Choosing the right structure for your charity

Incorporated vs Unincorporated Structures

• An incorporated structure has its own legal personality which provides the trustees with greater protection from personal liability. Practically, this allows the charity to enter contracts and hold property in its own name rather than in the name of any individual trustee(s).
• An unincorporated structure has no independent legal identity, so the trustees could have personal liability. As the charity has no legal personality of its own, it cannot enter contracts, hold property, or sue/be sued. This structure is often chosen by smaller charities.

Incorporated Charities

Charitable Incorporated Organisation (CIO): this structure is relatively quick and easy to incorporate; CIOs are subject to charity law, governed by their Constitution and only require registration with the Charity Commission. CIOs are a newer structure, meaning they are not as well recognised and understood as charitable companies and may be more suitable for small to medium sized organisations which may employ staff, own assets, such as land, and/or enter into contracts. They are growing in popularity though and becoming better understood.

A Charitable Company: this structure takes the form of a company ‘limited by guarantee’ which is incorporated via Companies House but only obtains its charitable status once registered with the Charity Commission. A charitable company is subject to both company and charity law. It is governed by its articles of association and must comply with dual filing requirements (with Companies House and the Charity Commission). This structure is suitable for organisations of any size, including larger and more complex organisations.

Unincorporated Charities

A Charitable Trust: these are governed by a Trust Deed and are quick and easy to form. Small trusts with an annual income below £5,000 are not required to register with the Charity Commission, which would mean the structure is subject to a lighter regulatory regime. The structure may be beneficial for groups where they consider the risk of the charity’s objects and activities to be low. The trust structure allows the charity to make gifts, invest and grant funds easily.

An Unincorporated Association: this less formal structure may be used where the purposes may not be wholly charitable and will therefore not require registration. Instead, the members usually create a set of agreed rules for the management and operation of the joint activity. An organisation of this type is suited to groups who wish to participate in non-profit activities such as volunteering.

What is best for you will depend heavily on the size of your charity, its aims and activities, as well as funding requirements, staffing, and, perhaps more importantly, the risk the charity and its trustees are able or willing to take on.

Reach out to our Corporate & Commercial team if you would like further information about charity structures or help in setting one up.