Unincorporated association

Last updated

Unincorporated associations are one vehicle[ clarification needed ] for people to cooperate towards a common goal.

Contents

The range of possible unincorporated associations is nearly limitless, but typical examples are:

This article focuses on unincorporated associations in common law jurisdictions, such as the United Kingdom, Canada and New Zealand. From a legal point of view, the most significant feature of an association is exactly that they are unincorporated: i.e., they lack legal personality. This is in contrast to some civil law jurisdictions, which confer legal personality on associations once they are suitably registered. [1]

Unincorporated associations are cheap and easy to form, requiring a bare minimum of formalities to bring them into existence. (Indeed, the common law on contracts means they can even be formed without their members realising it.) They are also extremely flexible, with examples of tiny associations of just a few people, and national organisations with thousands of members.

Definition

Whether or not a group of people is an unincorporated association is not always clear. A summary definition is

  1. a group of people
  2. gathered for a common purpose
  3. but not for profit
  4. intending to create a legally binding relationship between themselves.

There is no statutory definition of an unincorporated association, [2] so it has fallen to judges to define them. In the leading case, Conservative and Unionist Central Office v Burrell , Lord Justice Lawton defined an unincorporated association as:

[T]wo 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 upon what terms and which can be joined or left at will. [3]

The essential elements are thus (i) that there exist members of the association; (ii) that there is a contract binding them inter se (i.e., multilaterally, binding each one of the members to every one of the other members); (iii) that they have a common purpose which is not business; and that (iv) there must have been a moment in time when a number of persons came together to form the association [4] (although those persons need not be the present members).

"Unincorporated"

"Unincorporated" indicates that the association is not a legal person. If, say, the group of people wants to enter into a contract to hire a football pitch, then they cannot do this themselves but must appoint someone (usually one or more of the members) to act on their behalf. Similarly, an unincorporated association cannot own property (even its own funds): the members must appoint someone, usually a treasurer or committee, who will hold the property as a trustee.

Special cases

In some instances statute intervenes to allow an unincorporated association to be treated as if it has legal personality, without actually conferring legal personality upon it: for example, in the UK, a trade union. [5]

The characteristics of an unincorporated association in common law jurisdictions arise almost exclusively from case law, rather than from legislation.

Their legal basis is the general law of contract [6] (including contracts of agency), which governs the agreements the members make with each other. Unincorporated associations are therefore entirely private concerns.

Structure and governance

Constitution

Of the essence of an unincorporated association is that every member has entered into legal relations with every other, i.e., by a contract "inter se". Generally this is by subscribing to a written constitution. [7]

Objects or purposes

Likewise of the essence is that the association has one or more purposes, and these are usually given at the head of the constitution. If it is impossible to bring an association's purposes into effect (e.g., where an association is formed to raise funds for a school which later goes out of existence), the association automatically dissolves. This derives from the rules surrounding frustration of contract. (For similar reasons, an association with only one object cannot amend it.)

Members

The membership is the sovereign body in the organisation, as it is from their consent to enter into the contract inter se that the association exists at all. Their powers should be clearly set out in the constitution. Often these are limited to:

Committee

As an unincorporated association is not a person, it cannot legally do anything. The members usually entrust ("commit") the funds and management of the association to a committee, who act on the association's behalf. (In a tiny association this may not hold: there may be a one-person "committee", or there may be no committee and all members are equally authorised to act for the group.)

The powers of the committee should be clearly set out in the constitution. If the association has no constitution, in the event of a dispute the Court will look to any general rules that the association has enacted and, as necessary, to principles of the general law. [8] The committee are trustees for the members, and have a fiduciary duty towards them. [9]

The chair

There is usually a chairperson, or simply "chair", who presides over meetings both of the committee and of the members. In practice many chairs are forceful individuals, but in law their responsibility is to act as an impartial umpire. Chairs may have other powers: again, these should be clearly set out in the constitution.

Other officers

Often a treasurer is appointed who is responsible for overseeing the funds of the association. Often there is a secretary who ensures all the rules of the association are duly followed.

