In England and Wales alone, there are around 170,000 charities, collectively generating an impressive £48 billion in annual turnover. These organizations exist to serve specific charitable purposes and must operate exclusively for those causes.
When establishing a charity, selecting the right structure is crucial. Each type offers unique advantages and challenges. Let’s explore five common charity structures to help you determine which might suit your organization best:
1. Unincorporated Associations
This straightforward, informal structure is ideal for small charities. Typically formed by a group of individuals united by a shared charitable goal, unincorporated associations do not exist as separate legal entities. Consequently, members are personally responsible for any debts or obligations incurred by the charity.
2. Charitable Trusts
Charitable trusts involve a legal arrangement where assets are held by trustees to support charitable activities. These trusts can be established during the donor’s lifetime or through their will. Trustees bear a fiduciary duty to act in the charity’s best interests, ensuring resources are used appropriately.
3. Charitable Incorporated Organisations (CIOs)
Introduced in 2013, CIOs are designed to give charities a simple yet flexible legal framework. Registered with the Charity Commission, CIOs operate as separate legal entities, protecting trustees and members from personal liability for the charity’s financial obligations.
4. Community Interest Companies (CICs)
CICs are social enterprises focused on benefiting the community. Regulated by Companies House, they must file annual reports and accounts. While some CICs may also qualify as charities, others operate as non-charitable organizations, offering flexibility for different missions.
5. Companies Limited by Guarantee
Often chosen by larger charities, this structure provides a formal framework. These companies have members (instead of shareholders) and are managed by directors. Members’ liability is limited to the amount they agree to contribute if the company is dissolved.
Choosing the Right Structure
Each of these charity types comes with its own strengths and weaknesses. The most suitable choice will depend on your charity’s size, goals, and operational needs. Seeking professional legal advice is highly recommended to ensure your charity’s foundation aligns with its mission and future growth.