Setting Up A Charity
People set up a business for all kinds of reasons. They might be seeking financial security for themselves and their family, or perhaps like the idea of being their own boss.
Maybe they want to work in an area that matches their interests or have found a gap in the market. But although the popular image of an entrepreneur is someone working for their own self-interest, many people go into business with aim of doing good; they want to change the world for the better while also building a successful business.
However, setting up a charity is going one step further. The purpose of a charity is to benefit the public rather than specific individuals. So if you’re thinking of starting a charity for personal gain, forget it and do something else. But if you’re dedicated to the idea of working purely to raise funds for a worthwhile cause, read on.
Charities pay reduced business rates and are eligible for tax breaks but there are specific laws on how charities must be run. In England and Wales, charities need to register with the Charities Commission once their annual income exceeds £5,000. Registered charities must provide public, up-to-date information about their activities and finances.
The trustees running a charity are usually unpaid volunteers; they can only be paid in certain situations with the approval of the Charities Commission. The charity shouldn’t benefit anyone directly connected with it, meaning it can’t give paid work to a member of a trustee’s family or their company. There are certain activities a charity can’t take part in. For example, it can’t mix charitable and non-charitable work. Some political activities are also restricted, such as campaigning for a change in government.
So what causes are acceptable for a charity? The Charities Act for England and Wales lists 13 “descriptions of purposes”; these are broad headings that a purpose must fall under to be a charitable purpose. The 13 descriptions of purposes are:
(a) the prevention or relief of poverty;
(b) the advancement of education;
(c) the advancement of religion;
(d) the advancement of health or the saving of lives;
(e) the advancement of citizenship or community development;
(f) the advancement of the arts, culture, heritage or science;
(g) the advancement of amateur sport;
(h) the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity;
(i) the advancement of environmental protection or improvement;
(j) the relief of those in need, by reason of youth, age, ill-health, disability, financial hardship or other disadvantage;
(k) the advancement of animal welfare;
(l) the promotion of the efficiency of the armed forces of the Crown, or of the efficiency of the police, fire and rescue services or ambulance services.
(m) any other purposes currently recognised as charitable or which can be recognised as charitable by analogy to, or within the spirit of, purposes falling within (a) to (l) or any other purpose recognised as charitable under the law of England and Wales.
When it comes to the structure of the charity, there are four main types:
Unincorporated associations. These are usually membership charities and local branches of national associations.
Charitable companies. This type of structure might be appropriate if the charity will be large, have employees and could enter into commercial contracts, own freehold or leasehold land or other property.
Trusts. Setting up a trust might be the best option if the charity is only going to make grants to individuals or organisations, will be run by a small group of people who decide how to make grants, and won’t employ staff or enter into contracts for work.
Charitable Incorporated Organisations (CIOs). These are set up like companies; they can enter into contracts in their own name and the individual trustees have limited or no liability for the charity’s debts. They don’t need to register with Companies House.
For more information on setting up a charity in England and Wales, visit:http://www.charitycommission.gov.uk