How to set up a charity
A basic guide on how to set up a charitable organisation, from recruiting trustees to registering with the Charity Commission.
Setting up your organisation as a charity has a series of benefits, including paying less taxes and being able to apply for specific types of funding.
On the other hand, it is also quite admin-intensive, and you need to make sure you follow all the right procedures. Our step-by-step guide will give you an idea of what setting up a charity entails.
What's in this guide?
What’s a charity?
A charity is an organisation with a “charitable purpose”, which roughly means that it was set up to “do good”. The legal definition of charitable purpose, which is covered in the Charities Act, says that the organisation needs to be for “the public benefit” as well as fall within one of the 13 descriptions of purposes listed here.
When you register your organisation as a charity, you will be asked to define what its charitable purpose is. Your organisation will then be legally required to only use its assets to further its charitable purpose.
The government’s website lists six steps to set up a charity, which we cover below.
Trustees are ultimately the people who make decisions in the organisation, and are legally responsible for it.
You will usually need at least three trustees for your charity, which together will form its “board” and be responsible for its governance.
While charities can have staff, trustees cannot be paid for their work, so you will need someone who is willing to do it as a volunteer.
Establishing your charity’s charitable purposes
We’ve covered what this means above. Your organisation’s charitable objectives should be accurately thought through; if it ends up doing something that’s not covered by them, you could get in trouble with the Charity Commission.
Also, one thing to keep in mind is that your charity’s purposes cannot be political (although, as the government’s website says, “a charity can carry out ‘political activity’ if it facilitates or supports the delivery of its charitable purposes”).
Choose a name for your charity
This is the fun part, but there are still some rules to follow. For example, you cannot use a name that it’s too similar to the name of an existing charity, and you cannot use offensive words. Your name should also broadly reflect your charity’s purposes.
Plus, a word of advice: spend some time on Google before picking the name. You want something that will be easy to find and cannot be easily confused with anything else. People will hopefully be looking up your charity’s name at some point, and you want its website to be the first entry they come across.
Choose a structure for your charity
Charities can roughly be structured in four different ways:
- Charitable company. This is when your organisation is both registered with the Charity Commission and also as a limited company on Companies House.
- Charitable incorporated organisation (CIO). If you choose this option, you only register your charity with the Charity Commission, but not with Companies House, and your organisation is not subject to company law. Both charitable companies and CIOs have “limited liability”, which means that trustees are not held personally responsible for the charity’s debts.
- Charitable trust. In a charitable trust, assets are managed by trustees; the organisation cannot have members, enter contracts or own property.
- Unincorporated charitable association. Like all “unincorporated” companies, unincorporated charitable associations cannot enter contracts, own property or hire staff. The government says that this is just “a simple way for a group of volunteers to run a charity for a common purpose”.
Create a governing document
This is a document that describes how your charity is run.
It will have to cover a range of things, including who runs the charity and how, how trustees are appointed, how meetings are held, how to close the charity if needed, and so on.
The Charity Commission has a series of governing document templates that you can use as a starting point (depending on what structure you chose).
Register as a charity
If your organisation’s annual income is over £5,000 or if you set it up as a CIO, you will need to register with the Charity Commission. The Charity Commission is a government body that regulates charities in England and Wales; Scotland and Northern Ireland also have their own regulators for charities (but rules on registration can be slightly different).
You can apply to register your charity on the Charity Commission’s website. You will be asked to provide a series of information and documents, including a proof of income, your governing document, the charity’s bank details and the trustees’ personal details.
Open a charity bank account
This step is not listed in the government’s step-by-step guide towards setting up a charity, but it’s still quite essential. Your charity will be a separate legal entity and need its own current account to manage finances adequately.
Most banks offer some bank account options for charities, societies and associations; you will normally find them under the bank’s “business accounts” section, but they will be dedicated products that usually have less fees compared to your regular business account.
Compare bank accounts for charities
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