Starting an Organisation

When considering starting an organisation, there are a number of key factors that you will need to consider. These will be influenced by what you intend your organisations goals to be and how you will go about achieving them. Will you be better setting up as a Charity or perhaps a Social Enterprise? What does all that mean from a legal perspective and how will it influence how you run the organisation?

This section of the toolkit aims to explain the different types of organisations and the legal structures associated with them and what it all means for you when running the organisation.

Things to think about

You have a great idea and want to help your community so why don’t you just set up a group and apply for funding?  Before starting another organisation it might be worth seeing if anyone else is doing something similar and whether joining forces might be a good use of limited resources and time.  There are over a thousand organisations in Argyll and Bute serving only 83,000 people but because we are so spread out an organisation helping one village may not be operating in your village.

Your organisation may already have been operating for a while informally and now you need to formalise what you do so that you can have a bank account and attract supporters, volunteers and participants for your service. 

Many community groups in Argyll and Bute are small and do not need anything more than a constitution to benefit their community members – these are called unconstituted groups and do not need to register with anyone.  However, if your group wants to own property, provide services and enter into contracts then you may need to consider other legal structures. 

The type of legal structure will depend on what activity your group will want to undertake.  For instance, if all your income and expenditure is geared towards benefiting particular groups of people and there is no profit then a charitable structure may be more suitable but you will need to pass the public benefit test.

The Scottish Charity Regulator (OSCR) has a great webpage which sets out what is meant by public benefit.  The Scottish Council for Voluntary Organisations (SCVO) also has some great resources to get you thinking about the right structure for you.

If your organisation wishes to trade and invest any surplus profits into developing your work then you may wish to become a social enterprise instead.

In the section below, we look at what each type of legal structure means including its benefits and limitations.

Once you have had a think about what is best for you why not contact one of our Third Sector Support Advisers who can help you on your journey.

Types of Legal Structures

Unincorporated Groups

These are relatively informal, non-legal organisations. Most organisations begin this way; a group of people with a common goal, coming together to achieve an objective.

The people involved are not independent from the organisation – therefore if the composition of the people involved alters, the organisation’s perpetuity is not guaranteed. Individual members are liable for the organisation’s legal and financial obligations.

Incorporated Groups

These are formal organisations with a legal structure. The people involved are independent from the organisation – so even if the composition of the people involved changes, the organisation itself can go on existing. Likewise, the liability of the people involved is limited so that their personal assets are not at risk.

The organisation is subject to regulatory obligations e.g. filing reports, adhering to governance standards and complying with tax regulations.

Voluntary Groups

These fall somewhere in between, depending on their objectives. Tending to be informal, they create own rules / constitutions and have no general regulation unless they want to become a charity in which case they will need a governing constitution approved by OSCR.

Voluntary Groups have no separate legal identity; therefore some, or all, of those involved will undertake transactions on behalf of the group and may therefore have personal/unlimited liability for its actions

If becoming incorporated feels like the way to go, there are various structures to choose from:

Scottish Charitable Incorporated Organisation (SCIO)

A ready-made company structure for charities only. The law relating to SCIOs is self-contained; the Scottish Charity Regulator (OSCR) is the regulator for both the charitable status of SCIOs and also the SCIO legal structural form. Removal from OSCR’s register of charities means dissolution for a SCIO.

SCIOs must submit annual reports to OSCR.

The charities may be single tier (Members and Trustees are one in the same) or two tier (Members elect Trustees). They can also hold property and employ people.

Members / Trustee liability is limited in most cases.

Company Limited By Guarantee

Prior to advent of SCIOs, Companies Limited by Guarantee were most popular structure for charities.

A Company Limited by Guarantee registers with Companies House and therefore complies with Company Law. They may also register as charities if they meet OSCR’s criteria – in which case they will report to both Companies House and OSCR.

Trustees are known as Directors. Directors have statutory duties exceeding the duties of Charity Trustees, for example they must inform Companies House with regards to appointments / resignations of Board Members. Directors are liable for certain fines. Members and Directors have limited liability (usually £1) to contribute if the organisation ceases.

Business Gateway provides lots of information on starting a company – and OSCR offers the charity test to see whether it will also be possible to become a registered charity.


Suited to groups managing assets such as money or property. These assets are owned and managed by Trustees. They may register as charities if they meet OSCR’s criteria.

Trustees undertake transactions on behalf of the Trust and associated assets such as land / buildings are held in the name of one / more Trustee. Liability for the Trust may sit with the Trustees; however there is certain protection for them in Trust Law and Common Law.

Village Halls with historic Trust Deeds may need to revisit their governance, contact your local Third Sector Support Advisor for more info.

OSCR gives a useful breakdown of the structure of Trusts and other legal forms of charity.

Community Interest Company (CIC)

A special limited company structure for social enterprises. Assets are ‘locked’, i.e. they must benefit the community / be used for social objectives. Limited dividends may be paid to private investors.

Registered and regulated by the Office of the Regulator of Community Interest Companies, a division of Companies House. A CIC cannot register as a Charity.

Members have separate legal identity and liability is limited by guarantee. Governance is similar to other limited companies with additional regulation ensuring community benefits are being met.

UK Government advice regarding how to become a CIC


A jointly owned, democratically controlled enterprise where each member has a vote regarding the election of the board of directors. This can instil sense of ownership in members, given that they have a stake in the organisation’s success and the use of its profits. Members may include employees, customers, residents and suppliers – and not distant shareholders.

Co-operatives have rules of association and is an incorporated body with limited liability, however does not have all the requirements associated with limited liability under the Companies Act.

They can hold property, enter into leases and employ people.

Co-ops are not charities and must register with the Financial Conduct Authority.

Visit Co-operatives UK for more guidance.

Community Benefit Society (BENCOM)

Similar to a Coop, as it is halfway between a registered company and an unincorporated association. Has a committee/officers which manages on behalf of members. Each member has a vote. Has rules of association, is incorporated and members have limited liability without requirements associated with the Companies Act. BENCOMs must register with the Financial Conduct Authority.

They can become a charity if set up for the benefit of the community (i.e. not just its own members) and meets OSCR’s charity criteria.

They are eligible for community right to buy and community asset transfer and can hold property, enter into leases and employ people.

Here is a link to a useful webinar on this form of organisation: Community Benefit Societies | DTAS Community Ownership Support Service

Social Enterprise

There is no single legal definition of social enterprise, however, in Scotland, it is recognised that Social Enterprises aim to do business in an ethical and sustainable way and while they exist to make profit – such profits (or surpluses) are reinvested into specific social / environmental purposes. Social Enterprises are therefore interested in a more inclusive economy. Many social enterprises follow a set of guidelines called The Voluntary Code of Practice for Social Enterprise in Scotland.

A social enterprise is not a legal structure in itself so could take the form of any of those listed above. It can be a registered charity, if it meets OSCR’s criteria.

It is strongly advised to refer to Social Enterprise Scotland for further information.

Related resources

All the related resources