There are tens of thousands of unincorporated associations in Scotland including clubs and non-profit-making associations. The Scottish Law Commission proposes a change to the law under which such associations will be accorded separately legal personality if they satisfy certain legal conditions. Shuna Stirling considers the proposals.
The issue
Unincorporated associations are groupings such as associations, clubs and churches which have not chosen to establish themselves as companies or as some other form of incorporated body. At present an unincorporated association has no separate legal personality. This causes problems if it wishes to enter into contracts, own property or engage employees. It cannot contract in its own name - so who exactly is entering into the contract? There is a risk that office holders and sometimes even members of unincorporated associations will incur personal liability (with potentially serious financial consequences) e.g. under a contract entered into by the association, or for certain criminal offences committed by the association (e.g. health and safety), or to compensate third parties who suffer injury while using the association's premises or other facilities.
Scottish Law Commission's recommendations
Following consultation (see our previous article ), the Commission has published a report . It recommends that separate legal personality be accorded to associations which satisfy certain conditions. By attributing legal identity to such associations, the serious financial risk to office bearers and members is lessened.
The main conditions for the attribution of legal personality would be:
- the association has at least two members;
- its objects do not include making a profit for its members;
- it has a constitution which contains:
- the association's name;
- its purpose;
- membership criteria;
- the procedure for the election or appointment of those managing it;
- the powers and duties of its office-bearers (if any);
- the rules for distributing its assets if it is dissolved; and
- the procedure for amending its constitution.
An association satisfying these conditions would be known as "Scottish Association with Legal Personality", abbreviated to SALP.
The advantage of conferring legal identity on unincorporated associations is that it will give legal certainty to both the SALPs and those who have dealings with them. A SALP will have the capacity to acquire property, enter into contracts, and to sue and be sued in its own name.
An individual will not incur personal liability, whether contractual, delictual or otherwise, by reason only of acting as an office-bearer or member of a SALP. The Commission recommends that a SALP should be capable of incurring liability to one of its members for loss or damage caused by the wrongful act or omission of another member while acting on behalf of the association.
There are also protections for those who might have contractual or other dealings with the SALP. For example, it is proposed that a SALP will be required to disclose its name and official address on documents and publications and certain documents must be made publicly available on application to that address. Breach of these requirements would result in re-imposition of personal liability on those responsible for the association's management.
To ensure that as many associations as possible benefit from the reforms, the Commission recommends that all associations which meet the above criteria should automatically be treated as separate legal entities unless they resolve to opt out. This approach would capture a much larger proportion of the smaller associations which the Commission believes will benefit the most. It also caters for those groups of individuals who have come together for a common purpose and have no intention or desire to form any association which would be recognised in law as a separate entity.
If these proposals are to become law, all associations will need to evaluate whether they meet the criteria for legal personality. Many associations will already have constitutions which contain provisions meeting the proposed criteria. If they do, the members will need to decide whether they wish to opt out of becoming a SALP. The Commission recommends a transitional period of six months between the passing of the law and its entry into force to give associations time to consider the matter and take the decision to opt out if that is what the members want.
If an association does not meet the criteria, it may be possible to prepare or amend the constitution so that it does. The Commission anticipates that style constitutions will be made available, free of charge, on the websites of organisations such as the Scottish Council for Voluntary Organisations.
The Commission has also considered the cross-border issues which would arise if legislation attributing legal personality to unincorporated associations were to be enacted for Scotland but not for other jurisdictions within the United Kingdom. It recommends a statutory test to determine which associations are Scottish and therefore capable of becoming SALPs. The two proposed conditions which would have to be met are: (a) the association has an official address in Scotland; and (b) its management is carried on wholly or mainly in Scotland.
It is, and will continue to be, possible for associations to form an incorporated entity with legal personality such as a company limited by guarantee. Members of a limited company have limited liability and the directors also are protected from personal liability (other than in exceptional circumstances). The disadvantage, however, is the attendant regulation to which many associations do not wish to be subject.
The law of unincorporated associations is reserved to the UK parliament. For that reason, any legislation to implement the above recommendations would need to be passed by the UK parliament.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
