If the charity is incorporated, liability for debts and other liabilities incurred by it remain its sole liability even if it has insufficient assets to meet the liability - its trustees will not be personally liable and the liabilities of the charity remain its liabilities alone.

If on the other hand it is unincorporated, e.g. as a charitable association or trust, its activities can create personal liability for its trustees since they are in effect the organisation. All liabilities of their organisation will be theirs ultimately but they will not normally become liable provided that the charity itself does what is required or meets its obligation. However, if it does not pay a debt or some other liability or does not have the funds to do so, the trustee could be personally liable to the extent of the shortfall.

Establishing a charity in an incorporated form will therefore mitigate potential exposure to personal liability of trustees for a charity’s debts and other financial liabilities. 

There has been a growing trend towards use of incorporated vehicles for charities. The usual form is the company limited by guarantee but since the creation by charity legislation some years ago of a new form charity – the CIO - many charity founders instead adopt the CIO form when they set up a new charity. See the Charity Constitution Document Templates for template constitutions for both incorporated and unincorporated charities.