Income and legal structures

Legal structures

Charities are not a legal body but a mode of operating and many charities consequently become companies limited by guarantee. Charitable Incorporated Organisation (CIO) is the new legal structure for charities which means that a charity doesn’t have to register as a company as well.

If you’re setting up a small organisation like a sports club or a voluntary group and don’t plan to make a profit, you can form an ‘unincorporated association’ instead of starting a business.

You may want to set up a structure that will allow you to raise funds from the community in which case you will need a legal structure such as a co-operative or community benefit society which is registered with the Financial Conduct Authority (FCA).

About charities

We have a strong understanding of charities and the third sector.

We provide charities with the expert coaching, strategy and guidance that you need. We were an NCVO (National Council for Voluntary Organisations) approved charity consultancy from 1999 until 2013 when they stopped accreditation and we have delivered advice to a wide variety of charities and social enterprises from start ups to national names. We can help you with deciding what legal structure you should be at start up; should you be a Charitable Incorporate Organisation(CIO) or structure so you can issue community shares or own property?

What differentiates charities is that they are:

  • non-governmental;
  • generally funded by donations or grants rather than earned income though many have a trading subsidiary which donates profits to them
  • ‘value-driven’ - that is, that are primarily motivated by the desire to further social, environmental or cultural objectives rather than to make a profit per se; and
  • principally reinvest surpluses to further their social, environmental or cultural objectives.

Charities tend to have:

  • A strong focus on the needs of service users;
  • Knowledge and expertise on complex personal and community needs;
  • An ability to be flexible and offer joined-up service delivery;
  • The capacity to build users’ trust; and
  • The experience and independence to innovate.

Charities and trading

Above is a short video on things to consider and you can also read the blog.

Government strategy has led charities to focus much more on service provision and income generation rather than funding and donations and there has been a significant growth in social enterprises.

With many funding streams for charities coming to an end particularly from Europe and competition for the remaining funding increasing many charities and community projects, particularly community buildings, are keen to find new ways of generating income and securing their future.

Charities can trade but need to check that they comply with Charity Commission guidance. The guidance explains when and how charities may engage in trading. It is mainly about charity trading for the purpose of raising funds, rather than trading to carry out the charity's objects. It also explains when a separate trading company should be established to carry on such activity. Even if the Charity Commission does not require a separate charity trading arm it may still be sensible to establish one both for clarity of purpose and also for tax reasons.

There are two main types of charity trading, which have very different charity law and tax implications. These are primary purpose trading and non-primary purpose trading.

Primary purpose charity trading is carried out to fulfil the charity's objectives. For example, a theatre charity selling tickets for a play or an educational charity charging fees for its training courses and publications. Trading where the work is carried out mainly by the charity's beneficiaries is also primary purpose trading. For example, a charity working with people with learning disabilities selling items that those people have made.
Non-primary purpose charity trading is designed simply to raise funds. For example, charities which sell ready-made Christmas cards at a profit are conducting non-primary purpose trading as this is not directly linked to their objects.

Charity fundraising

We believe strongly that charity fundraising must align with the mission and vision of the charity. Too often people chase funding and in doing so lose what makes them special and often fail to get the funding.

We undertake charity fundraising as part of the strategic development of an organisation identifying funding which will fit with your goals. If you want a FREE tool which summarises 32 ways you can make money as a charity you can get it here.

Where we can particularly add value is where a charity needs innovative charity fundraising ideas for projects, services and/or markets to attract new charity funding. We use our strong marketing background to create powerful funding applications.

If you are looking to fund a capital project and need charity fundraising ideas then community shares are worth considering as a means of raising money and embedding the development deeply into the community it serves.