Setting Up a Charity – Part I: Get The Legal Structure Right

Starting a new charity is an exciting time to make a positive difference, but the legal side of things can be confusing.

Whether you’ve just got an idea, or already working in your community – if you’re looking for guidance on how to get your legals right, you’ve come to the right place!

To guide you on the things you need to know, we’ve put together a two-part blog series on how to set up a charity.

This Part I will cover the different legal structures that are available for your charity. Specifically, we’ll cover what it means to “incorporate” a charity, and whether you should set up a charity as a:

• Charitable Incorporated Organisation (CIO)
• Charitable Company (limited by guarantee)
• Unincorporated association
• Trust

If you already know what structure you want, you can skip this article and go straight to Part II: Get Registered.

In this article, we’ll focus on the two first structures: CIOs and companies limited by guarantee.

What Does It Mean To Incorporate A Charity?

Incorporating means that your charity becomes its own legal entity that exists separately to the members.

The benefits of incorporation include having its own legal identity, ability to sign agreements, limiting liabilities for the members, and so on. If you’re thinking seriously about the charity and its long term, you should definitely think about incorporating.

There is still the option of registering an “unincorporated” charity – however, there are some downsides. You’ll be exposed to risks because an unincorporated structure will always be tied to the members individually as it does not have a separate legal identity.

This means you may be personally liable for any debts incurred or obligations owed if things go south.

If you decide to go down the unincorporated route, you’ll need to get your rules drafted, set your charitable purpose, and register with The Charity Commission – please contact us if you need any help with this.

If you want to know more about how to incorporate a charity, keep reading!

Which Structure Should I Choose?

When it comes to setting up a charity, you need to choose the structure that will complement your business goals and plans.

Charitable Incorporated Organisation (CIO)

A CIO will need to be registered with the Charity Commission (not Companies House!).

Under this structure, your charity will be protected my limited liability as your organisation will be seen as its own legal person. So, your charity can enter into contracts and owe money in the same way a natural person would.

If the charity runs into trouble, its founders are protected from personal liability.

However, this structure may not be suitable if your charity intends to remain small. This is because setting up an incorporated organisation is a little more complex than a simple business set-up, so you need to balance the investment in set-up with your other business activities.

Charitable Company Limited By Guarantee

A charitable company that is limited by guarantee offers extra protection for the company.

It is regulated by Companies House, but still follows a charity structure. Rather than shareholders, it has guarantors who contribute to the company’s debts if they ever need help during liquidation.

Similar to a CIO, it also has limited liability, so there is extra protection for the directors.

No matter which structure you choose, you’ll need a Constitution or governing document to set out key personnel and how things will be run.

Conclusion

There are many elements that need to be considered when you are deciding on a legal structure for your charity. It is essential for you to understand all the relevant laws governing the legal structures for you to make informed decisions.

Still confused about what legal structure is right for your charity?  Feel free to contact us for help.

Once you have your legal structure sorted, it’s time to move to Part II: Get Registered. 

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