Contact Us

Please use the form on the right to send us a short message. 

19 Station Road
Wellingborough, England, NN29 7EH
United Kingdom

+44 7802 957938

Consultancy services for the charity and not for profit sector.  Strategy Development, fundraising, governance, collaborations and partnerships.

iStock-535967845.jpg

Charity Structures

What is the right legal structure to choose for a charity? A Trust, Unincorporated Association, Company Limited by Guarantee or a Charitable Incorporated Organisation. Almond Tree Strategic Consulting can help you make the right decision for your organisation.

What form of charity works best?

 

There are four main legal forms for charities:

  • A Trust
  • An unincorporated Association
  • A Charitable Incorporated organisation (CIO)
  • A company Limited by Guarantee (CLG)

The sections below summarise the main advantages and disadvantages of the four main forms available:

    Trust

    Governing document: Trust Deed or Will

    Advantages:

    • Generally simple and inexpensive to set up.
    • Can use simple receipts and payments accounts.
    • One regulator – the Charity Commission.
    • Generally no protection from liability for the Trustees (beyond insurance cover).

    Disadvantages:

    • Cannot have members who have a formal role in governance.
    • Must have over £5,000 a year income to register as a charity.
    • Has no legal personality of its own and therefore contracts are entered into by the Trustees.

    Unincorporated association

    Governing document: Constitution

    Advantages:

    • Generally simple and inexpensive to set up.
    • Can use simple receipts and payments accounts.
    • Can have members who have a formal role in governance.
    • One regulator – the Charity Commission.

    Disadvantages:

    • Generally no protection from liability for the Trustees (beyond insurance cover).
    • Must have over £5,000 a year income to register as a charity.
    • Has no legal personality of its own and therefore contracts are entered into by the Trustees.

    Charitable Incorporated Organisation

    Governing document: Constitution

    Advantages:

    • No minimum income requirement to register as a charity.
    • Can use simple receipts and payments accounts (if gross income is less than £250,000 a year).
    • Trustees generally have no or limited liability for the debts of the CIO.
    • Can have members who have a formal role in governance.
    • Has its own legal personality and can enter into contracts in its own right.
    • One regulator – the Charity Commission.

    Disadvantages:

    • Must use accruals accounting if gross annual income is over £250,000 a year.
    • Newish form of governance, therefore not yet fully tested.
    • A CIO does not come into existence until it is registered by the Charity Commission.
    • There is no register of charges for a CIO as there is for a company, which may be important if you want to borrow money.

    Company Limited by Guarantee

    Governing document: Articles of Association (if formed before Sept 2009, Memorandum & Articles of Association)

    Advantages:

    • Trustees (Directors) generally have limited liability for contractual liabilities.
    • Can have members who have a formal role in governance.
    • Has its own legal personality and can enter into contracts in its own right.
    • The Charity Commission advises that a CLG will be a better option if your charity is likely to want to issue debentures (or bonds).

    Disadvantages:

    • Often more complicated and/or expensive to set up (and operate) – a CLG does comes into existence when registered by Companies House but is not a charity until subsequently registered by the Charity Commission.
    • Must have over £5,000 a year income to register as a charity.
    • Must use accruals accounting no matter how much income it receives.
    • Two regulators – the Charity Commission & Companies House.

    These factors should all be considered when deciding what form of charity to choose when establishing a new charity.  

    From time to time Trustees of existing charities should also consider whether their governance arrangements are fit for purpose, including whether it is the right form of charity.  In some circumstances it is possible to convert from one form of charity to another. For example, it is relatively common to convert from an unincorporated form (Trust or Unincorporated Association) to an incorporated form (CIO or CLG), to take advantage of the added protection incorporated forms offer Trustees.  However, for many reasons this is not always possible and it often involves setting up a new charity, transferring assets from the old charity to the new charity and then closing the old charity. In general, there are limited advantages in changing between incorporated forms.

    If you require further advice on any of the issues raised in this guidance note or any other aspect of charity governance, including collaborations, consortiums and mergers, please contact us.

    Disclaimer

    Choosing or changing the legal form of a charity can be complicated and decisions should always rest on your specific requirements and circumstances.  This note sets general information and does not constitute formal advice (legal or otherwise) to any specific existing or proposed organisation or charity on its legal form.  Bespoke advice, including legal advice where appropriate, should be obtained before such decisions are made.