There are a number of types of legal status a 'charity' can adopt:

Unincorporated charity

An organisation that is set up as a charitable trust or association but is not incorporated as a company. It is registered with the Charity Commission and usually governed by a constitution or trust deed. Unincorporated charities do not have a separate legal identity and as such they cannot enter into contracts in their own name. Instead the charity's trustees would be named on the contract and legally it is their personal responsibility to meet contract terms and liabilities.

Charitable Company

A limited company that is also registered as a charity with the Charity Commission. Charitable companies are usually "limited by guarantee" not limited by shares. Charitable companies are governed by a Memorandum and Articles of Association and have their own legal identity. As such it is the company, rather than the individual trustees, that is responsible for entering into contracts and meeting liabilities. The charitable company is still governed by a board of trustees, although these are also directors under company law. The liability of the trustees/directors is limited, which means they will not personally be liable for the losses of the charity (except in the case of fraud or negligence).

Trading Company

Certain types of organisations that are sometimes considered to be charities are not actually registered charities. Organisations that have directly political aims or that have been set up to change the law are not legally allowed to be charities - instead they are just limited companies. This includes some of the big household names such as Amnesty International, Greenpeace and Friends of the Earth. Some of the work done by these organisations is charitable (such as research and education) so they often set up a charity for the charitable aspects, which runs in parallel to the limited company. The Charity Commission publication, CC9, has more information on campaigning charities.

Some charities also undertake trading activities which cannot be operated through the charity. Consequently they set up a separate company, known as a trading subsidiary, as a vehicle for conducting the trading activities. Trading subsidiaries are private limited companies that are usually wholly owned by the parent charity.

Industrial and Provident Society (IPSOC)

IPSOCs are neither limited companies nor registered charities, however their aims and objectives are often of a charitable nature. They often operate as co-operatives or mutual societies, and exist for the mutual benefit of their members or the community. Surpluses are usually ploughed back into the organisation, rather than distributed as profits. IPSOCs are regulated by the Financial Services Authority (FSA). They have a separate legal identity and members have limited liability. In England and Wales IPSOCs with charitable aims do not need to register with the Charity Commission.

Charitable Incorporated Organisation (CIO)

The charitable incorporated organisation is a new entity and is one of the key provisions of the new Charities Act. The CIO will allow charities to have a separate legal identity without having to register as a company. Further legislation will be needed to ratify this new structure and this is not likely to happen until 2008 or 2009.

Community Interest Company

The Government has created a new form of limited liability company specifically for social enterprises: the Community Interest Company (CIC). The CIC complements existing legal forms for social enterprise, such as the Company Limited by Guarantee or Shares and the Industrial & Provident Society. CICs have the flexibility and certainty of the company form, but with some special features to ensure they are working for the benefit of the community.

Key features include:

It is now possible to send applications to Companies House to form, or to convert to, a CIC. Find out more from the CIC Regulator: www.cicregulator.gov.uk

* These definitions are taken from the online course: Working for the Voluntary Sector