Why should a students’ union incorporate?
Students’ unions that want to incorporate this summer need to start the process now.
Many students’ unions choose to incorporate as a separate legal entity, because it offers more protection from personal liability for trustees, as well as being administratively easier. If you have SUSS pension liabilities, the 2021 ‘window’ in which you could incorporate without these being crystallised has now been announced, but the sooner you get started, the easier it will be to meet their deadlines.
There are many benefits to becoming an incorporated body. The key advantage is the establishment of a separate legal personality.
Having a separate legal personality means that the incorporated body can enter into contracts in its own name and hold its own assets and liabilities. This means that any liability taken on under such agreements is the liability of the organisation and not of the individuals. It is also administratively easier, because individual trustees are not signing contracts or holding assets in their own name, on behalf of the students’ union.
It also means that, if the organisation runs into trouble, it is generally the charity itself which is on the hook, rather than individual trustees. The assets of individual trustees are therefore usually protected (see below for some limited exceptions to this).
The opposing position for an unincorporated body is that liabilities will be in the name of the individuals involved. This means that there is a personal risk taken on by an individual when becoming a trustee of an unincorporated body.
There are some exceptions to the limited liability offered by an incorporated structure, where the individual trustees could still be held personally liable, including if they give personal guarantees, if they breach their duties as trustees, or where the law requires personal responsibility (e.g. in relation to certain criminal, insolvency and environmental matters). However, incorporation gives the trustees much better protection than they have with the unincorporated charity.
A students’ union often employs staff (sometimes significant numbers of staff) and may carry out activities which involve a certain amount of risk. In our experience, lay trustees are often particularly concerned about the risk to their own personal assets where a students’ union is unincorporated. It can therefore be a barrier to recruiting new lay trustees.
What legal structure should your students’ union take?
The most common incorporated legal structure that students’ unions take is a charitable company limited by guarantee.
However, we are seeing increasing numbers of students’ unions choosing to incorporate as charitable incorporated organisations (‘CIOs’). The advantage of this structure is that it is only registered with the Charity Commission, rather than the Charity Commission and Companies House.
Whether you choose to incorporate as a charitable company or a CIO, a students’ union will need to decide whether its legal members should be all students (an ‘open membership’ or ‘associate’ model) or should be limited to the trustees (a ‘closed membership’ or ‘foundation’ model). Where the only legal members are the trustees, students are still given democratic rights in the constitution, as required by the Education Act 1994.
We see far more students’ union opt for the closed membership model, perhaps because it is administratively simpler to manage. For example, the legal requirement to keep a register of (legal) members is easier to fulfil where the only legal members are the trustees.
The NUS has model constitutions for both CIOs and charitable companies, for both open and closed membership models.
What are the SUSS deadlines for incorporating this year?
Many students’ unions have significant pensions liabilities with SUSS, which would normally crystallise on incorporation. However, SUSS usually operates a mechanism to permit incorporation within a specified annual timeframe, which means that your incorporation would not be affected by those liabilities.
As at the date this article was published, we understand that SUSS specified window for incorporating your students’ union in 2021 will open on 5 July 2021 and close on 1 October 2021. There are a number of steps to be taken in advance of the window opening, so we would recommend beginning this process as soon as possible if the intention is to incorporate in 2021. Please contact any member of the students’ union team for an initial no-obligations call to talk through your options.
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The information in this article is necessarily of a general nature. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors.