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To be a charity, an organisation must be established for purposes which are exclusively charitable under the laws of England and Wales (or Scotland). This is the case even if the charity is not registered. There is, however, a duty to register the charity with the Charity Commission if certain criteria are met, one of which is that the charity has an income in excess of £5,000 a year.
Charities can take various forms - a company (usually limited by guarantee), an unincorporated association, a trust, or an Industrial and Provident Society for the benefit of the Community. Charities should usually have at least three trustees. The charity's activities, contracts and the need for investment are relevant to which vehicle is chosen.
A charitable company limited by guarantee is first registered at Companies House as a company then can be registered as a charity with the Charity Commission. The directors are the trustees. Members are only liable for the nominal money they have agreed to contribute (and no more) if the charitable company is dissolved. This limited liability, and the ability to enter into contracts and own property in the name of the company rather than on a personal or group basis, can be attractive. Company and charity law must be observed. A charitable company can be part of a group structure. It may be the sole shareholder in a trading subsidiary.
Industrial and Provident Societies are registered with the Financial Services Authority. Model or bespoke rules can be used. One type, a society for the benefit of the community, can be a charity. It cannot register with the Charity Commission (yet) but it may register as a charity with the HMRC and obtain tax exemptions. It will then also be considered a charity for gift aid purposes. The structure is good for social investment.
The charitable trust is particularly suited to individual philanthropy. It is governed by a trust deed and charity law. There are no members. The trustees will be party to the deed, as may a donor establishing such a trust. The trust will have charitable aims and can be registered with HMRC (as well as, potentially, the Charity Commission, if income exceeds £5,000 annually). Contracts are entered into by the trustees, as the trust does not have separate legal status. Along with property ownership, contracts need to be reviewed on a change of trustees.
A charitable unincorporated association is a collection of individuals interested in pursuing or supporting certain charitable objects, governed by a constitution and charity law. It has no legal identity of its own. This means it cannot own property, enter into contracts or borrow money.
The government's strategy unit has proposed a new legal form of charity, the charitable incorporated organisation. It will be an incorporated charity which registers only with a single regulator. This legal form is not expected to be available until late late 2010.