Setting up a charity or charitable organisation isn’t just about the passion and purpose. How you legally structure your charity matters just as much as what you plan to do with it.
Most people think there’s just one way to set up a charity and register, and off you go. Actually, you’ve got choices to make, and getting this decision right early on can save you headaches (and money) later. Each of these options has its specific advantages and drawbacks.
Charity Structures
Charitable Incorporated Organisation (CIO)
The Charity Commission suggests this structure is most beneficial for small- to medium-sized charities that employ staff and/or enter into contracts. It combines the credibility and tax benefits of charitable status with the protection of limited liability.
Pros
- A single registration is required with only the Charity Commission (currently FOC); no Companies House filing or registration fees.
- Accounts, reports, and returns are to be prepared and sent to the Charity Commission annually.
- Limited liability—trustees aren’t personally liable for the charity’s debts.
Con: Relatively new structure; some funders still prefer traditional forms
Bonus: You can choose Foundation CIO (trustees run everything) or Association CIO (broader membership gets a say)
Charitable Company Limited by Guarantee
The traditional choice is for larger charities or those planning significant growth. This structure offers the protection of incorporation and limited liability; however, charity and company law requirements have to be satisfied.
Pro: The limited liability provides a well-established structure that is preferred by funders and partners.
Con: The dual regulation and rules of both charity rules and company rules mean more complex administration and compliance
Charitable Trust
This is the longest-standing structure in which trustees hold and manage assets for charitable purposes. It is more suitable for grant-making charities or those with significant property holdings.
Pro: The simple governance and centuries of legal precedent that this offers make it ideal for asset management
Con: Trustees are liable for everything, as they have unlimited liability; therefore, the recruitment of trustees is more challenging as a result.
Charitable Association
This is a simple starter option for community-based groups with limited assets. Individual members are personally responsible for any debts and contractual obligations.
Pro: Simple to establish and run, minimal paperwork
Con: No limited liability as trustees are personally responsible for debts
How Do You Choose?
Some factors to consider when choosing a structure include growth plans, risk level, and funding needs. It is also important to note that for funders and partners, incorporated structures often signal stability and professionalism. The structure you choose affects your charity’s ability to grow, ease of governance, and credibility with funders. While conversion between structures is possible, it’s simpler and more cost-effective to choose correctly from the start.
At Greydern Associates, we’ve helped charities across the UK determine which structure works best for them (not just which one sounds good on paper). Need help getting started?
Contact us for a consultation.