What To Consider When Forming A Charity

There are many benefits to setting up a charity, namely tax relief, an ability to receive certain grants and funding and payment of reduced business rate.

However, most charities are regulated by the Charity Commission (the regulator of Charities in England and Wales) therefore anyone thinking of setting up a charity needs to be aware of their responsibilities.

If there is a particular cause which clients are fond of, then sometimes clients would like to leave their entire estate or a portion, to a charity of their choice. This can be heavily advantageous when it comes to inheritance tax as any gifts to charities are exempt. Sometimes, the people or cause that clients would like to benefit, doesn’t exist and therefore setting up their own charity is the better option.

Once they’ve decided they want to set up a charity, clients then must choose whether do this during their lifetime or on their death. If financially viable, then creating the charity now can be an attractive proposition because it gives the client the option to fully manage all the decisions that need to be made when creating the charity. When forming a charity on your death for your Estate to be paid into, although you can leave a specific set of instructions and wishes regarding the formation of your charity, ultimately it is up to your elected Executors/Trustees to make the crucial decisions on your behalf.

The best place to start when creating a charity is to decide what your charity’s charitable purposes are going to be. These need to be specific and for the benefit of the public or a sufficient section of the public. It is a very important decision and ultimately it will be up to the Charity Commission whether your charitable purposes will be acceptable to them.

Following this, you will want to decide the structure of your charity. Will it be a Charitable Incorporated Organisation, an unincorporated association, a charitable company limited by guarantee or simply a trust? These structures have varying differences in yours/your trustees’ personal liability so it is imperative that you get the correct advice prior to making your choice.

The next step would be to write a governing document which will contain all the information of how the charity will operate. This will include, but is not limited to, how many trustees to be appointed, how many meetings the charity trustees will have and how to close the charity if necessary. At this stage it may be to decide the name of your charity and how you are to find the trustees of your charity. Generally, it is best to appoint trustees with a range of different skills, such finance and fundraising, property/building maintenance experience or legal knowledge etc. The Trustees need to be clear of their duties and responsibilities and be willing to volunteer their time to manage the charity.

Once all of the above steps have been completed you will then need to decide how the charity is to be funded. Is it going to be from your personal finances or fundraising? One of the most important rules to be aware of is, if your charity is receiving more than £5000 in income or if it is classed as Charitable Incorporated Organisation then it needs to be registered with the Charity Commission.

If you would like further assistance and advice in relation to setting up a charity, please do not hesitate to contact us on 0800 088 6004.