Liability

Because the association has no legal personality, outsiders face the challenge that it cannot be made liable for anything. If a sports centre hires a pitch to "Smalltown Soccer Stars", and the fees go unpaid, the agreement may be unenforceable. [10] However, the sports centre can look for the person who actually booked the pitch and try to recover the unpaid fees from that person, or if they can establish that said person made the booking with the authority of the whole team (or of a committee) then the people authorising the bookings are collectively liable. [11] The question turns on the general law of agency.

Once liability of one or more persons is established, their liability is unlimited.

Legal difficulties arise from the fact that, while an association has no independent personality in law, it most certainly does have an independent existence for all practical purposes: members join it, leave it, and complain about how their association treats them; it probably has its own website, premises and bank account, and (in the UK) is liable to pay its own tax. Most significantly, people give it money as if it were an entity in its own right. In short, the legal underpinning is at odds with how people actually think and behave, and judges (and occasionally Parliament) have at various times tried to square the law with the social reality.

Whilst an unincorporated association cannot hold property itself, in the strict legal sense, there are mechanisms that are used to achieve the same effect. [12]

Nature of held rights

There have been several theories proposed as to how rights, such as assets, are held by voluntary associations. [4] In the UK, the question has been substantially settled by Hanchett-Stamford's case. The decision has persuasive force in other common law jurisdictions.

Joint tenancy

The oldest theory is that rights transferred to a voluntary association are held by the current members of the association as joint tenants or tenants in common. This has the result that the member can receive his or her own share (allowing for severance in the case of joint tenants) irrespective of the other members, [4] in the same way that a joint owner of a business can do so. In Bowman v Secular Society this construction was even applied to a gift given to be applied for the general purposes of the association. It is difficult to imagine, however, that this construction would be correctly applied in the case of a philanthropic society, where construing the gift as one to the members would contradict its stated purpose. [13] There is also the possibility that the gift is to the current and future members of the society, which, by operation of the Perpetuities and Accumulations Act 1964, will operate for the benefit of those members within the perpetuity period. [14]

On trust for the purposes of the association

The second alternative is that the gift is to the trustees, or those officers who might properly be considered trustees, to be held on trust for the purposes of the association in a private purpose trust. Purpose trusts are not permitted in English law (with the exception of charitable trusts, which exempts charitable unincorporated associations from many of these difficulties), so any such gifts will fail for want of a beneficiary capable of enforcing the terms of the trust. [14] However, the decision in Re Denley's Trust Deed allows for some trusts of this type to be held valid, and, accordingly, the case of Re West Sussex Constabulary's Widows, Children and Benevolent (1930) Fund Trusts applied this construction to the rights held by an unincorporated association. [15] Reform to purpose trusts, such as making such a trust enforceable by a named individual (the chairman or treasurer, for example) rather than by a beneficiary (of which there may be none), would impact the role of the purpose trust in the voluntary association context. [16]

Contract-holding

The third alternative is that members hold the property as beneficial owners, but are bound by their contracts inter se as to their ability to take out their share. That share is considered to pass to the other members of the association upon the death or resignation of the member. [14] The holding may then either be considered absolute, or on trust for the membership as a whole, but it is the role of contract in each case to determine the rights of members, including the officers, to apply the money. [15]

This approach was favoured in Re Recher's Will Trusts in relation to a gift to the Anti-Vivisection Society, although, on the facts, that society was considered no longer in existence and the gift failed for this reason. [17] One statement of when such an absolute gift will be considered to have been made was given in Re Lipinski's Will Trusts :

Where the donee association is itself the beneficiary of the prescribed purpose ... the gift should be construed as an absolute one ... the more so where, if the purpose is carried out, the members can by appropriate action vest the resulting property in themselves, for here the trustees and the beneficiaries are the same persons.

