Do you want to set up your own charity?
Setting up and administering a charity is not an easy task. There are rules which must be abided by. Donations to charities may come from the public and may be entitled to tax relief. Therefore, historically, charities have been abused for the purposes of tax planning and they have also been used to launder money. It’s no wonder that UK charities need to register and are regulated by The Charity Commission. The regulation may deter people to form their desired charity and instead opt for a non for profit company, a company limited by guarantee or a discretionary trust.
However, for those willing to embrace regulation, we set out a quick starter guide for setting up your own charitable trust:
You will need:
- One or more charitable purposes
- A name
- A governing document
- At least three trustees
- A structure
- To register as a charity
What is a charitable purpose?
A charitable purpose is a particular purpose for the public benefit. On quite a few occasions, a client has asked if they can set up a charity to pay their children’s school fees. The answer is no because that charity would not be for public benefit – the benefit would be limited to family members. Most of those clients didn’t want to contribute to the school fees for the wider public!
Charitable purposes include things that contribute to:
|Religion||Saving lives||Amateur sport|
|Religious or racial harmony||Relieving poverty||The protection of the environment|
|Human rights||Citizenship or community development||Animal welfare|
|The efficiency of the armed forces, police, fire or ambulance services|
Naming Your Charity
The name of your charity must not be similar to an existing charity, not be offensive, not be misleading and you must have permission to use words if needed i.e. trademarks.
The Governing Document Of A Charity
A charitable trust must have a governing document. It is a legal document setting out the rules for operation and cessation.
The document will also set out:
- The charitable purpose
- Who and how it is run
- What it can do to carry out its purpose
- Whether it can hold investments
- How trustees may be appointed
- How trustees may make decisions
- Trustee expense and payment policies
- Meeting requirements of trustees
- Dispute resolution policy
The structure could take the form of a company (limited by guarantee), incorporated organisation, trust or unincorporated association.
A company limited by guarantee prevents company liabilities becoming those of the trustees.
You can establish a charitable incorporated organisation directly by registering with the Charity Commission. The trustees remain protected from the CIO’s liabilities.
A trust is a common law structure requiring a settlor, trustees, trust deed and beneficiaries (or class of). Not all jurisdictions recognise trusts. It is not unusual for a trust to establish a wholly owned company to manage the trustee’s exposure to risks.
An unincorporated charitable association is group of volunteers with a common purpose. These associations cannot have employees.
Most charities will also consider their activities and whether those activities need to be ringfenced. Some charities have trading businesses as well as investments, which ought to to share exposure to risks.
Registering A Charity
If your charity is based in England or Wales, is a CIO or has income of at least £5,000 per annum, it needs to be registered. You will need to provide certain information about the charity including its name, bank details, recent accounts, contact details, trustee details, purpose and how it is run for public benefit. If you are not a CIO, you will need to prove the income. You will also need to provide the governing document.