Jargon Buster: Understanding Incorporated Organisations

We’ve touched on some of the types of organisations within the United Kingdom, including unincorporated organisations, but what is an incorporated organisation? An incorporated organisation simply means it is a company which is limited, which again comes with a different set of legal responsibilities and benefits.

For those unfamiliar with the world of business, the thought of setting up a limited company can be quite daunting. Limited companies must:

• Submit annual accounts
• Submit annual confirmation statements and pay the associated fee
• Pay corporation tax on its profits
• Publish details of its directors on Companies House

While this might appear more complicated compared to unincorporated organisations, it’s important to note that limited companies are considered to be separate legal entities. This means that the company itself can enter into contracts, unlike unincorporated organisations where the individuals are personally liable.

Limited by Shares or Guarantee?

Limited by Shares

A company limited by shares is usually the norm for commercial companies. Individuals who own shares in the company will have rights to access its profits, which are paid in the form of dividends.

Companies limited by shares can be either public or private. When a company is limited by shares publicly, these shares can be bought and sold by members of the general public, as opposed to the shares being kept within the company.

Limited by Guarantee

This is most common in not-for-profit organisations. Instead of dividends, members act as guarantors for the company’s debts, usually for a nominal amount of around £5-£10 which cannot be exceeded. The exact amount will be stated in the company’s articles of association.

Key Documents: Memorandum & Articles of Association

All limited companies must be registered at Companies House, which involves submitting two key documents: the Memorandum of Association and the Articles of Association.

Memorandum of Association

This legal document is signed by all initial shareholder or guarantors, agreeing to form the company. It includes essential details of the company, including:

• Full company name
• Structure
• Names of initial shareholders or guarantors
• Location of registered office
• Standard Industry Classification (SIC) code

Articles of Association

These are the rules for running the company, agreed upon by shareholders or guarantors, directors, and the company secretary. The articles outline how the company will operate and must be updated if any changes in its mission occur. For companies limited by guarantee, the articles also specify how any surplus funds should be allocated, as they cannot pay dividends.

Support

We understand that it can be difficult when first getting to grips with these fundamental aspects of business. At Cygnul we are seen as trusted advisors to the Board for our clients, offering support to associations around the UK. If you want to explore how these services could help your organisation, please get in touch with us.