Charities are the backbone of UK aid, helping huge varieties of individuals across all walks of life. We have a tremendously diverse selection of charities covering all areas imaginable, but it’s certainly not to say that new ones aren’t being formed all the time, many with fantastic and meaningful results. Indeed, charities are a way in which those who have personal connections to a cause can give something to others who may experience similar things and in our fast-developing world- the charity niche is ever expanding.
If you have decided to look into opening a charity, take a look at our guide on how to open one in company format, which will give your charity a legal representation and personality in its own incorporated right.
1. Research your objective and plot your intentions
If you have an idea then you’ll need to research it from the ground up. Many charities are formed around personal life events, or intimate connections with certain things and on the back of this emotive connection, it’s always good to take a thorough look at what you intend to change for good- how you’re going to do it and what you’ll need to do to achieve this.
Once you have researched your cause, research the solution. How can we help others and what will we help them with? There is a good chance that some charities will cover your area at least partially, so take a good look at them and suss out what extra you can offer. Not only is this vital planning, but also a requirement for setting up a charity company, as it must comply to the legal definitions of benefiting the public and pass the necessary test to confirm this with the Charity Commission.
2. Begin preparation of legal registration
Once your idea and plan are firmly rooted into the ground, it’s best to overview all of the options for setting up a charity company. There are three main structures of charity organisations. One is a charity trust, another is a charitable company limited by guarantee and the final is a charitable incorporated organisation (CIO). They all have different legal structures and criteria.
A Charitable Company structure is chosen by voluntary organisations and non-profit organisations who employ staff and engage, enter and enact business via contracts whilst managing investments and assets including property. This gives a non-profit organisation a legal structure and personality which will be required to engage in a number of activities associated with wider charity memberships and organisation, employment and asset management. It’s basically a more formalised method of running a charity which makes use of legal protections and company rights.
Companies limited by guarantee can’t distribute profits to any members if they are to maintain its charity status and can only use assets for investment for charity purposes- operating always in the interest of the charity and not for the members.
Limited liability minimises the chance of personal liability for directors, who serve as guarantors. Essentially, companies limited by guarantee confer the advantages of a limited company. This is defined as the legal capacity to carry out employment, deliver services, enter contracts and own freehold or leasehold land all in its own name. A company like this is also regarded as more stable for loans and credit.
It is worth mentioning that some circumstances will leave the trustees liable. If they cause losses through negligence – by spending charity money on things outside of their proposed terms, for example, then they could be asked to refund the charity with personal finances.
To set up a charitable company you must register with both the Charity Commission and at Companies House. A charitable company must report assets and financial activity to Companies House each year just the same as any private company. Charity companies will have directors and members, with the directors acting as the trustees of the charity under the Charities Act.
3. Preparing documents
Firstly, you need a Memorandum and Articles of Association, which is a legal statement signed by all those who agree to form the charity company. Articles of Association are written rules about running this charity company, on which all initial members, directors and secretaries must also agree.
A charitable company will have to be limited by guarantee, and not by its shares when you register with Companies House. This means members acting as guarantors control the company. You would select to register ‘private company by guarantee’ and it will cost £40.
A company limited by guarantee is frequently used by non-profit organisations, as such, there are no shares and instead the company is owned by guarantors who agree to pay set amounts towards company debts. Their personal finances will be protected, meaning they are only responsible for paying debts under or equal to their guarantee, which is usually a nominal amount of just £1.
In the case of a charity company, its directors are also its Trustees, which are defined as those who are part of the management system or decision-making board. Trustees will have no or limited liability for a charitable company’s liabilities and debts.
Setting up companies can feel onerous and longwinded, but the benefits are clear and present, and more charity companies exist now than ever before. Having a corporate format for a charity provides legal clout, lending stability, employment flexibility and a whole host of other benefits.
Whilst filing with two separate organisations and reporting to them individually may seem like extra responsibility, a charity company is only a requirement for larger organisations and it should be a team effort.