It’s increasingly being recognised just how vital charities are to our economy and society. There are approximately 168 thousand registered charities across England and Wales as of 2018. Here at Holy brook particularly focus on smaller clients and our charity clients are no exception: we work with local and small charities.
We also provide professional and financial support to our chosen ‘Charity of the year’, which is currently SmartWorks Reading.
On question we are often asked by those considering setting up a charity or trustees reviewing their charity is what structure or set-up will work for them and we’ve written this post as a starting point.
There are four main types of charity structure found in the UK
- Charitable incorporated organisation (CIO)
- Charitable company (limited by guarantee)
- Unincorporated association
CIO – Charity Incorporated Organisation
This status became available on March 4th 2013 in England and Wales The benefits of this form of charity is that it has a legal personality meaning that it has an ability to enter contracts, sue and be sued and lastly hold the property on its own name rather than on the name of its trustees. Its members have limited liability. CIOs need to register, and file accounts and returns with the Charity commission.
Charitable Company (limited by guarantee)
A company limited by guarantee set up with special charitable articles and is registered at Company’s House as a company and with Charity Commissions as a charity. A charitable company can own property and will be liable for its own debts. Charitable companies must make returns and submit accounts on an annual basis to Companies house and the Charity Commission. They must also comply with both charity and company law.
An unincorporated association is a not for profit organisation that is not a legal entity. This organisation is set up through an agreement between the members who come together for a reason other than making a profit. The members are responsible for any debts and contractual obligations. You do not need to register an unincorporated association and you could set one up for free. However, if the unincorporated association starts to trade and make a profit, you will need to pay corporation tax and file a company tax return the same way as a limited company. Sports Clubs and Voluntary groups are great examples of unincorporated associations.
Also known as charitable trust. A trust is a classic form under which charities have operated for many years. It is an unincorporated body governed by a document referred to as a trust deed. A trust is run by trustees who are also responsible for its finances. A charitable trust is heavily dependent on its trustees. A trust can’t own property, so technically it is the trustees that hold any property for the charity. Most business is done by the trustees rather than the charity itself.
What structure is right for my organisation?
You should consider what legal status you want your charity to have – and how independent of you as well as the liability as a trustee. You may also want to consider how the regulatory framework will effect you – for example registered charities with a turnover above £25,000 will require an Independent Examination. Finally consider whether your choice of structure will affect your ability to attract funding.
Where can I get more information?
We are always happy to have an informal chat about the implications but for legal and organisational advice we also recommend speaking to your local voluntary organisation, for example in Reading, Reading Voluntary Action can help organisations that are either in the process of setting up or are reviewing their legal status.
Do drop me an email if you’d like to talk it over firstname.lastname@example.org