Another statement of the principle came in Hanchett‐Stamford v Attorney‐General [2008] EWHC 330(Ch), where Lewison J stated:

the property of an unincorporated association is the property of its members, but that they are contractually precluded from severing their share except in accordance with the rules of the association ... this kind of collective ownership must, in my judgment, be a sub-species of joint tenancy, albeit taking effect subject to any contractual restrictions applicable as between members. [18]

This "contract-holding" theory is now considered the dominant theory in the field. [19]

In practice

The question of which construction applies to a particular transfer must be ascertained in any particular case. A donor could decide on what basis he or she was transferring the rights to the association; however, this is rarely considered by donors and thus which construction applies is often affected by the judge's own beliefs as to common practice. [20]

Sometimes the situation is clear: monies paid pursuant to a contract, such as raffle tickets and members' subscriptions, are normally taken to fall inside the third (contract-holding) category. As Goff J explained in the West Sussex case:

First, the relationship is one of contract and not of trust. The purchaser of a ticket may have the motive of aiding the cause or he may not ... Secondly, there is in such cases no direct contribution to the fund at all. It is only the profit, if any, which is ultimately received, and there may even be none. [20]

Simon Gardner has argued that the principle behind such a conclusion is that the ticket purchaser was not at liberty to choose to transfer the money to be held on a purpose trust. There are situations where a contract enforced a payment on trust, such as Quistclose trusts and marriage settlements, that might be relevant to unincorporated associations. In particular, he suggests that an employer's obligation to pay into a pension pot, as occurred in Davis v Richards and Wallington, for example, might fall into this category. [21]

Distribution of rights upon dissolution

An unincorporated association may dissolve for many reasons, including a decision by the members to wind it up or a court order. In addition, an association may sometimes dissolve spontaneously. One such case is where the purpose of the association becomes impossible to fulfil (e.g., if it was to raise funds for a school that goes out of existence). A second is when only one member remains: this follows from the association being a matter of contract, which by definition must be between at least two parties. [22]

The distribution of rights in such a case depends upon how those rights are determined to be held. [23]

If the purpose trust construction is preferred, then the dissolution of the association will not necessarily bring an end to the purpose trust, dependent upon whether the association is the "essential mechanism" of the purpose. If the purpose trust survives the winding up of the association, then new trustees may need to be appointed. The West Sussex case considered the effect of the association's dissolution on the rights held by the trust where the trust did indeed fail. In such a case, the monies paid to the association will ordinarily be held on resulting trust for the contributors. However, there may be situations (including money collected through collection boxes) where the contributor can be said to have "disclaimed" the resulting trust and it will be considered bona vacantia . [15]

If the contract-holding theory is preferred, then the distribution of the rights held by the association will be governed by the rules of the association. [15] These rules may contain an express term relating to the dissolution of the society, in which case it is considered operative. If not, a term can be implied as to the arrangements, as happened, for example, in Re Bucks Constabulary Widows and Orphans Fund Friendly Society (No 2) . This will normally divide the rights up equally among those who were members at the time of dissolution.

Bona vacantia

Before the Hanchett Stamford case, it was suggested that the assets of an association that dissolves in certain circumstances would be bona vacantia . However, this view rested only on obiter comments.

In the case where the comments arose, the reason suggested was that at the time of dissolution, there were no remaining members, [20] and therefore no one to own the assets. In Re Bucks it was shown that if there is only one member left then because there is no association, there is no question of membership. Therefore, in those circumstances, it would appear the property should go to the Crown. [24]

That conclusion, however, was contested by those who believed beneficial ownership by the last surviving member would be more appropriate. [22] (It is possible there may still be cases where, as a result of the contractual obligations of the members, no member can claim the assets of the association upon dissolution and then also they will be bona vacantia. [25] )

In the Bucks case it was suggested that a term indicating some method of distribution would be implied as a matter of course; in particular, Walton J attempted to bring Cunnack v Edwards and West Sussex within the proposed model of implied terms, rather than by distinguishing them. [26] This approach was not taken in Davis v Richards and Wallington where Scott J did not discuss implied terms directly when holding that the rights were now bona vacantia. This, Simon Gardner has noted, hints at a return to the 'eclectic', case by case, approach previously favoured by the courts. Instead, he says, judges should pursue a set of implied terms that differ according to the nature of the society (social club or pension fund, for example). [27]

Lewison J's ruling in Hanchett Stamford's case would appear to have decided this question for the time being: he held that the assets do not become bona vacantia as long as one member of the association remains, because the assets that were jointly owned become the sole survivor's absolutely. (Indeed, from his reasoning it seems likely that even if this one survivor dies, their heirs will inherit what was previously association property.)

