Agendas, assumptions, fallacies and attitudes around organisational status

In a lot of the discussion of UK legal forms, particular in the case of the non-commercial ones, there's quite a bit of axe-grinding and agenda pushing. This makes it hard to get an accurate picture of the situation. However, before we start, here is an example of a fairly comprehensive treatment that does NOT push an agenda:

The sorts of bias and agenda-pushing I am referring to include:

• conflation of "company" with "company limited by shares"
• conflation of "charity" with "non-profit"
• general agitation against companies, e.g., in favour of co-operatives
• general agitation against charitable companies limited by guarantee (instead of CIOs and CICs)
• unprincipled risk assessment in relation to unincorporated associations
• discrimination against companies lacking Persons of Significant Control(!)
• discrimination against unincorporated associations
• discrimination against newer legal forms and statutes, particularly CIOs
• discrimination against non-profit companies

Some of this is driven by a bureaucratic incentive for legibility. Some may be driven by a form of rent-seeking: the regulation of the non-profit sector is gradually being adapted to suit the politics and lifestyle choices of non-commercially-minded graduates.

Some of this is legitimate: there are good reasons for not allowing unincorporated associations to participate in certain transactions.

Trends in the UK non-profit sector

The Old Model of organisation regulation in the UK was roughly:

• respect for the ultra vires rule requiring organisations' leaders to obey the limitations on their powers
• the various features, mechanisms and characteristics (those "statuses" mentioned elsewhere) of organisations could be combined to achieve the effect stakeholders wanted
• the system was not particularly legible to bureaucrats
• political and charitable activity were mutually exclusive
• charities could be established for any charitable purpose, regardless of wider public benefit
• prescribed mandatory constitutional texts for special purpose organisations (such as Right-To-Manage companies)

The New Model is more:

• organisations' leaders can exceed their formal powers
• member-accountability is seen purely as an overhead, and almost as illegitimate
• there are incentives to make an organisation's charitable or community-benefit status much more explicit and tied to its legal form
• charities may now engage in political activity; such restrictions as still exist are almost unenforced
• bespoke legal forms for particular status such as charitable, instead of prescribed mandatory constitutional texts
• frequent characterisation of non-profit and charitable bodies as being in some sense not "private", with that term being restricted to for-profit enterprises

Overall, the level of non-profit activity is roughly the same, with the same sorts of benefits accruing to the same sorts of beneficiaries. However, effectively, the term "charity" has been redefined to refer to a different type of organisation from what it did before: a privatised and potentially somewhat politicised part of what was previously a public concern, run for public benefit, whereas previously it generally connoted an apolitical body which arose from private initiative and whose benefits were for a particular group of people, rather than the public at large. This amounts to a smaller state, but also a smaller role for private initiative, and a larger role for political ordering.

The introduction of the LLP and CIC have been a success, as has the reform of registered societies and the availability of "community shares" to fund some of them. CICs are very poorly marketed, with occasionally offputting ideologically-tinged promotion by some parties, but otherwise an excellent idea (indeed I used to work for one).

The CIO, on the other hand, is largely redundant. It is telling that the benefit most frequently touted for CIOs is not having to file paperwork with both Companies House and the Charity Commission. It would be better to use a limited company with statorily prescribed articles, as is done with CICs, and for the CIO to be abandoned. The COVID19 pandemic showed up the dangers of fragmentation in the laws regulating organisations: a lot of organisations could not hold valid AGMs or board meetings, because face-to-face meetings became illegal. However, all companies have been required to permit videoconferencing to be used for meetings since 2000. The other legal forms: unincorporated bodies, registered societies, CIOs, etc, did not necessarily have the requisite measures in place in their constitutions. The separation of the various legal forms from companies law means that they fail to benefit from the ongoing reform and fine-tuning that is undertaken by the government on behalf of the commercial sector. Charities that are incorporated as companies get these benefits for free.

Trends in the UK for-profit sector

Crowdfunding, online banking and social media have made a big difference: they have reduced the need for even having some organisations, completely changed how advertising and fundraising work, and had other big impacts. Where previously an organisation maintained organic personal links with members, now the membership administration function may be dispensed with entirely, in favour of subscription to a Facebook page or a newsletter, with a corresponding collapse in accountability.

There is a move to debank community organisations; similarly, organisations lacking a traditional legal form, or making atypical use of such forms, suffer discrimination, particularly from banks and online payment processors, though this is often a matter of differential legibility.