Your charity’s legal structure and constitution set out what type your charity is and how it should be managed. There are four common types of charity structure:
- charitable incorporated organisation (CIO) – either the foundation CIO model or the association CIO model
- charitable company (limited by guarantee)
- unincorporated association
- trust
There are various reasons to incorporate a charity - either by creating a CIO or corporate entity. The trustees should decide whether such reorganisation would be in the best interests of the charity and its beneficiaries – set out below are four key reasons why trustees may consider incorporation:
- an unincorporated charity (ie. association or trust) is not a legal body in its own right and so cannot enter into contracts in its own name. This means that the trustees have to enter into contracts personally and they can be liable if something goes wrong and they are found to be at fault
- the trustees may want to register the title to the charity’s land or property in its own name (rather than in a trustee’s name)
- the trustees may want to borrow funds and give security to a financial institution
- the trustees may be concerned about the level of financial, operational or regulatory risk within the charity and want to benefit from additional protection by effectively ring-fencing this risk
- the charity may intend to deliver its charitable services under contract (for example, with a local authority and the local authority may only deal with an incorporated entity)
Changing to a different charitable structure usually involves setting up a new CIO or corporate entity, transferring the original charity’s assets and liabilities to it, and then closing the original charity. We can assist in this process, advise whether the trustees will need Charity Commission consent to effect the process, and also ensure that any permanent endowment is properly managed as part of any transfer.