Libel

Lack of legal personality means an unincorporated association ordinarily has no standing to sue for libel. [28]

Unincorporated nonprofit associations in the United States

In the United States, an unincorporated nonprofit association is "an informal group of two or more individuals who join together for a not-for-profit purpose without creating a corporation, LLC, or other entity to do so". [29] The laws governing unincorporated nonprofit associations vary from state to state. In New York, it is recommended by the Lawyers Alliance for New York that unincorporated nonprofits have: [29]

In New York, "officers, directors, and members of an unincorporated association may be held personally liable for the debts and liabilities of the association if they authorize or ratify the activity". [29] Contributions to an unincorporated nonprofit association may be deductible for US federal taxes if the association gets a 501(c)(3) designation from the Internal Revenue Service [29]

Several states in the US regard unincorporated nonprofit associations as legal entities separate from their members. These states include California, Alabama, Arkansas, Colorado, Washington DC, Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Nevada, North Carolina, Pennsylvania, Texas, Wisconsin, and Wyoming. In states that do not recognize an unincorporated nonprofit association as a separate legal entity, the nonprofit "may not be authorized to hold title to property, may not be able to enter into and enforce contracts, may not be able to sue or be sued, and may not offer liability protection for its members". [30]

See also

Related Research Articles

<span class="mw-page-title-main">Trust (law)</span> Three-party fiduciary relationship

In law, a trust refers to a relationship in which the owner of property gives it to a designated entity, usually described as a trustee. The trustee has a duty to safeguard and use the assets of the trust solely for the benefit of another person or group of persons until distribution, pursuant to the provisions of the trust. In the English common law tradition, the party who entrusts the property is known as the "settlor", the party to whom the property is entrusted is known as the "trustee", the party for whose benefit the property is entrusted is known as the "beneficiary", and the entrusted property itself is known as the "corpus" or "trust property". A testamentary trust is an irrevocable trust that is established and funded pursuant to the terms of a deceased person's will. An inter vivos trust is a trust created during the settlor's lifetime.

Corporate personhood or juridical personality is the legal notion that a juridical person such as a corporation, separately from its associated human beings, has at least some of the legal rights and responsibilities enjoyed by natural persons. In most countries, a corporation has the same rights as a natural person to hold property, enter into contracts, and to sue or be sued.

<span class="mw-page-title-main">Intestacy</span> Dying without leaving a will

Intestacy is the condition of the estate of a person who dies without having in force a valid will or other binding declaration. Alternatively this may also apply where a will or declaration has been made, but only applies to part of the estate; the remaining estate forms the "intestate estate". Intestacy law, also referred to as the law of descent and distribution, refers to the body of law that determines who is entitled to the property from the estate under the rules of inheritance.

In law, a legal person is any person or 'thing' that can do the things a human person is usually able to do in law – such as enter into contracts, sue and be sued, own property, and so on. The reason for the term "legal person" is that some legal persons are not people: companies and corporations are "persons" legally speaking, but they are not people in a literal sense.

Personality rights, sometimes referred to as the right of publicity, are rights for an individual to control the commercial use of their identity, such as name, image, likeness, or other unequivocal identifiers. They are generally considered as property rights, rather than personal rights, and so the validity of personality rights of publicity may survive the death of the individual to varying degrees, depending on the jurisdiction.

<span class="mw-page-title-main">Charitable organization</span> Nonprofit organization with charitable purpose

A charitable organization or charity is an organization whose primary objectives are philanthropy and social well-being.

Unowned property includes tangible, physical things that are capable of being reduced to being property owned by a person but are not owned by anyone. Bona vacantia is a legal concept associated with the unowned property, which exists in various jurisdictions, with a consequently varying application, but with origins mostly in English law.

