Festivals Toolkit: Organisation: Constitutions and legal structure

Your organising committee does not initially need to have a constitution as it is just bringing people together to share an interest, but as soon as it starts to handle money or apply for funding a formal statement of decision making practice, structure, responsibilities and rules for those participating in the groups activities is necessary.

A constitution is a legal document setting out what your group does, its aims and how it intends to achieve them, how decisions are made and accountability.

Visit the  Tourism North East website to expand on this topic.

Visit The Toolkit to expand on the following information and to see a sample Constitution. The site is designed for developing creative enterprises and community arts organisations. You will need to register but it provides useful information on a number of areas.

A constitution sets out the rules that you are going to use to run your group. These should include:

  • The name of your group
  • The aims and objectives of your group - this means what your group wants to do and how it plans to do it
  • Details of how your governing body is chosen - usually this will be called the Management Committee
  • Details of how people can become members of your group (you might also want to include how other organisations or individuals who are not eligible to become members can be involved with your group)
  • Details of what will happen to any money, equipment or other items of value (assets) that your group owns if you ever decide to wind the group up
  • The date you agreed to accept your constitution/rules
  • Signatures of the officers of your committee (officers are committee members with special responsibilities, these are usually the Chair, the Treasurer and the Secretary)

Legal structures
Adopting the correct legal and working structure is a fundamental aspect of long term success, as it will influence not only the business culture of the organisation and the level of liability to which staff and committee/board members are exposed, but it may also affect the range of organisations to which the festival can apply for financial support.

The National Council for Voluntary Organisations (NCVO) has published a useful briefing note Legal structures for voluntary organisations.

Liability
The concept of liability is one that every festival organiser needs to understand. For a start, when you are setting up and choosing the most appropriate form of business, you need to consider the liability implications. Put simply, if the festival is unincorporated and the business fails then those on the committee or employed by the committee are fully responsible for the debts of the business. One of the main purposes of becoming incorporated is precisely to offer protection for committee/board members and staff from the effects of business failure. This is a simplified summary, and limitations of liability may be negated; for example, in cases of fraudulent behaviour.

As the NCVO note indicates: The main advantage of the company structure is the separate legal personality and the degree of limitation of liability this confers on the members and directors. Further information on this see the VAN briefing note 23 (pdf format) , Incorporation.

To help you make your decision on the most appropriate type of structure for your organisation you should consider:

  • Risk - to the Trustees, to the organisation
  • Accountability - formal structures require a high level of accountability compared with informal associations
  • Cost - of setting up the organisation, of annual reporting requirements, etc.

Legal Options
Tourism North East provides the information below on company structures, visit their website for further information.

Some legal options include:

  • Unincorporated Association
  • Charitable Trust
  • Company Limited by Guarantee
  • Community Interest Company (CIC)
  • Charitable status

The Governance Hub have produced a comprehensive guide to Governance and Legal Structures (pdf format).

The Charity Commission has published a detailed document on the whole topic of an organisation’s legal and working structure, Choosing and Preparing a Governing Document.

Unincorporated Association
This is the simplest form of legal identity that a festival can adopt, and many do so in their first one or two years.  The National Council for Voluntary Organisations (NCVO) advice is:

‘The Unincorporated Association is a very informal structure and is generally used for organisations which require the participation of members with a minimum of statutory obligations. It can be cheap to set up and run but is not suitable for a charity employing a number of staff or engaging in substantial contracts, primarily because, ..., the members will be personally liable if the charity is sued or incurs liability.’

An unincorporated association is a group of people agreeing to abide by certain rules to further the interests and activities of the group. It is not a legal entity in its own right, but a collection of individuals. As such it cannot own property, take out loans or raise funds as an organisation. Because of this individual members may be exposed to risk, for example any monies borrowed on behalf of the organisation would have to be repaid by the person who organised the loan, should the group cease to exist or run into financial difficulties. It is possible to spread any risk by agreeing that all members of the management committee carry any risk for the group as a whole.

Charitable Trust
A small group of people (the trustees) who administer and hold legal ownership of the organisation's property (money, land, equipment etc) and administer it for the purposes the trust was set up. The trust establishes a formal relationship between the donors of money or property, the trustees who manage the money or property and the beneficiaries, the people who will benefit from the trust.

Company Limited by Guarantee
This is a popular and reasonably straight forward legal structure which several festivals in the county have adopted, some also acquiring charitable status. A company is a legal entity in its own right and considered in the eyes of the law to be like a person. Unlike a commercial company, a not-for-profit company does not distribute profits to members as all the money and property belonging to the company must be used for charitable purposes or putting it back into the company. All members must agree to pay a nominal sum, usually £1, if the company becomes insolvent.

For company formation and registration information visit Companies House website.

Community Interest Company (CIC)
CIC status is designed for people who wish to run a company for the benefit of the community, rather than solely to make money. The main feature of CICs is that they are asset locked to prevent the assets (cash, goods, property, etc.) and profits of the company being used for anything other than community benefit.

Community Interest Company: VAN briefing note 106 (pdf format) on this form of legal enterprise, from which the following notes are taken.

CIC’s assets and profits may only be:

  • retained within the company for community purposes
  • transferred to another asset-locked organisation (e.g. another CIC or a charity) specified in the CIC’s governing documents or approved by the CIC Regulator
  • sold at their full market cost, so that their value is retained by the CIC
  • otherwise transferred for the benefit of the community

Social enterprises are defined by the UK Government as ‘businesses with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners.’ By using the principles of business to help communities, the Government believes that social enterprises have a distinct and valuable role to play in helping create a strong, sustainable and socially inclusive economy. CIC status has been designed to support this growing sector by creating an appropriate legal framework and by helping to raise its profile.

The Community Interest Companies Regulator website contains detailed information and the forms necessary to apply for CIC status.

The Community Interest Company Regulations 2005 are available on the website of the Office of Public Sector Information.

The Department of Trade and Industry have produced a report entitled Social Enterprise – a strategy for success.

A business planning guide to developing a social enterprise – produced by Fourth Sector in Scotland, this guidance is useful to any voluntary and community organisation who may be thinking of social enterprise as a way to develop their activities.

Charitable Status
A group is charitable if all of its aims and objects as stated in its constitution are charitable. There are four categories of charitable objects recognised by the Charity Commission:

  • The relief of poverty
  • The advancement of religion
  • The advancement of education
  • Other purposes beneficial to the community

To register as a charity with the Charity Commission, you must have a constitution and your objectives must be charitable.

Further reading
VAN briefing note 22 (pdf format), Getting charitable status
The Charity Commission for England and Wales

Governance
Once your group has a legal structure you may need to look at issues such as recruiting Trustees and servicing and managing Boards. Visit the Governance Hub website for further information. The site provides extensive information on governance topics, such as generic information on governance, roles and responsibilities of Executive Boards, recruiting Trustees and various guides, toolkits and publications.

Further information:
National Council for Voluntary Organisations: Trustee Recruitment Toolkit (PDF)

Information on this section has been gathered from the following websites, so visit them for further information:

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