What’s the Right Structure?

So you have decided you need to set up a charity.  What now?

Well the first question to get right is the legal structure. You can find some helpful information on the Charity Commission website: http://www.charity-commission.gov.uk/Start_up_a_charity/Guidance_on_registering/Choosing_your_governing_document_index.aspx#gds.

In short, there are three main options for charities – an unincorporated association, a charitable trust, and a charitable company; a fourth option will be available in the coming months, the charitable incorporated association (“CIO”).  Your choice should be informed by your local needs, circumstances and commitments.

An unincorporated association may be more appropriate for charities with low levels of income, few assets/liabilities and a time-pressed board; the disadvantage include the less formal arrangement and personal risk to the management committee. The governing document for an unincorporated association is a constitution.  You can find a simple model constitution on the Charity Commission website.

A charitable trust may be more appropriate for charities with higher levels of income, ownership of land, or a time-pressed board, but with trustees willing to assume potential liability; the disadvantage include the unlimited liability of trustees. You can find a simple model trust deed on the Charity Commission website.

A charitable company may be more appropriate for charities with a potentially large support base or big ambitions, with staff or larger liabilities for rent, contracts etc.  The advantages include limited liability, transparency and capacity for upsizing; the disadvantages include increased admin, cost and time implications. You can find a simple model articles and memorandum of association on the Charity Commission website.

If you want to consider more specific documents for your charity, why not get in touch for an informal discussion: andrewkmackay[at]gmail.com.

The fourth option is the CIO, which is a new incorporated form of charity, which must register with the Charity Commission but cannot do so with Companies House. The CIO is legally created on registration with the Commission, can enter into contracts in its own right, and offers limited liability for its trustees. The CIO will feature limited liability, less regulation, and reduced admin, cost and time implications; companies can convert simply to a CIO, but associations and trusts may require to transfer to a new CIO.

The CIO was proposed to address concerns that the benefits of being a charitable company could be outweighed by the regulatory and administrative burdens involved. CIOs will be governed by regulations currently being drafted by the Office for Civil Society, and will cover the creation of new CIOs, and the conversion of current charitable companies to CIOs.

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