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Working out your governance structure

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An overview of governance structure available.

The basis of most legal forms is a two-tier power structure whereby a small group of individuals are responsible for the running of the organisation (called a board of directors, board of management, management committee, or board of trustees), but are accountable to a wider group of individuals (often called members or shareholders or owners).

This basic structure may be developed in many different ways to suit the particular organisation, but the structures adopted by most divide into the following five types:

1) Oligarchy

The individuals who make up the board are the same people as the members, and new appointments to the board are made by the board. When someone ceases to be on the board, they also cease to be a member of the organisation. This is a straightforward structure and is common to many charities  and social enterprises. It should always be considered by those that are new and still small.

2) Representative

This is used by organisations that wish to have members who are organisations instead of individuals. For example, the members may be local authorities, charities, etc. Each member then appoints an individual to serve on the board.

A version of this model can also be used for 'joint ventures' where two or more organisations (which may be charities, co-operatives and/or private companies) wish to establish a legal form to run a joint project. Each 'owner' of the new legal form has the right to appoint an individual to the board.

3) Membership

This is a useful model to adopt where it is important that a number of individuals or organisations have rights in relation to the organisation. It is sometimes used by community organisations who wish to involve local individuals and organisations. It is also used by national organisations who wish to adopt a democratic structure.

4) Co-operative

The International Co-operative Alliance (ICA) Statement on the Co-operative Identity describes a co-operative as ‘an autonomous association of persons united voluntarily to meet their common economic, social and cultural needs and aspirations through a jointly owned and democratically controlled enterprise’. All co-operative organisations operate under the ICA  co-operative values and principles. While the co-operative organisation are usually first thought of as an industrial and provident society, there are many different legal forms that can be used to create an organisation which falls within this definition. One of the key features is usually 'one member one vote'.

5) Appointed board

Here board members may or may not be members of the organisation, and are appointed to provide particular knowledge or skills to the board. Recruitment of board members in this way should be treated with the same care as recruitment of staff, and a number of organisations provide guidance on good practice.

Group or integrated structures

Sometimes it is desirable to set up more than one legal entity for an organisation. Usually this is because an activity cannot be carried out by law under the first legal entity; tax efficiency, ring-fencing risk, or the need for the clear separation of the management of different operations.

Examples of this include: 

  • A social enterprise or business with an associated charity to run the parts of its operation that can receive charitable status.
  • A charity and its wholly owned trading subsidiary.
  • A social enterprise with one or more subsidiary companies.  Businesses often set up subsidiary companies to ring-fence particular risks. For example, one company may own property and lease it to a related operating company that deals with the service provision, which is run from the building.
  • A federation consisting of one umbrella organisation and a number of local organisations. Each local organisation may have the umbrella organisation as its sole member. In addition, the local organisation may be linked to the umbrella body through a contract that franchises the business model and/or licenses use of the brand name and logo.

This structure could operate in one of the following five ways.

Boards can also take a hybrid form with, for example, a section of the board elected by the membership and further places available to co-opt appointed members with particular expertise.

Most organisations apply a two-tier structure to their management.

Generally a small group of individuals are responsible for the running of the organisation (called a board of directors, board of management, management committee or board of trustees).

This groups is accountable to a wider group of individuals (often called members or shareholders or owners).

Page last edited Apr 13, 2017

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