<span class="mw-page-title-main">Purpose trust</span>

A purpose trust is a type of trust which has no beneficiaries, but instead exists for advancing some non-charitable purpose of some kind. In most jurisdictions, such trusts are not enforceable outside of certain limited and anomalous exceptions, but some countries have enacted legislation specifically to promote the use of non-charitable purpose trusts. Trusts for charitable purposes are also technically purpose trusts, but they are usually referred to simply as charitable trusts. People referring to purpose trusts are usually taken to be referring to non-charitable purpose trusts.

Laws regulating nonprofit organizations, nonprofit corporations, non-governmental organizations, and voluntary associations vary in different jurisdictions. They all play a critical role in addressing social, economic, and environmental issues. These organizations operate under specific legal frameworks that are regulated by the respective jurisdictions in which they operate.

<span class="mw-page-title-main">Issuer</span>

Issuer is a legal entity that develops, registers, and sells securities for the purpose of financing its operations.

In relation to juristic persons, the constitutional documents are the documents which define the existence of an entity and regulate the structure and control of that entity and its members. The precise form of the constitutional documents depends upon the type of entity, such as corporations or private associations.

<span class="mw-page-title-main">English trust law</span> Creation and protection of asset funds

English trust law concerns the protection of assets, usually when they are held by one party for another's benefit. Trusts were a creation of the English law of property and obligations, and share a subsequent history with countries across the Commonwealth and the United States. Trusts developed when claimants in property disputes were dissatisfied with the common law courts and petitioned the King for a just and equitable result. On the King's behalf, the Lord Chancellor developed a parallel justice system in the Court of Chancery, commonly referred as equity. Historically, trusts have mostly been used where people have left money in a will, or created family settlements, charities, or some types of business venture. After the Judicature Act 1873, England's courts of equity and common law were merged, and equitable principles took precedence. Today, trusts play an important role in financial investment, especially in unit trusts and in pension trusts. Although people are generally free to set the terms of trusts in any way they like, there is a growing body of legislation to protect beneficiaries or regulate the trust relationship, including the Trustee Act 1925, Trustee Investments Act 1961, Recognition of Trusts Act 1987, Financial Services and Markets Act 2000, Trustee Act 2000, Pensions Act 1995, Pensions Act 2004 and Charities Act 2011.

<span class="mw-page-title-main">Scots property law</span> Rules relating to property in Scotland

Scots property law governs the rules relating to property found in the legal jurisdiction of Scotland. As a hybrid legal system with both common law and civil law heritage, Scots property law is similar, but not identical, to property law in South Africa and the American state of Louisiana.

In English law, a purpose trust is a trust created for the fulfillment of a purpose, not for the benefit of a person. These are normally considered invalid by the courts because they have no legally recognized beneficiaries, therefore nobody to enforce the trust, with the exception of charitable trusts, which are enforceable by the Attorney General as they represent the public interest. As well as charitable trusts, there are several exceptions to the rule against purpose trusts. If the requirement to fulfill a purpose is a request, rather than an obligation, the trust is valid; a trust will also be found valid if, while being for a purpose, it involves beneficiaries in some respect. Purpose trusts can also be valid if they are for the erection or maintenance of tombs and memorials, the maintenance of animals, and arguably the saying of masses, although these must all obey the rule against perpetuities and not continue for more than 21 years after the testator's death.

<span class="mw-page-title-main">Resulting trusts in English law</span>

Resulting trusts in English law are trusts created where property is not properly disposed of. It comes from the Latin resultare, meaning to spring back, and was defined by Megarry VC as "essentially a property concept; any property that a man does not effectually dispose of remains his own". These trusts come in two forms: automatic resulting trusts, and presumed resulting trusts. Automatic resulting trusts arise from a "gap" in the equitable title of property. The equitable maxim "equity abhors a vacuum" is followed: it is against principle for a piece of property to have no owner. As such, the courts assign the property to somebody in a resulting trust to avoid this becoming an issue. They occur in one of four situations: where there is no declaration of trust, where an express trust fails, where there is surplus property, or upon the dissolution of an unincorporated association. Rules differ depending on the situation and the type of original trust under dispute; failed charitable trusts, for example, have the property reapplied in a different way from other forms of trust.

