How to set up a charity

26th October 2018

Is your organisation a charity?

Before you set up your charity, you will need to make decisions about how the charity will be run and what kind of structure it will have. You also need to make sure that your proposed charity is actually eligible to be a charity.

To be considered a charity, your organisation needs to be ‘for public benefit’. This means that it must work to provide relief or assist the advancement of a significant portion of the public, and it must not benefit those running the charity. For example, the prevention of poverty, or the advancement of education, religion or animal welfare.

You can get more guidance on charitable purposes from the Charity Commission.

Choosing a charity structure

As with starting any other business, you should choose a structure for your charity that is appropriate for its purpose and its goals. Once the structure is decided, it should be established in the charity’s governing document.

Types of structure

Here is a brief explanation of the four most common charity structures – if you need help deciding which would be best for you, you should get legal advice.

Charitable Incorporated Organisation (CIO)

A CIO is a relatively new type of structure which makes it possible for a charity to have some of the benefits of a limited company without having to register with Companies House.

Unlike many other charitable structures, a CIO is a legally recognised entity that can enter into contracts, take out loans, own property, and do other things in its own name. This gives trustees in the charity what is known as limited liability, meaning that they will not be held personally liable if, for example, the charity is unable to pay its debts.

Charitable trust

A charitable trust is a small group consisting only of trustees who will contribute to running the charity – there are no other members besides them.

It is not a formal business structure like a limited company – it is unincorporated, which means that the trust is not recognised as a legal entity in its own right.

Charitable company

A charitable company is similar to a limited company, with the obvious exception that it is run for purely charitable reasons. A charitable company must be registered with Companies House, as well as the Charity Commission (if applicable).

Charitable unincorporated association

An unincorporated association is a less formal structure of business – charities with this structure are easier and cheaper to run than those with other structures.

Changing your charity’s structure

It is possible to change the charity’s structure at a later date – for example, if you want to change from a charitable unincorporated association to a CIO. You should seek legal advice if you want to do this.

Writing a governing document

The governing document establishes the rules that your charity must follow. This document sets out a number of important principles of the charity, including:

  • The charity’s purpose;
  • Who the trustees are and how they are appointed;
  • The structure of the charity;
  • How the governing document can be amended;
  • The process if the charity needs to be closed down.

Registering with the Charity Commission

If your charity is a Charitable Incorporated Organisation (CIO) or it has an income of £5,000 or more per year, you will need to register it with the Charity Commission. You can do this online on the government’s website.

Appointing trustees

What is a trustee?

Trustees are the people appointed to run a charity and make sure that it works towards its goals and complies with both the law and the charity’s own rules (as set out in the governing document). They will make up the management committee or board that will run the charity.

Trustees can perform different roles in the charity, depending on what they do. They may be known by other job titles, such as director, board member or committee member.

Who can be a trustee?

Anyone over the age of 18 (16 for a CIO) can be a trustee unless they are disqualified from being a trustee under the Charity Act 2011. A person can be disqualified for a number of reasons – for example, if they have an unspent conviction for an offence involving dishonesty or deception, or if they have been removed from being a trustee of a charity by the Charity Commission as a result of misconduct.

Paying trustees

Being a trustee for a charity is usually an unpaid role, but there are situations where a trustee could receive payment from the charity. For example, you can pay a trustee for out-of-pocket expenses as a result of work done for the charity (phone and postage bills, for example).

There are some cases where a trustee can be paid simply for being a trustee. This is allowed as long as the charity’s governing document specifies that trustees in the charity can be paid for their work.

If it is not allowed by the governing document, you will need to get permission from the Charity Commission.

Appointing new trustees

There are a number of options available for recruiting new trustees – for example, sites such as Career Volunteer and Trustees Unlimited are useful for trustee recruitment.

People who are already employed by the charity can become trustees too. However, bear in mind the restrictions there might be for paying trustees for doing other work for the charity.

Disclaimer: This information is for general guidance regarding rights and responsibilities and is not formal legal advice as no lawyer-client relationship has been created.

Hannah Parsons

Legal Advice Manager, Solicitor

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