Many charities are able to deliver meaningful and lasting results; however, all charities must abide by certain regulations in relation to their structure and behaviour, and are answerable to a governing body. The majority of charities are overseen by the Charities Commission in England and Wales, or those for Scotland and Northern Ireland which are covered by similar governing bodies. Below are the key steps to consider when setting up a new charitable organisation.
WHAT IS A CHARITY?
In order to be considered a charity, the organisation must have an exclusively charitable purpose and exist for the benefit of the public. It is a common misconception that if an organisation is “not-for-profit”, it must be a charity, but this is untrue. Whilst charities cannot be profit-making organisations, this is not what defines a charity. The law defines whether or not an organisation is a charity; if the purpose of your group is exclusively charitable and it exists for public benefit (rather than for an individual or small select group of people), then it is a charity in the eyes of the law even if you had not thought of it as one. Registering with the Charity Commission does not make an organisation into a charity, it simply turns an unregistered charity into a registered one.
If you are unsure whether your organisation’s purpose is classed as “exclusively charitable” then you can check this list of charitable purposes to see if you qualify.
IS REGISTERING AS A CHARITY THE RIGHT OPTION?
Legally, if you set up a charity then you must apply to register it with the commission if it is a charitable incorporated organisation (CIO) or if its annual income is greater than £5,000. Once registered as a charity, there are certain benefits you are entitled to such as reduced business rates and tax relief options. It can also be easier to obtain grants as many funders will only give grants to registered charities. Registration also lets the public know that your group is a legitimate organisation and is being monitored by the Charity Commission.
If your charity’s income is less than £5,000 then you cannot register it with the Charity Commission. However, an unregistered unincorporated charity below the £5,000 threshold can benefit from tax relief by registering with HM Revenue and Customs.
CHOOSING A CHARITY NAME AND STRUCTURE
When it comes to naming your charity, it is a good idea to choose a unique name which is both relevant and memorable as this will ensure people remember it when they want to make a donation or volunteer. There are, however, certain rules you must adhere to when selecting your name. Your charity name must not;
- Be similar to the name of an existing charity.
- Use words you don’t have permission to use, such as trademarks or famous names.
- Use offensive words or acronyms.
- Be misleading, for example suggest the charity does something which it does not.
- Break intellectual property rules.
You can search the charities register to check names of existing registered charities.
Once you have a name for your charity, the next step to consider is its structure. This is a very important step as it will dictate who runs the charity, how it is run and what the charity is able to do, for example if it can employ people or own property.
There are 4 main types of charity structures and you need to choose the right structure for your charity, depending on whether you need it to have a corporate structure and whether you want to have wider membership.
WRITING YOUR GOVERNING DOCUMENT
The next thing you need to do is create what is called a “governing document” which clearly explains how your charity is run. This is essentially a rulebook which lets trustees and other interested parties know your charity’s purpose, who runs it and how they run it. As well as information on how trustees are appointed and the conditions around trustee payments and expenses. It should also include how to close the charity.
The type of governing document you require depends on the structure of your charity. You can read further guidance on writing your governing document to give you a better understanding.
When it comes to selecting trustees for your charity, you should ensure they have the relevant skills and experience your charity needs. Being a trustee takes commitment therefore you need to ensure whoever you choose is willing to give the required time to your charity to ensure it operates correctly and they must also understand their legal requirements to the charity.
Your governing document dictates how many trustees you require and how they should be appointed. However, all trustees need to be at least 18 years old (or 16 if your charity is a CIO). Some people are also disqualified by law as being eligible to be a trustee such as individuals with unspent convictions for offences involving dishonesty or deception, who are currently declared bankrupt or has previously been removed as a trustee due to misconduct or mismanagement.
GETTING HELP WITH SETTING UP AS A CHARITABLE ORGANISATION FOR LEGAL AND TAX ADVANTAGES
At Devonshire Green, we are happy to help you take advantage of the legal and tax advantages available to you if you choose to register your organisation as a charity. We can also assist with the registration process as well as the reporting of your charity’s operations, and any related challenges you may face. If you would like assistance please do not hesitate to contact us for advice.