Organisational Structures of Charities in the UK

The organisational structure of charities in the UK plays a crucial role to their effectiveness, governance, and ability to meet regulatory requirements. Unlike for-profit organisations, which are designed to maximize profitability, the structure of charities is tailored to meet objectives such as advancing social causes, providing services to those in need, and fulfilling other charitable purposes. This article explores the different types of organisational structures of charities in the UK, and what it is needed, from initial setup to ongoing governance, to ensure they operate transparently and efficiently.

Legal Framework and Governance

The Charities Act 2011 defines what constitutes a charity and outlines the requirements for registration with the Charity Commission. To maintain its charitable status and associated tax benefits, a charity’s organisational structure must comply with these regulations.

Governance is typically managed by a board of trustees, who are legally responsible for the charity’s operations. These individuals ensure that the charity functions according to its objectives, adheres to legal standards, and manages resources effectively.

Setting Up a Charity in the UK

Before exploring the different organisational structures, it’s crucial to understand the steps for setting up a charity in the UK. Establishing a charity involves several key stages:

1. Defining the Charitable Purpose: Clearly articulating the charity’s purpose, ensuring it aligns with one or more of the 13 charitable purposes recognized by the Charity Commission, such as poverty relief, education advancement, or health promotion.
2. Choosing a Name: Selecting a unique name for the charity that does not mislead or resemble existing ones and complies with Charity Commission rules.
3. Drafting a Governing Document: Creating a governing document (constitution, trust deed, or articles of association) outlining the charity’s objectives, procedures, and governance.
4. Appointing Trustees: Selecting the trustees for overall management and decision-making. They must be at least 16 or 18 years old, depending on the charity type, and free from certain legal restrictions.
5. Registering with the Charity Commission: Registering with the Charity Commission if the charity’s income exceeds £5,000 per year or if it is a Charitable Incorporated Organisation (CIO).

After having established the charity, the following step is choosing the most suitable organisational structure.

Types of Organisational Structures of Charities

The organisational structure of charities in the UK can vary significantly depending on the charity’s size, purpose, and governance needs. The most common structures include:

1. Charitable Trusts: Charitable trusts are a type of organisational structure used by charities to manage and allocate assets for specific charitable purposes. Governed by a trust deed, a charitable trust is established when assets are transferred to trustees, who are legally bound to use those assets exclusively for charitable aims. This structure is particularly suited for organisations focused on managing investments or property and distributing grants. Unlike other structures, charitable trusts do not have a membership base or employ staff directly; instead, they rely on trustees to oversee the trust’s administration and ensure that the assets are applied in accordance with its charitable objectives. The simplicity and flexibility of charitable trusts make them an attractive option for many charities, especially those focused on long-term asset management.
2. Charitable Unincorporated Associations: Ideal for smaller charities or community groups, this structure is governed by a constitution and allows for a membership base. However, because unincorporated associations are not legally distinct from their members, trustees and members may be personally liable for the charity’s obligations. Despite this risk, the organisational structure of charities as unincorporated associations remains popular due to its simplicity and low set-up costs, but it may not be suitable for charities that require limited liability or wish to undertake significant financial or property-related activities.
3. Charitable Incorporated Organisations (CIOs): Introduced in 2013, CIOs are legal entities, meaning they can enter into contracts, own property, and be liable for their debts independently of their trustees. This organisational structure is particularly suitable for medium to large charities that require limited liability for trustees and a formal governance framework. CIOs can be set up with or without a membership structure, offering flexibility based on the charity’s needs. Unlike charitable companies, CIOs are regulated solely by the Charity Commission, simplifying administrative requirements compared to the dual regulation faced by charitable companies.
4. Charitable Companies Limited by Guarantee: This organisational structure provides the benefit of a limited liability company and is suitable for larger charities with substantial assets or complex activities, such as operating schools or hospitals. Charitable Companies Limited by Guarantee are registered with both Companies House and the Charity Commission, meaning they must comply with both company law and charity law. Unlike traditional commercial companies, profits cannot be distributed to members or shareholders; instead, any surpluses must be reinvested in furthering the charity’s objectives. This organisational structure is often chosen for its balance of liability protection and governance requirements.
5. Community Interest Companies (CICs): Although not technically charities, CICs are social enterprises regulated by the CIC Regulator. They use profits and assets for the public good but do not enjoy the same tax benefits as registered charities. CICs have? an organisational structure that allows for commercial activities while maintaining a social purpose, making them a viable option for organisations focused on community impact.
6. Charitable Community Benefit Societies (BenComs): Registered under the Financial Conduct Authority, BenComs operate under a democratic one-member, one-vote system. This organisational structure is particularly suited tofor? organisations that want community involvement in decision-making, such as housing cooperatives or community-owned shops. However, like CICs, they must meet specific regulatory requirements and may not receive the same tax advantages as traditional charities.

Final considerations

In summary, choosing the right organisational structure before setting up a charity in the UK is a critical factor in its success, influencing governance, accountability, and operational efficiency. By carefully selecting the most suitable structure, charities can ensure they meet their mission while complying with legal requirements.

Key considerations include whether a corporate structure or a broader membership is necessary. Corporate entities like CIOs and charitable companies have the advantage of being able to operate as separate legal entities, allowing them to own property, enter contracts, and employ staff, with trustees generally not personally liable for the charity’s actions. However, they come with increased regulatory obligations and cannot distribute profits to members.

On the other hand, unincorporated structures, like trusts and associations, may be more suitable for smaller charities with simpler operations. Trusts are ideal for organisations managed by a small group without a need for broader membership, while unincorporated associations suit those wanting a wider membership but with limited assets and operations.

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