STEP 2

Decide your charity structure

When you decide on a charity structure there are two big decisions to be made:

• Whether the charity should be run by trustees only, or whether it should have a wider membership.
• Whether to have an incorporated structure or to take the simpler, but sometimes riskier, choice of being unincorporated.

Trustees only or a wider membership?

In a charity run entirely by its trustees, those trustees are the only members of the charity. They can make crucial decisions (such as who to appoint as a trustee; whether to make changes to the constitution) without reference to any wider group. This type of charity can be called a ‘charitable trust’ and may use the word ‘Trust’ or ‘Charitable Trust’ in its name.

A charity with a wider membership is more democratic because the trustees will be accountable to those members. There are some decisions that can ONLY be made by the wider membership such as electing trustees, approving the annual accounts, and approving any changes to the constitution. You will need to think carefully about how large that membership may be because the charity will have a duty to keep records of all members so that they can invite them to an Annual General Meeting, where they will elect trustees and approve the accounts and ask questions about how the trustees have been managing the charity (like shareholders in a company).  This type of charity is often called an ‘Association’ or ‘Society’.

Incorporated or unincorporated?

Incorporated

An incorporated charity is a legal form (like a company) that gives the charity its own legal personality. This means it can own property and sign contracts in the charity name. Incorporation gives trustees greater protection from being personally liable. A charity that employs people or promises to provide services (that is, most of them!) will normally choose to be incorporated.

But this added protection comes with tighter legal regulations and control, including:

• The need to arrange an annual independent examination of your charity’s accounts (if the annual income is over £25,000) and,
• The need to submit your charity’s annual report and accounts to the Charity Commission, to be published online.

These days, the most commonly used incorporated structure is called a Charitable Incorporated Organisation (CIO).

Some older charities use the old structure called a Charitable Company Limited by Guarantee, but we don’t recommend this for small charities as it means that you must register twice – as a charity with the Charity Commission and as a company with Charities House.  Keep in mind, this is quite a lot of bureaucracy!

Unincorporated

An unincorporated charity doesn’t have its own legal personality, so it can’t sign any contracts in the charity name. That means that contracts must be signed by one of the trustees who can then be held personally liable for any debts.

The unincorporated structures are:

• Unincorporated Charitable Association; and
• Charitable Trust

Best for charities which don’t expect to rent premises, own property, employ staff, etc.

The choices you make at this stage will affect the type of constitution, or governing document, that your charity will adopt.

See Step 3 ‘choose the governing document that’s right for you’.