When it comes to setting up a charity, there are a variety of ways in which you can register it. Finding a charity structure to suit the organisation is paramount to ensuring it is run effectively and as you wish.
In this blog we provide an overview of four popular types of charity structure. Each has its benefits and drawbacks, depending on the type of charity you are looking to create. Once you have an idea of the kind of charity structure you’d like to explore further, reach out to our team of charity specialists for further guidance.
Four Charity Structures
The charity structures we will be exploring are Charitable Trusts, Charitable Companies, Charitable Incorporated Organisations, and Unincorporated Associations.
Charitable Trust
A Charitable Trust must be run not-for-profit, and all of its purposes must be charitable. A few examples of charitable purposes include community development, saving lives, the arts, education, religion, health, amateur sport, animal welfare and protection of the environment. Generally speaking, Charitable Trusts are expected to refrain from campaigning around legal and political issues.
As an unincorporated charity, a Charitable Trust is not a legal entity in its own right. This means that trustees take full ownership of the operation of the trust; they can make decisions without seeking support or approval from any wider group. They could be personally liable where debts and obligations on contracts are concerned.
Charitable Trusts are exempt from income tax, capital gains tax, stamp duty and can claim Gift Aid from donations. Any gifts made to the trust will be exempt from capital gains and inheritance tax.
When gross annual income exceeds £5,000, the charitable trust must be registered with the Charity Commission. The Commission will regulate the trust, and the trustees can seek advice on administrative matters. If there does happen to be malpractice within the trust, the Charity Commission has the power to remove trustees.
Charitable Company
A Charitable Company (limited by guarantee) is a private limited company, registered at Companies House under the Companies Act 2006, which also fulfils criteria for charitable status.
In contrast to trusts, Charitable Companies are corporate bodies that can own their own assets, hold property and enter into contracts. Due to this setup, trustees have limited liability and as such, a level of protection against debts or obligations.
With the formality of a limited company, Charitable Companies must submit filings not only to Companies House but to the Charity Commission, too.
Trustees have a dual responsibility to comply firstly with their duties as trustees, but also as well as director duties under the Companies Act 2006.
When trustees change, there is no need to transfer land or property to a new name as you would with a Charitable Trust, due to it standing as its own legal entity.
Charitable Incorporated Organisation
This form of charity structure is incorporated and regulated solely by the Charity Commission. A benefit is that this saves on having to duplicate filings, in contrast to what is required from a Charitable Company.
There is no minimum charitable income threshold required to set up a Charitable Incorporated Organisation (CIO). This differs from other structures where a minimum income of £5,000 is required to get started.
Members or trustees of a CIO benefit from limited liability as business can be conducted in the name of the organisation, rather than an individual. Under this form of charity structure, as well as entering into contracts, a CIO can also hold property and employ staff.
All CIO’s must have members and trustees. There are two model constitutions that the Charity Commission recommends; the ‘foundation’ model, and the ‘association’ model.
Foundation Model – Trustees will be the only voting members who manage key decisions
Association Model – For charities with wider membership, where other voting members as well as trustees can contribute to decision making
It is possible to switch from one model to the other, but the Charity Commission must be notified. In some circumstances, the approval of the Charity Commission must be obtained before making changes. This charity structure may not be suitable for all types of charity. We advise seeking the expertise of a charity law specialist to help with your decision making.
Unincorporated Association
The simplest way for a group of volunteers to run a charity for a common purpose is to set up an Unincorporated Association. This charity structure is the easiest, quickest and cheapest way for a group to set itself up as a membership organisation.
The purpose can be charitable, but it doesn’t have to be. There is, however, the prohibition of distributing funds to members, and so it must still be not for profit. This type of organisation cannot own property or employ staff.
An Unincorporated Association is not a legal entity in its own right and has no limitation of liability. Members of the association’s management, or executive committee, could be personally liable for agreements entered into on behalf of the charity.
Ready to take the next step?
Our team of charity law specialists have worked with charitable and religious organisations, and social enterprises of all sizes, bringing years of experience to the table.
Are you ready to seek further guidance? We can create your desired charity structure or change the structure of an existing charitable organisation.
You can call us on 0161 969 3131 or fill in our contact form and we’ll be in touch to talk further.