*We always recommend seeking legal advice. This document is designed to aid you in your decision-making process for deciding which type of not for profit you are waiting to create. It does not replace legal advice.
For Charities, there are a few different legal structures to consider: A charity does not belong to one single person, they exist for the public benefit and the board of Trustees collectively are legally responsible for the charity and its operations including safeguarding and fundraising. The minimum and maximum number of Trustees are usually detailed with the charities governing document. However, usually the minimum of three whose roles are chair, secretary, and treasurer.
Charitable Company - Limited by Guarantee.
The charity is registered with both Companies House and then apply with Charity Commission for Charitable status, both require annual returns. Require a turnover of £5,000 per year else the charity commission class it as a small unregistered charity.
Charitable Unincorporated Association
This is not a company. Rather a community group acknowledged by law who have governing document. Avoids registering with Companies House but must still apply to the Charity Commission for charitable status. Most likely used by those who started as a community group or sports club.
Charitable Incorporate Organisation (CIO) introduced 2013.
Simpler route to setting up a charity that does not also have to register with companies’ house. If starting from scratch with no previous work carried out this is a good option to consider. Can apply for CIO status if the charity has a turnover under £5,000.
For Social Enterprises there a different option.
Limited Company (by shares)
Most popular type for businesses. It a flexible structure where the shareholders own the company. This means the company is focused on profit and serves the interest of shareholders. It does NOT have to have any particular social aims.
Community Interest Company (CIC) introduced in 2005.
Flexibility of a company with some restrictions on the use of profits. CIC's have their own register. They cannot become charities and do not get tax relief. Most notable practical features of a CIC are the asset lock and dividend cap. Asset lock means the company cannot be distributed outside of the company other than in accordance with the dividend cap. The dividend cap allows for the distribution of up to 35% of profit each year.
Quick questions
Will most of your income be direct donations?
If yes, decide on charity structure.
Will you be selling goods or services e.g. training, consultancy or a shop?
If yes, potential social enterprise structure.
Will you be applying for grants?
There are more grants available to charities than social enterprises.
If you have any questions please contact us we are always happy to help.