Registered Charities

A charity is an entity that has been set up for purposes that are exclusively charitable and for the public benefit. Charitable purposes that are for the public benefit are set out in the Charities Act 2006.

In order to be a charity, an organisation must be able to demonstrate it is set up with aims that are charitable, and that these aims are carried out for the public benefit. It is a requirement that applies to each of an organisation’s aims, so a charity cannot have some aims that are for the public benefit and some that are not.

An organisation that is established for charitable purposes in England and Wales must register with the Charity Commission if it has income over £5,000 a year.

Pros

Charities are readily recognised and enjoy considerable support from funders and other potential supporters
Charities attract considerable tax advantages including mandatory 80% relief from business rates
Are the stated purposes of the organisation charitable in law?
There is a general presumption that charity trustees will serve in a voluntary capacity and not derive any personal benefit from their role.

Cons

There are limits on the ability of a charity to raise funds by trading
Regulation by the Charity Commission involves a significant administrative burden
When a charity is wound up, surplus assets/funds must generally be transferred to a charity with similar purposes.

Legal structures for charities.

Charities may be established as:

An Unincorporated Association – particularly used by small voluntary organisations and local groups.

The governing document is a constitution or rules and there is usually a membership.
The trustees are often referred to as the management committee.
There is no protection from liability for the trustees

A Company Limited by Guarantee

The governing document is a memorandum and articles of association for a company formed before September 2009 and articles of association for a company formed since then.
The trustees (or directors) are protected in most circumstances against contractual liabilities.
Charitable companies must register with Companies House and, usually, with the Charity Commission.

Charitable Incorporated Organisation (CIO).

Provides limited liability and requires registration with the Charity Commission.
The governing document is a constitution.
The trustees will be protected in most circumstances against contractual liabilities.

A Charitable Trust - a special sort of unincorporated association, set up to administer money or property (or both), and which will usually be registered with the Charity Commission.

Many trusts administer charitable bequests.
Some voluntary organisations choose to have trusts to hold property for them, or to administer large amounts of money.
A trust is set up by a legal document called a trust deed. A model trust deed can be obtained free from the Charity Commission.
The trust consists of a small group of trustees, who manage the money or property in accordance with the trust deed.
There is no membership apart from them.
Problems can arise when trustees die or resign, or if new trustees want to replace them or run the organisation differently from the founding trustees.
Since a trust is unincorporated, trustees are personally responsible for its actions and liable if it runs into debt.
There are ways of limiting this, but it is advisable to seek legal advice when the trust is set up.

Friendly Societies- Less popular nowadays, this structure dates from the 19th Century when it was designed to offer insurance benefits for members.

To become a Friendly Society your group must have a ‘benevolent’ purpose and a minimum of 7 members.

Pros

Simple to transfer property between trustees
Access to arbitration in the case of disputes
Eligible to apply for charitable status if your group’s purposes are considered charitable (as defined by current law) and you can satisfy the Charity Test.

Cons

Unincorporated which means personal liability of trustees/members for any debts of the organisation
Regulations to abide by: - groups must comply with Friendly Societies Act 1974 and are liable to investigation by Registrar of Friendly Societies
Not such a well known structure may complicate dealings with banks and funders