Different charity structures – what is best for you?
When setting up a charity there are several options to consider which will form the legal structure of the organisation. The charity must choose carefully since any subsequent changes to the organisational structure will require a fresh registration application to the Charity Commission. Most of the time, the most suitable approach will depend on the intended activities of the charity and the resources it has.
Here's a snapshot of four types of legal structures for charities:
Trust: When compared to other types of charitable organisations, a trust can be relatively simple and inexpensive to establish. Since there is no statutory framework, the contents of the trust deed are more flexible. The trust does not have the status of being a legal entity in its own right, so the trustees will need to enter into agreements in their individual capacities in order for the trust to enter into any agreements. As a result, the trustees are exposed to a wide range of personal liability. Where the charity intends to employ people, a structure of this type would not be suitable.
Charitable Incorporated Organisation (CIO): A charity of this type is directly registered with the Charity Commission, avoiding the issues associated with duplicate filings and allowing for better oversight. A charity's operations are governed by an established constitution, which is prescribed by the Charity Commission; it is as flexible as a trust or an unincorporated association. Trustees of a CIO are protected by the fact that its members have limited liability and the trust has its own legal personality. Its downside is that it is relatively new in comparison to other charitable structures, which could pose problems when the charity approaches financial institutions that aren't familiar with it.
Charitable company limited by guarantee: This is one of the most common structures used when establishing a charity. Articles of association, which are filed at Companies House, regulate the activities of the charities. Since it has its own legal personality, it can enter into contracts with other organisations and hold property in its own name. Members and trustees of the charity are well protected under this structure because it provides limited liability. However, there are some downsides to a limited company, including the expense. Companies House and the Charity Commission would require duplicate filings. Under the Companies Act 2006, trustees have also been given additional duties. They would have to comply with both their trustee duties and their director duties.
Unincorporated association: An unincorporated association is another easy and inexpensive way to create a charitable organization. The charity will be governed by a constitution which is not prescribed but will need to incorporate certain features like a prohibition on the distribution of funds among its members, as well as any prohibition imposed by any legislation. Unlike a trust, this structure does not have a limit of liability and is not a legal entity in its own right. Accordingly, members of the management committee or executive committee are bound by any agreements entered into on behalf of the charity and may be personally liable.
You can count on us to help you determine what type of structure would work best for your organisation and also to register with the Charity Commission for charity status. Our experience in this area can help you avoid the common pitfalls of the Charity Commission application process.