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What sort of legal issues should you consider if you are setting up a representative body or reviewing the operation of an existing body? Sean Egan explores the options.

Representative bodies cover an enormous range of organisations in the arts, from high-profile organisations whose membership largely consists of producers and venues, such as ITC, TMA and SOLT, to unions or other bodies representing individuals, such as Equity, The Writer?s Guild and PRS. But equally important are the smaller organisations, set up locally by dedicated enthusiasts, which provide a great social benefit, such as community centres and local associations. It is important for all organisations to balance the needs of the membership with the ability to control the organisation. They may need to consider whether the organisation should be a charity, and will have to determine the most appropriate legal structure.

The power base

The key to the successful operation of a representative organisation, whether in the arts or elsewhere, is the way in which membership is structured and executive power is wielded. Whatever the legal structure of the organisation there will need to be a constitution setting out the different roles. Member ship may need to be divided into different classes to encourage new members to join or different members have different rights. For instance, the Society of London Theatre has non-deposit members who are exempt from the requirement to place deposits for venues and deposit members to whom the exemption does not apply. PACT, the film and television producers? organisation, has a class of affiliate member with restricted voting rights for those who are not producers but are felt should be included within the membership.

Memberships will generally meet from time to time to review the activities of the executive, which often comprises unpaid charity trustees or a board of management. Usually the salaried staff will not be part of the executive but will take instructions from it. The principal salaried staff are sometimes mistakenly referred to as the executive when in fact they are subject to the executive?s will. The membership?s other major power is to elect the members of the executive. The organisation?s constitution therefore builds in checks and balances so that the individuals authorised to run the organisation on a day-to-day basis are subject to periodic review and are controlled.

This form of ?democracy? can work better in some instances than others and organisations need to constantly review the make up of the executive and refresh and revitalise it to ensure that the organisation stays relevant to the membership. One means of achieving this relevance is to ensure that different classes of member are entitled to appoint a specific number of individuals to the executive. This can be enshrined in the constitution and helps prevent the organisation being dominated by one sector over another. These are very delicate issues that need to be got right from the outset, which can be difficult if an organisation is being set up without a direct comparison since the makeup of the membership may be unclear. It is more usual for such refinements to develop over time.

It is absolutely crucial that the rules specifying who may be elected to the executive and how long they hold office are unambiguous, as any uncertainty can be seen to favour one section of the membership over another. Similarly, the nomination and election of a president or chairman of the executive is more than just an infrequent ritual. Such individuals can transform organisations and the lessons of the reorganisation of political parties? voting structure are enough to make this point!

Being charitable

The issue of whether or not to become a charity is important to consider from the outset. Registration as a charity is generally obligatory for organisations with charitable objects whose turnover exceeds £1,000 a year. The determining factor is whether or not an organisation is undertaking charitable objects. There are specific types of objects that may be charitable, the most relevant one for arts organisations being the advancement of education, and to be registrable it is important that such organisations are capable of benefiting the whole community or a substantial section of it. An organisation will not be registrable as a charity if it is set up by and for the exclusive benefit of a small number of individuals.

The decision as to whether to register as a charity has pros and cons. The cons are an extra layer of regulation ? being subject to the charity law and the regulatory requirements of the Charity Commission, and being restricted in the types of activity that can be undertaken. There are additional legal obligations on the trustees (i.e. the individuals who have executive power within the organisation).The benefits of becoming a charity are largely tax driven in that charities can recover tax on donations made from taxed income and the Chancellor of the Exchequer, Gordon Brown, has considerably liberalised the Gift Aid provisions with the intention of increasing public donations to charities. Charities are entitled to mandatory rate relief of 80% and the other 20% on a discretionary basis. The other principal benefit is that charities are not taxed on their profits derived from trading as part of their principal activities, although this in general is not relevant for representative bodies who may also be charities.

Being limited

One issue that people often find confusing is the fact that charities are often limited companies. There is no legal difficulty in this. Alter natively a charitable representative body may be an unincorporated association or a trust, though a trust would be unusual since there will normally be the need for a membership which cannot be the case in a trust. In charitable companies, directors are also automatically charity trustees and have legal obligations over and above their obligations as company directors.

The decision as to whether a body needs to be a limited company is again a question of balancing pros and cons. In favour is the need to limit the liability of the organisation if it is entering into any substantial obligations. Commonly, representative bodies will need offices and if the organisation is not a limited company there will be individuals who are personally liable to pay the rent and service charges. In my view the whole nature of a representative body is that specific individuals should not have residual responsibilities or liabilities over and above their role as members or members on the executive.

So where a body is unlikely to have any of these sorts of substantial obligations it is also likely that the benefits of being a charity will be minimal and the organisation can operate satisfactorily as an unincorporated association. This merely means that the organisation can operate within its constitution, it is not subject to company law or charity law, and the rights and obligations of the members are more akin to the rights under contract law with the constitution being similar to a contract with each and every one of the members.

In all of this the law can help representative bodies achieve their aims. The crux of each body is its constitution and the need to ensure that it is absolutely clear so that there is no room for later dispute.


Sean Egan is head of Bates Wells and Braithwaite's Arts and Media department and advises a wide range of individuals and arts organisations on their legal needs. e: s.egan@bateswells.co.uk