The dangers of Unincorporated Associations: a warning for school run nurseries and associations
An Unincorporated Association is an organisation set up for a purpose other than to make profit. It is the legal form commonly adopted by members' clubs, sports clubs, charities and other not-for-profit organisations.
The most commonly used definition of an unincorporated association is:
"Two or more persons bound together for one or more common purposes, not being business purposes, by mutual undertakings each having mutual duties and obligations, in an organisation which has rules which identify in whom control of it and its funds rests and on what terms and which can be joined or left at will".
The danger with these associations derives from their lack of a discrete legal identity. It means the Association has no legal personality separate from its members i.e. the law does not recognise them as separate legal entities. Individuals who enter into obligations (such as contracts) on behalf of their organisation are then responsible for its debts and other liabilities; to the extent that the individual members of management committee's personal assets are at risk if the business cannot cover all its debts. In plain speak, this means that if it goes wrong the members have to put it right even if this means using their own assets including, in a doomsday scenario, their homes.
Furthermore, there is no statutory framework to govern an Unincorporated Association unless they are classed as a Charity. There is no central register of unincorporated associations and no central regulator, nor are there any statutory requirements that dictate how they are run.
Unincorporated Associations are ideal for many small groups, due to the fact that they are very flexible and cheap. There are also mitigations that can be put in place such as insurance and indemnities. However, if you are considering doing anything that can result in liabilities arising, make sure you take expert legal advice to ensure you have the right structure.