Forming a charity

Once you have made the decision that you would like to set up a charity and you are satisfied that your motives will be considered “charitable” and for a wider public benefit, you will then need to consider what form you want your charity to take.

Many different factors will influence the decision as to which form the charity will take such as its size, purpose, whether it will have employees or hold significant assets. 

The most popular vehicles used are:

 Unincorporated associations

 Trusts

Charitable companies

Charitable Incorporated Organisations (“CIOs”)

Often, smaller and less complex charities are run as trusts.  These are managed by trustees who must adhere to the charity’s constitutional document or trust deed.  A trust is not an entity in its own right and this means that the assets and liabilities of the trust’s activities will vest in its trustees personally.  Due to the personal liability that flows from being a trustee, many charitable organisations choose to incorporate.

There are many benefits to incorporation as a limited company or CIO.  At present, only charities in Scotland have the option to incorporate as a CIO but it is anticipated that regulations rolling out the CIO scheme in England and Wales will be in place by spring 2012.  Running a charity through a limited company or CIO is an attractive option due to the fact that they are recognised legal entities in their own right.  This means that they can enter into contracts and hold property in their own name.  Directors/trustees will still be required to act in the best interests of the charity and in accordance with relevant laws but generally they will not be held personally liable for losses of the charity.  If a charity is going to be more active, such as entering into contracts with third parties, employing staff and owing real property; limited liability is preferred by trustees, particularly when the financial risks they may face are greater.

Charitable companies are usually incorporated as companies limited by guarantee rather than limited by shares.  This means that members of the company will provide a “guarantee” to contribute a specified sum to the company’s finances should it be wound up, rather than the members holding shares in the company.  A company limited by guarantee cannot raise finance by issuing shares or declare dividends to its members.  Usually the company’s articles of association will include an “asset lock” which will prevent members from withdrawing value from the charity for their own benefit.  Should the company ever be liquidated, it is common for the articles of association to provide for its assets to be transferred to another charity rather than being distributed to the members.

In order to incorporate as a charitable company, the objects of the company must be exclusively charitable and for wider public benefit.  These will need to be set out in the company’s constitutional documents and submitted to Companies House on incorporation, along with a statement as to who the first directors and members of the company will be.  Once the company is incorporated at Companies House, an application will need to be submitted to the Charity Commission in order to obtain charitable status.  Not all charities are required to register with the Charity Commission and certain criteria will need to be met before an application is accepted by the Commission.  Here at Thackray Williams LLP, we can provide guidance as to whether your charity will need to be registered and assist you with the application process if you are required to be registered.

Charitable companies must also adhere to company legislation, such as the filing of annual accounts and annual returns at Companies House.  This is in addition to the reporting requirements to the Charity Commission and may involve additional administration and professional costs.

It is possible to incorporate an existing unincorporated charity into a charitable company.  This will involve the incorporation of a new company and then the transfer of the charity’s assets and employees to that new entity.  The new charitable company can then take over the activities and responsibilities of the old organisation.  We can assist you with this process.

Please ask for more information by telephone 020 8290 0440 or by emailing hayley.west@thackraywilliams.com