Governance glossary

Rate this page

Rating statistics for this page

3.8 out of 5 from 11 votes

Breakdown

6 votes

1 vote

1 vote

2 votes

1 vote

Cashflow

Cashflow is a measure of your ability to have enough money to pay your bills as they fall due. Good cashflow means an organisation has cash available to pay its bills on time. If cashflow is poor the organisation may find it cannot pay its bills even if other people owe it money. Poor cashflow is a key reason why organisations fail.

Charitable incorporated organisation (CIO) not yet introduced

The Charities Act 2006 introduced a new legal form of incorporation designed specifically for charities. The Charitable Incorporated Organisation (CIO) is designed to combine the advantages of a corporate structure such as reduced risk of personal liability without the burden of dual regulation. The aim was for the CIO to become an option from spring 2010 but this has been delayed.

Charitable status

Charitable status is separate from legal form. Several legal forms are eligible for charitable status, but some are not. (A Community Interest Company for example cannot be a charity.) To be a charity an organisation must:

• exist for purposes that the law recognises as exclusively charitable
• exist for the public benefit.

Community interest company (CIC)

Governed by Companies Act legislation and CIC regulations, Community Interest Companies (CICs) are a relatively new form of company. This incorporated structure combines the pursuit of a social purpose with commercial activities. CICs must pass a community interest test which assesses whether the company’s activities will be carried on for the benefit of the community. (This is a less exacting test than for charitable status).

The constitution of the CIC contains 'asset lock' provisions which ensure that the assets of the CIC are used to further the community purposes for which it was set up. A CIC can make profits but these must be used to benefit the community it was established to serve.  

CIC directors can receive a reasonable remuneration (unlike charity trustees who are usually unpaid). A CIC can take several forms: private company limited by shares, private company limited by guarantee or public limited company. A CIC cannot be a charity.

Company limited by guarantee

Governed by Companies Act legislation. A company limited by guarantee is a private company very much like a private company limited by shares except that it cannot generate any income through the sale of shares. This form is popular for charitable or non profit organisations who want to incorporate. CLG are controlled by members (rather than shareholders since these do not exist) through general meetings. Like a company limited by shares, the members of a guarantee company have limited liability.

Council for voluntary service (CVS)

CVS are local organisations providing support to voluntary and community organizations in their area. You may find your local CVS is called Voluntary Action or Voluntary Service Council. There are around 350 CVS, you can find a full list from the National Association for Voluntary and Community Action www.navca.org.uk 

Governance

We like Prof Chris Cornforth’s definition: ‘the systems and processes concerned with the overall direction, effectiveness, supervision and accountability of an organisation’.

Governing body

The group of people legally responsible for the charity or non profit. Depending on the type of non profit the members of the governing body might be known as: trustees, members of the management committee, directors or board members.

Governing document

The formal rules by which the charity or non profit is run. Depending on the type of organisation this might be called: the constitution; the memorandum and articles; the deed or the rules .

Incorporation

An unincorporated association is simply a group operating under a common name without a legal structure. In an unincorporated organisation the law does not distinguish between the organisation and its members. Incorporation means creating a legal identity for an organisation that is separate from its members, once incorporated the organisation becomes ‘a corporate body’. 

Industrial and provident society

An IPS is an incorporated form governed by its rules and the Industrial and Provident Societies legislation. An IPS must register with the FSA. The liability of members as shareholders is limited to the extent of their share. An IPS is governed by its committee (the equivalent to the board of directors of a company). As with a company, the committee members are unlikely to bear personal liability. There are two different types of IPS:

• IPS cooperative (or bona fide cooperative) here membership is based on a common economic relationship. For example, worker cooperative, housing cooperative, consumer cooperative from which the members benefit.
• IPS bencomm (for the benefit of the community) here it is primarily non-members who benefit.

Only an IPS bencomm is potentially charitable. Like a CIC it can also be constituted to lock assets. Until recently IPS were exempt charities who did not have to register with the Charity Commission. This has recently changed and IPS bencomms must register with the Charity Commission. They will also be renamed Community Benefit Societies.

Insolvency

Insolvency is an organsiation’s inability to repay its debts. It occurs when the debts and liabilities of the organisation exceed its assets (that is all that it owns). 

Legal form

Legal form refers to how a body is seen by the law. For example, company, trust or an association. Legal forms can be either incorporated or unincorporated. Charitable status is separate from legal form.

Objects

A charity’s objects are the legal purposes it was established to achieve.

Quorum

A quorum is the minimum number of members needed to conduct the business or meeting of that group.

Reserves

Reserves are the resources a charity has or can make available to spend for any or all of the charity's purposes once it has met its commitments and covered its other planned expenditure.

Stakeholders

Stakeholders are those people and organisations that are affected by or can affect your organisation. Some stakeholders will be more important to you than others, and who you regard as your key stakeholders will vary from organisation to organisation. They are likely to include: your beneficiaries, your staff, your volunteers, your members or supporters, your donors, other funders, government, regulators and the general public.

Different stakeholder groups will have different expectations of your charity or non profit organisation and your relations and communications with them will need to reflect that.

Trust

An unincorporated trust is the traditional form for an endowed grant-making trust and is particularly well suited to achieving a specific charitable purpose, particularly where there are few risks. The trust deed setting up the trust is the main source of regulation.

There is no specific legislation although there is case law. It is controlled by the trustees. It cannot distribute profits.

Unincorporated association

The unincorporated association is the most common form of organisation in the not-for-profit sector. In this form the association’s own constitution is the main source of regulation. An organisation may start off unincorporated because the structure is easy to set up and is  informal and flexible.

An unincorporated association is governed by the constitution which its members create, which can take whatever form the members deem appropriate. However, as its dealings become more complex the lack of separate legal identity can cause problems and expose the individual members of the management committee to risk.

Have your say

Have your say on issues around governance in the Governance forum.