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The primary goal of your charity mostly in all cases consists of raising funds for charitable purposes. If you decide to start trading outside of your charity’s purpose, you may still be entitled to certain tax exemptions.

This article outlines how to set up a subsidiary trading company for your charity.

Is my charity able to set up a subsidiary trading company?

You can set up a trading subsidiary if your charity is incorporated as a CIO or charitable company. If your charity is unincorporated, it is not possible to set up a trading body. 

Why would my charity have a subsidiary trading company?

The advantages of having a trading subsidiary linked to your charity include:

  • The subsidiary can generate income by engaging in trading that is not related to the charity’s primary purpose
  • The subsidiary can make a profit that comes close to or is higher than the small trading tax exemption limit
  • The assets of the charity will be protected from any trading losses
  • The charity and its trading activities are separated
  • The trading company can pass taxable trading profits up to its parent charity. They can also claim charitable donation relief under the corporate Gift Aid scheme

Are charity subsidiary trading companies limited by shares?

Yes, most subsidiary trading companies are limited by shares. 

Therefore, to set up the subsidiary, you must follow the normal company incorporation process, including appointing directors and shareholders. Also, you must create a Memorandum of Association and Articles of Association and register them with Companies House.

 

Free Articles of Association template

 

Get legal assistance from LawBite

Need support setting up a subsidiary trading company for your charity? Our friendly team of charity law solicitors can provide all the advice you need.

LawBite has experience helping startups, charities, and small businesses achieve their commercial ambitions and regulatory compliance. To speak to one of our expert charity lawyers, book a free 15 minute consultation or find out more about our affordable charity legal packages.

 

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Additional resources

In closing

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