Interested in starting a charity or a charitable business? Not sure if a standard limited company is the right structure for you? Read on to find out the alternative legal structures available to your business.
This is the third of four articles in our “How to Start a Company” series.
Until recently, charities could only be formed using legal structures that were originally intended for other purposes, such as trusts and standard limited companies. Now, other options are available, including charitable incorporated organisations (CIOs) and community interest companies (CICs).
Charitable incorporated organisations
If you want your business to have charitable status, you have the choice of setting it up so that it is regulated by both charity law and company law, or by charity law alone.
CIOs are charities which are solely regulated by charity law. This means that they do not have to register with, or provide accounts for, both the Charity Commission and Companies House. This then avoids dual regulation which can be quite a burden, especially for smaller charities. CIOs provide the advantages of a corporate structure, such as reduced risk of personal liability, within a more attractive legal framework that is regulated solely by the Charity Commission.
Community interest companies
CICs are not strictly charities. Charities must be exclusively for charitable purposes. CICs can be established for any purpose, as long as their activities are carried on for the benefit of the community. Charities have certain tax advantages over CICs and access to more funding opportunities, but they are subject to more onerous regulation as a result.
CICs are free to operate more commercially than charities. They can, and do, provide a return for their shareholders as long as those returns are balanced and reasonable. However, unlike a standard limited company, donors can be sure that their donations to a CIC will be used for the benefit of their social objectives. This is thanks to their “asset lock” feature. This ensures that the assets of CICs cannot be used for the benefit of their individual shareholders. Asset locking is a permanent step which cannot be reversed so it is important that you seek professional legal advice to understand the significant legal implications of creating a CIC.
If you need assistance with setting up a charitable business, a member of our corporate team would be happy to help. Please do not hesitate to contact our Head of Corporate, Iwan Emanuel, on 01494 893570 or at email@example.com
The final article in this series will explain the different kinds of shares and shareholding structures available to you when you set up a new company.