition to the process of applying to be recognised as a charity, unlike with a SCIO which needs only to be registered with OSCR.
The company is a clear legal entity, separate from the persons involved in it – and can hold property, enter into leases and other contracts, employ people, etc, in its own name. It doesn’t matter if the directors change because it is the company and not the directors that hold title to land, enter into contracts, etc, but changes must be notified to Companies House. There is an ongoing requirement to notify a change in directors, a change in the company secretary, or a change in the registered office to Companies House. Similarly, annual accounts and annual returns have to be filed. If a charitable, a company must also file an annual return with OSCR, and notify or seek prior consent from OSCR before making certain changes.
A company is generally regarded by funding bodies and public agencies as a more ‘stable’ structure than a voluntary association. There are various statutory requirements which have to be followed in relation to members’ meetings etc.
A company structure may be more intimidating for those considering whether to join as members or put themselves forward for election to the board of directors.
Set up costs can be higher than for a voluntary association or trust; and annual costs are higher, particularly if there is an external company secretary and/or if a formal audit is required.

How is it governed?

A company is created with documents known as a memorandum of association and articles of association. If a charity, these must be approved by OSCR.

Its governing body is made up of the directors who have a legal responsibility for the company and ensure it carries out its activities properly.

Charitable status?

You may choose to set up a company and register as a Scottish charity if the company meets the criteria for being a charity. Equally, you can set up a company without seeking charitable status.

Does it have a legal status, distinct from those who run it?

Yes. However, so far as limited liability is concerned, it should be recognised that, although the company format does provide a very substantial level of protection against personal liability, the limit on liability does not extend to any liability which a person might incur in their capacity as director of the company, as distinct from their capacity as a member. There are a range of legal duties imposed on directors of a limited company which could give rise to personal liability. Broadly speaking, however, it is extremely unlikely that a director would find themselves personally liable as a matter of practice, unless they acted in a manner which was negligent or improper. It is important, though, that those involved should have a reasonable understanding of what is involved in relation to their duties as directors.

Write your constitution

Find detailed information on how to write a memorandum and articles of association for a company, with a model and clause by clause guidance.