After you have your charitable purpose, the next decision you need to make is to choose which charity structure works for you.
The structure affects how your charity will operate:
- Who runs it and whether it will have a wider membership
- Whether it can enter contracts or employ staff
- Whether trustees will be personally liable for what the charity does
There are four main types of charity structure:
- Unincorporated charitable association
- Charitable trust
- Charitable incorporated organisation (CIO)
- Charitable company (limited by guarantee)
Choosing the right structure for your charity depends on whether it is run by trustees or has a wider membership. You must decide whether to incorporate your charity or take the simpler, but riskier, option of running an unincorporated organisation.
Unincorporated
Unincorporated charities do not have their own legal personality and cannot enter contracts, control investments, or own any property in their name.
You would need to have at least one trustee who can be held personally liable for any debts and signs all contracts.
Unincorporated Charitable Associations
An incorporated association can be a charity, but it does not have to be. It is a membership organisation that can carry out whatever activities its members vote for.
It is the ideal structure for many small groups, especially those without staff or premises, as it is the easiest, quickest, and cheapest way to set a group up. The group needs to draw up a constitution outlining its rules.
For an unincorporated association to be a charity, it must have charitable goals and be run to benefit the public. It must register with the Charity Commission if its annual income is over £5,000.
Charitable Trusts
Another unincorporated structure is a charitable trust. Run by a small group of appointed trustees, there is no wider membership. To set up a trust, the trustees must sign a trust deed that shows that the organisation is legally set up for a charitable purpose and, if you have an annual income of £5,000, you must register with the Charity Commission.
Incorporated
An incorporated charity is a legal company that gives the charity its legal personality.
The charity can hire employees, own land or property and sign contracts in its name. Trustees are given protection from being personally liable.
However, incorporated charities are subject to tighter legal regulations and controls. If your annual income is over £25,000, you will need to arrange an independent examination of the charity accounts each year. You must also submit annual accounts and reports to the Charity Commission, which are published online.
Charitable Incorporated Organisations (CIO)
Introduced in 2013, CIOs are a new legal structure and are always incorporated.
There are two types of CIO:
- Association Model CIOs are membership organisations and hold elections
- Foundation Model CIOs are run by a small group of appointed trustees
CIOs must register and report to the Charity Commission to legally exist.
However, unlike charitable companies, they do not need to register with Companies House, and therefore the reporting requirements are more straightforward.
To register your new CIO, you will need a model constitution approved by the Charity Commission. Online applications usually take up to 40 days.
You can also convert other types of structures to a CIO.
Company limited by guarantee
Another type of incorporated structure is a company limited by guarantee. This type of charity does not distribute income to its shareholders and can be not-for-profit if the surplus income gets reinvested back into the charity.
Companies limited by guarantee are incorporated, registered, and regulated by Companies House. They are controlled by their directors and have voting members.
To establish a company, you will need to adopt a Memorandum and Articles of Association and submit them to Companies House. As a legal governing document, you should seek professional advice when setting this type of structure up.
You can find template model documents on the GOV website.
If you need help deciding which legal structure works best for you or have any questions, please speak to our Charities team. Our experience in these areas will help you avoid the common pitfalls during the application process.