<span class="mw-page-title-main">Voluntary association</span> Group of people with shared interests or aims

A voluntary group or union is a group of individuals who enter into an agreement, usually as volunteers, to form a body to accomplish a purpose. Common examples include trade associations, trade unions, learned societies, professional associations, and environmental groups.

Re Bucks Constabulary Widows and Orphans Fund Friendly Society [1979] 1 All ER 623 is an English trusts law case, concerning the policy of the "beneficiary principle" and unincorporated associations.

Re West Sussex Constabulary's Widows, Children and Benevolent (1930) Fund Trusts [1971] Ch 1 is an English trusts law case, concerning the policy of the "beneficiary principle" and unincorporated associations.

<i>Hanchett-Stamford v A-G</i>

Hanchett‐Stamford v Attorney‐General[2008] EWHC 330 (Ch) is an English trusts law case, concerning the destination of property that is held by unincorporated associations when they wind up. The High Court applied the view that while the association exists, assets are held jointly by the members but according to the terms of the association contract, and when the association ends any surplus funds go to those who were members of the association at the moment of its dissolution.

References

  1. ↑ "Déclaration initiale d'une association" [Declaration of association]. Service-Public.fr, "Le site officiel de l'administration Française" (in French). Direction de l'information légale et administrative (France, Directorate of legal and administrative information). Pour pouvoir conclure un contrat, agir en justice, recevoir une subvention notamment, les fondateurs d'une association doivent effectuer une déclaration au greffe des associations ... L'association acquiert ainsi la personnalité morale ... et la capacité juridique.[In order to enter into contracts, to sue or be sued, receive a grant, etc, the first members of an association must make a declaration to the registrar of associations ... The association thereby acquires legal personality and legal capacity.]
  2. ↑ Warburton (1992) , p. 2
  3. ↑ Conservative and Unionist Central Office v Burrell [1982] 1 WLR 522
  4. 1 2 3 Pettit (2009) , p. 62
  5. ↑ "Trade Union and Labour Relations (Consolidation) Act 1992, s. 10".
  6. ↑ Warburton (1992) , p. 3
  7. ↑ "Legal structures for community groups and not-for-profit organisations". Resource Center. Retrieved 30 August 2021.
  8. ↑ "Unincorporated associations". Nonprofit Law Ontario. Community Legal Education Ontario. 24 May 2020. Retrieved 30 August 2021.
  9. ↑ "Let the Good Deed Go Unpunished: Avoiding Nonprofit Board Liability". Charitable Allies. 21 February 2018. Retrieved 30 August 2021.
  10. ↑ Warburton (1992) , p. 86
  11. ↑ Warburton (1992) , pp. 86–87
  12. ↑ Green (1980) , p. 627
  13. ↑ Pettit (2009) , pp. 62–63
  14. 1 2 3 Pettit (2009) , p. 63
  15. 1 2 3 4 Gardner (1992) , p. 42
  16. ↑ Hayton (2001) , pp. 99–100
  17. ↑ Pettit (2009) , p. 63–64
  18. ↑ Pettit (2009), p. 64
  19. ↑ Ashdown (2012) , p. 617
  20. 1 2 3 Gardner (1992) , p. 43
  21. ↑ Gardner (1992) , pp. 44–45
  22. 1 2 Pettit (2009) , pp. 64–65
  23. ↑ Gardner (1992) , p. 41
  24. ↑ Re Buck's Constabulary's Benevolent Funds Trusts [1979] 1 WLR 936
  25. ↑ Pettit (2009) , p. 65
  26. ↑ Gardner (1992) , pp. 47–48
  27. ↑ Gardner (1992) , p. 49
  28. ↑ "North London Central Mosque Trust v Policy Exchange & Anor[2009] EWHC 3311 (QB)". 5RB.
  29. 1 2 3 4 "Unincorporated Nonprofit Associations: Opportunities and Risks" (PDF). Lawyers Alliance for New York. 16 April 2020.
  30. ↑ Brewer, Cassaday V.; Runquist, Lisa A.; Minnigh, Elizabeth Carrott (23 March 2017). "Nonprofit LLCs". American Bar Association.

Bibliography

This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.