Optimal Structure for LETS groups - Do we need to incorporate?

This is a brief note, following recent enquiries about the ideal structure for a LETS from an existing group, which is considering a proposal from within their membership that they become incorporated, a structure that is usually used only for businesses. LETS are generally viewed as membership organisations, which have a charitable rather than a business purpose. We will be looking into the latest recommendations of the charity commission, and will add anything of relevance to this page.

Meanwhile, from current knowledge, we would comment that when you set up a company, need also to report to Companies House twice annually, once to report the names of your company directors, and another time to submit your annual accounts. Failure to comply can result in heavy fines, which can only be avoided by ask to be struck off the list of companies. The main advantage of company structure is "limited liability" which means if the company's business plan fails and money is owed, of if they get sued for whatever reason, the directors are protected from having their own assets used to pay what is owed.

Member organisations, by contrast, typically set themselves up as an "unincorporated association", which means they do not have to report to anyone except their own members, and any regional or central organisation they may be affiliated to. The key instrument for decision-making is the Annual General Meeting, which provides the opportunity for:
• Officers to report back, to be given a mandate to continue in their roles, and/or to gracefully resign and be replaced by other willing persons - there may or may not need to be a formal election. Often members are happy for things to continue as before, but some organisations recognise that it's healthy to rotate the responsibilities and may have a rule limiting the length of time that an officer may serve.
• The accounts to be presented to members. This ensures that finances don't get out of hand and obviates the need for the committee members to be protected from bankruptcy. The rules of operation are set out in the Constitution - for a typical format, see here.

LETS require a great deal of team-work to support the activities of members. There is usually some form of complaints procedure, so that if anything goes wrong it can be set to rights. However the organisers are basically providing contacts and services to members so that trading may occur, and cannot be held responsible for the way they behave with each other. The detailed rules of operation, as far as members are concerned, are set out in a Members Agreement, which provides guidelines, and usually, one clause in this indemnifies officers from responsiblity for the actions of members. A typical wording is Clause 9 in this model Members' Agreement.

Funding bodies may advise groups to adopt more formal structures and/or to insure themselves. Like formal structures, revenue funding can be counter-productive as it may disrupt the balance of the group. Apart from small sums for project-boosting, most LETS groups do not need funding for the ongoing work of managing themselves, which is either done voluntarily, or they may use their own currency to remunerate the various tasks necessary to run the scheme, which are described in the LETS info-pack, an updated version of which is in development..

LLUK/mf - as at 24th January 2014