## **Learning Outcomes**

By completing this article, you will be able to distinguish and describe the main legal forms used by not-for-profit organisations, explain the typical structures and responsibilities of their governing committees, and articulate the legal obligations and accountabilities of committee members and trustees. You will also be able to compare not-for-profit and commercial governance models for ACCA exam scenarios.

## **ACCA Business and Technology (BT) Syllabus**

For ACCA Business and Technology (BT), you are required to understand the unique characteristics and governance of not-for-profit organisations. Focus your revision on the following syllabus points:

- The main types and legal forms of not-for-profit organisations and their distinguishing features
- Governance structures and roles within not-for-profit bodies, including committees and trustees
- Legal duties and accountabilities for compliance, reporting, and transparency in not-for-profit entities
- Key differences in governance between not-for-profit and commercial organisations

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. Which legal form of not-for-profit has no separate legal identity from its members?
2. Who is legally responsible for compliance and reporting duties in a registered charity?
3. True or false? Not-for-profit committee members can never be held personally liable for organisational debts.
4. Name two key differences between the governance of a limited company and a charity run by trustees.

## **Introduction**

Not-for-profit organisations (NPOs) are created to achieve purposes other than distributing profits, such as delivering social, educational, or community benefits. These entities use specific legal structures and governance arrangements suited to their focus on public or member benefit rather than private gain.

> **Key Term: not-for-profit organisation**
> An entity established for objectives other than making profits for owners, typically aiming to serve social, charitable, or member-based purposes.

## Legal Forms of Not-for-Profit Organisations

Not-for-profit organisations in the UK commonly operate under one of several legal forms, each with distinct governance and liability features.

### Unincorporated Associations

Most small clubs or societies begin as unincorporated associations. They have no separate legal identity from their members. A constitution (agreed set of rules) outlines how the association is run.

> **Key Term: unincorporated association**
> A group formed by agreement (often with a constitution) for a common non-commercial purpose, not recognised as a separate legal entity.
>
> **Key Term: charitable trust**
> A legal arrangement where assets are administered by trustees solely for charitable purposes, with trustees bound by trust law.
>
> **Key Term: company limited by guarantee**
> A company with no share capital in which members agree to contribute a set amount toward liabilities if it is wound up, commonly used by charities and clubs.

### Charitable Trusts

Charitable trusts are set up to hold assets for charitable purposes. Trustees are appointed to manage the trust and may be personally liable if duties are breached.

### Companies Limited by Guarantee

Many NPOs incorporate as companies limited by guarantee. This means the organisation is a separate legal entity and members’ liability is limited. This legal form is widely used for larger charities, membership bodies, or clubs.

### Community Interest Companies (CICs)

CICs are special forms of company designed for businesses with a social aim. They are subject to regulatory oversight to ensure assets are applied for community benefit.

## Governance Features and Committee Structures

The governance of not-for-profit entities differs from commercial companies by focusing on collective decision-making in pursuit of social or community goals.

Committees—commonly called management committees, boards of trustees, or councils—are responsible for running the organisation, setting strategic direction, monitoring finances, and ensuring compliance.

> **Key Term: trustee**
> A person with legal authority and duty to manage assets and activities of a charity or trust according to its purpose and the law.
>
> **Key Term: committee**
> A formally appointed group responsible for organisational decision-making, oversight, and governance.

### Roles and Responsibilities within Committees

Governing committees of NPOs may assign officers, such as:

- **Chair:** Leads meetings and ensures strategic focus.
- **Secretary:** Maintains records, manages correspondence, and files statutory documents.
- **Treasurer:** Handles financial management and reporting.
- General members: Support key decisions and undertake delegated tasks.

Committee members are usually unpaid and must act solely in the organisation’s interest, not for personal gain.

## Legal Accountability and Reporting Duties

While NPOs are not driven by profit, they remain subject to legal and regulatory obligations. These include:

- Keeping accurate records and preparing timely reports
- Submitting annual returns and accounts to regulatory bodies (e.g., Charity Commission or Companies House)
- Ensuring compliance with charity law, tax law, and general legislation (such as data protection)
- Safeguarding organisational assets and avoiding misuse of funds

Unincorporated associations expose committee members to personal liability if debts arise, as there is no separate legal entity. Incorporated forms (such as companies limited by guarantee) usually limit liability to the guaranteed amount.

Committee members and trustees must collectively ensure rules are followed, finances are properly managed, and statutory returns are submitted. Individual failures may lead to disqualification, fines, or personal accountability.

### **Worked Example 1.1**

A sports club, structured as an unincorporated association, rents a venue and organises events. After the treasurer resigns over a missing funds issue, who holds responsibility for addressing the shortfall?

> **Answer:** The entire management committee remains collectively responsible for the finances, compliance with the constitution, and resolving the matter. A single officer resigning does not remove the committee’s joint obligations.

### **Worked Example 1.2**

A charity registered as a company limited by guarantee fails to submit its annual accounts on time. What could be the outcome for the governing body?

> **Answer:** The board of trustees (acting also as company directors) could be fined, risk disqualification, or see the charity struck off the register. They are legally required to ensure timely statutory filings.

### Comparison to Commercial Organisations

Key distinctions between not-for-profit and commercial governance include:

- NPO committees cannot distribute profits—surpluses must be used for organisational purposes.
- Governance is by voluntary committee or trustees, not by profit-seeking shareholders and directors.
- Regulatory oversight focuses on public benefit and proper use of funds.

### **Exam Warning**

> Not-for-profit committee members can be personally liable if legal formalities are ignored, records are not maintained, or charitable funds are misused—even if their role is unpaid.

## **Summary**

Not-for-profit organisations use legal forms designed for social, community, or member objectives. Their governance is based on collective committees or trustees with legal duties to act lawfully, manage organisational affairs, fulfil accountability requirements, and avoid private gain. Proper committee structures enable NPOs to comply with regulatory demands, support transparent operations, and minimise personal risk for those involved.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- Legal forms of not-for-profit organisations (unincorporated associations, charitable trusts, companies limited by guarantee, CICs)
- The structure and main responsibilities of governing committees and officers
- The duties and legal accountabilities of trustees and committee members
- Differences in governance and accountability between not-for-profit and profit-oriented entities
- Requirements for compliance and reporting for not-for-profit bodies

## **Key Terms and Concepts**

- not-for-profit organisation
- unincorporated association
- charitable trust
- company limited by guarantee
- trustee
- committee

Business legal forms - Not for profit governance features