By: Simon B
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This sort of business structure is ideal for a group of people who want to work together for reasons besides making money – for example, a sports club.
An unincorporated association is a type of business structure which is less formal than other types, such as limited companies. This makes it a simple and accessible alternative if you are looking to set up a small, not-for-profit group, as it doesn’t require any of the registration or complications that a more formal business structure would require.
Setting up the association
All you need for an unincorporated association is a group of two people or more who want to work together for a common goal – playing football together, for example, or working to improve things in their community.
It isn’t essential, but it is a good idea to draw up a constitution for the group, which can set out, among other things:
- the purpose of the group (to raise money for charity, help the community, etc)
- who can join the group (men and women over 18, for example)
- how decisions will be made
How you want to structure the association is up to you and the other members – it is a good idea to have a board or management committee carry out the main running of the club. The constitution can specify how the members of the committee will be decided or elected, how much power they will have, and how much control other members will have (voting at general meetings, for example).
Limitations and risks of an unincorporated association
Unlike a limited company or partnership, an unincorporated association is not a legal entity on its own – this means that the association itself cannot enter into contracts, take on employees, take out a loan or own any property.
This means that if any of these things need to be done for the club, a member will need to do so in their own name – for example, if the club needs to borrow money, a club member must do this on the club’s behalf.
This also means that members can find themselves liable for any debts the club may have. In a limited company, the owners and shareholders have ‘limited liability’, meaning that if the company is unable to pay their debts, no individual involved with the company will be held personally responsible for paying off those debts.
However, if you accrue debts on behalf of an unincorporated association, you have no such protection, and you will be held personally responsible for those debts.
Another example would be a situation where the entire managing committee has authorised a contract entered into by a member on behalf of the group – if legal trouble arises as a result of that contract, every member who authorised the contract could be in trouble.
An unincorporated association’s lack of legal status can also cause problems when it comes to ownership of any property. This property will need to be owned by a member – however, if that member decides to leave the group, the property will likely need to be transferred to another member.
The group’s constitution can be used to clarify some of these issues – for example, specifying who will assume liability for different things that the group needs.
Going from unincorporated association to limited company
If you are running an unincorporated association, it is possible to convert to a different structure if it becomes appropriate – for instance, if the group grows and takes on more liability.
Converting to a limited company will require the group to register with Companies House. However, this will mean that the group itself will exist as a legal entity, giving your members more protection.
You can read about more about registering in our Register a Limited Company section.