What Does Being Unincorporated Mean?

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IMPORTANT:  Before deciding on a legal status, it is vital that you obtain professional advice.

Being unincorporated means that the organisation has no separate legal identity and all the risks and liabilities that are involved in running the organisation are taken on by the individuals that run or manage the organisation.  Unincorporated organisations are normally:

Unincorporated associations – are a group of people that join together for a particular purpose e.g. sports clubs, hobby clubs etc.  Such groups will have a constitution and a board of elected members that run the organisation on the members’ behalf.  There is no need to register the organisation as a company or charity.  The organisation may be a member of an umbrella organisation such as Scottish Athletics or Scottish Design Council, but this has no effect on the organisation’s legal status.  Many social enterprises will adopt unincorporated status in the first instance and move to incorporated status as the organisations develops. Charities can be unincorporated but are subject to specific charity law that encourages being incorporated.

Sole Traders – are individuals who set up a business on their own and are solely responsible for the business e.g. self employed plumber, taxi driver, consultant.  There is no requirement for a constitution or registration.

Partnerships - are relationships between persons carrying out a business in common with a view to making profit.  There is usually a written partnership regulating its affairs.  There are no requirements for registration.

Benefits of being unincorporated

  • Allows greater freedom of operation
  • Less red tape is required.  Unincorporated organisations only need to comply with normal statutory business obligations of VAT, PAYE, Health and Safety, and insurance.
  • Tax Advantages – Sole traders pay tax in arrears and this can help with cash flow.  There are reduced National Insurance contribution for owners who are regarded as being self employed

Disadvantage of being unincorporated

The main disadvantage of being an unincorporated business is that all owners/stakeholders are fully responsible for all the organisation’s debts and obligations.

If the organisation is planning to do any of the following then serious consideration should be given to becoming an incorporated organisation:-

  • taking on a lease
  • buying  property
  • taking on employees
  • raising finance
  • entering into large contracts
  • charity status

IMPORTANT:  Before deciding on a legal status, it is vital that you obtain professional advice.

For more information on unincorporated status, check:-    

  • SCVO information on Unincorporated Organisations: