As a trustee or charity manager, you need to learn about running your charity in a way that complies with legal requirements and your charity’s governing document. Choosing the right legal structure for your charity is important to its operation, and your charity’s governing document should set out the provisions which support that structure.
This article outlines some key elements of charity law that you need to know, including the main statutes and an overview of different charity structures.
The legal definition of a charity
A charity is an organisation that is established for exclusively charitable purposes which are defined by law, such as preventing poverty or relieving sickness or advancing education or sport or arts, culture or science (to name a few). Charities’ purposes must be able to benefit the public and charity trustees must run their charities for the benefit of the public. Charities cannot distribute their profits to shareholders: all funding raised by or for a charity must go towards the cause.
Charities in England and Wales are governed principally by the Charities Act 2011. Section 1 of the Charities Act states that charities are institutions which:
- Are established for charitable purposes only
- Fall under the control of the High Court in the exercise of its jurisdiction with respect to charities.
An introduction to charity law
Charity law includes requirements about registering your charity with the Charity Commission (the regulator of charities in England and Wales) and ongoing reporting requirements, such as keeping your charity’s details (name, contact details, governing document, trustees’ details) up to date and filing annual returns, reports and accounts. This is public information and it is the responsibility of the trustees to make clear how their charity is fulfilling the charitable purposes for which it has been registered.
You can check the government’s annual return guidance
to find requirements for your charity. Charity law also governs, for example, how charities may use their money and other assets for their charitable purposes, how charities can make changes to what they do and how they do it, how they can merge with other charities or wind up, and the legal duties of charity trustees.
There will be other laws and requirements that apply to your charity as well, depending on what it does, its structure and where it works, whether in the UK or worldwide. Charities are also subject to general laws like tax, data protection and health and safety, with which trustees are responsible for complying.
LawBite has friendly and highly qualified lawyers who are experts in forming charities and registering them with the Charity Commission, as well as explaining all you need to know about charity law and governance, plus specialist areas like fundraising and trading.
Charities must have an awareness of charity law and governance to make sure they are legally compliant and following good practice. In addition to following the requirements of your charity’s governing document, all charities must comply with relevant law and guidance, including:
Depending on your charity’s structure, you may also have to comply with, for example, the Companies Act 2006, the Trustee Act 2000 or the Charitable Incorporated Organisations (General) Regulations 2012 and the Charitable Incorporated Organisations (Insolvency and Dissolution) Regulations 2012.
Structures of charities
“Charity|” is not a legal structure in itself. There are various ways a charity can be structured and which one is the most appropriate depends essentially on what your charity is going to do and how your propose to do it. The most common structures are:
The Charitable Trust, which has a group of trustees who manage the charity’s assets in accordance with the terms of a trust deed. A trust is not itself a legal person, which means that it does not offer the protection of limited liability (meaning the trustees are personally liable if the charity is unable to pay its debts) or perpetual succession (when trustees change, the assets have to be transferred in the names of the new trustees).
The Charitable Unincorporated Association has managing trustees, but also a group of members that have a say in running the charity. A Charitable Unincorporated Association is not itself a legal person, so the trustees are at risk of personal liability for the charity’s debts.
The Charitable Company Limited by Guarantee is an incorporated structure that has a legal identity in its own right which protects the trustees from personal liability. There is also a group of members who have a say in how the charity is run. A Charitable Company is regulated by Companies House as well as by the Charity Commission, which means there is a small amount of additional administration and expense. As a legal person, the company itself can enter into contracts, own property and employ people, and there is, therefore, perpetual succession.
The Charitable Incorporated Organisation (CIO) is an infrastructure designed specifically for charities. It has its own legal identity so the trustees are protected from personal liability and there is also perpetual succession. Similar to the Charitable Company Limited by Guarantee, it has a group of trustees and a membership.
There are two types of CIO, the Association CIO with trustees and a membership distinct from the trustees, and a Foundation CIO where the trustees and membership are the same people. The CIO is regulated solely by the Charity Commission, which makes it different from the Charitable Company. Some advantages of the CIO include:
- It only has one regulator.
- It is not subject to company law.
- It has registered charitable status even if the charity’s income is less than £5,000.
Disadvantages of the CIO include:
- The structure is still fairly new and less familiar to some stakeholders such as funders and prospective partners in the UK and abroad.
- Greater involvement of the Charity Commission could lead to delays
- CIOs could face difficulties when trying to use their assets as security for borrowing.
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LawBite has put together an FAQs section, compiling the most often asked questions regarding the legal requirements for charities:
- What are the legal requirements for charities?
A charity must exist and operate for exclusively charitable purposes for the public benefit. Charities are publicly accountable and subject to heavy regulation because they hold public money. High standards are expected of their governance, practices and procedures. Charity trustees have specific legal duties which they must fulfil and not breach.
Charity law refers to rules and regulations surrounding setting up and operating charities. Charity trustees must run their charity in a way that complies with the charity’s governing document and the law, which includes making sure your charity carries out its purposes for the public benefit.
- What are the different ways charities can be structured?
Charities can be structured in multiple ways. Among the most common structures are: the Charitable Trust, the Charitable Unincorporated Association, the Charitable Company Limited by Guarantee and the Charitable Incorporated Organisation. Key features of these different structures can be found above.
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