Setting up a charity: here’s how to start

Whether for the common good or for private interests: char­it­able or­gan­isa­tions are a good in­vest­ment for wealthy people who want to make their money work for a good cause. But what do you need to start a charity? How do you set up a charity? Initially, you need to have a desire to do good. All the prac­tic­al­it­ies can be found in our guide.

Anyone can set up their own charity. In­di­vidu­als above the age of 18 years and legal entities like companies and or­gan­isa­tions can start a charity. But what are the re­quire­ments to launch a charity? What do you need to know to get started? Which questions should you bear in mind? First things first. To set up a charity, you need to have some char­it­able assets.

This can be money or material assets. There are also several questions you should ask about your goal. These can help you get off to the right start with your charity:

• Do I have a clearly-defined, char­it­able mission in mind?
• Is there a need for the services that my charity could provide?
• Am I willing to con­tinu­ously invest my private assets for the good of the charity?
• Do I want to take part in day-to-day charity work or limit my in­vest­ment to the found­a­tion of share capital?
• Do I feel ready to take on the re­spons­ib­il­ity of founding and managing a charity?
• Or do I want to invest or donate to an already existing charity, or pass my assets to a trustee?

Your answers to these questions will help to determine how high the share capital for founding the charity should be and which legal form will best suit its purpose.

In order for a charity to be con­sidered a charity, it must have a clearly defined char­it­able mission that aims to provide a service or benefit to society or a community. Your goals may be religious in nature, aiding humans or animal rights, or they could be focusing on saving the en­vir­on­ment. The choice is yours, but your goal must be char­it­able in order for your charity to be con­sidered as such.

Before setting up your charity, you should check whether there is an existing charity that has the same goal as yours – locally or na­tion­ally. If you join forces with an existing charity, you could save yourself the bother of all the ad­min­is­trat­ive paperwork and employing staff. With over 160,000 re­gistered charities in the UK, you may just find one that you’ll want to team up with. If no com­pet­it­ors exist, you may have dis­covered a gap in the market. Either way, your char­it­able goal will most likely be welcomed by the community it aims to help.

Charities range in size and operation. Some are very well known, whilst others operate on a smaller scale. There is no rule of thumb when it comes to charity size and fame. For example, Battersea Dogs and Cats is a local charity but is well known beyond London where the cat and dog shelter is based. One of the biggest charities in the UK is Cancer Research UK which raised a stag­ger­ing £634 million in 2017 to 2018. The charity targets a national health issue and aims to improve not only the lives of those suffering from cancer but also their friends and families. Given that it benefits such a large group of people, it is un­sur­pris­ing that Cancer Research UK is so suc­cess­ful. But your goals don’t need to be huge for your charity to succeed, as the Action for Refugees in Lewisham proves. The charity, which benefits refugees, is based in a borough of London and whilst its actions are localised, its impact is steady. It has been suc­cess­fully up and running since 2006 – almost 15 years of helping others. So, re­gard­less of whether you’re trying to tackle something which is a na­tion­wide concern, or support a local community, your charity can make a dif­fer­ence once it’s set up well.

Trustees are an essential element to any suc­cess­ful charity, and finding the right ones is an important step in setting up your charity. The gov­ern­ment’s pamphlet CC30 defines trustees as: “the people who are re­spons­ible for the general control and man­age­ment of the ad­min­is­tra­tion of the charity. In the charity’s governing document they may be called trustees, managing trustees, committee members, governors or directors, or they may be referred to by some other title.” Re­cruit­ing the right trustees is, therefore, something each charity should take con­sid­er­able time to do when setting up.

The way to start the re­cruit­ment process is up to each in­di­vidu­al, but the gov­ern­ment’s pub­lic­a­tion (CC30) makes several helpful sug­ges­tions to help you find the best trustees to support your goals. You should begin by identi­fy­ing the needs of your charity, and how trustees could help meet these needs. In your charity’s governing document, you may have already set out re­quire­ments about re­cruit­ing new trustees. For example, it might be that you allow only a minimum of trustees, or indeed a maximum. The period of how long trustees can be appointed may change depending on the rules set out in the governing document. These basic re­quire­ments should be con­sidered when re­cruit­ing new trustees.

Other questions about the skills and ex­per­i­ence your charity requires to succeed should also be taken into account. And it may be worth meeting current trustees to establish what skillset a new trustee should have to com­ple­ment existing skill levels. If a new trustee joins, your charity could immensely benefit by appealing to or rep­res­ent­ing new interest groups. One final con­sid­er­a­tion, that is becoming ever more important, is the diversity of your existing board is. Could you improve this? Could your charity gain important per­spect­ives by di­ver­si­fy­ing?

The legal structure of your business will determine the daily operation of your charity. Depending on the business structure you choose, the details you need to consider when setting up will change. Taxes and employee re­cruit­ment vary from business to business depending on the legal structure. A charity’s legal form is always a non-profit. There are lots of different types of non-profit or­gan­isa­tions but what makes your char­it­able non-profit stand out is its char­it­able aim. The fact that your business will benefit the general public gives it a unique status. Charities can be one of four types: an un­in­cor­por­ated charity, a char­it­able trust, a char­it­able in­cor­por­ated or­gan­isa­tion, or a char­it­able company.

For your charity to be suc­cess­fully set up, you must create a so-called governing document (which works like a rulebook) for your business. This document outlines how your charity operates, including in­form­a­tion about the char­it­able aim and how its trustees are appointed.

The document is valuable for trustees and in­ter­ested parties who may wish to support your charity fin­an­cially. The governing document outlines a char­it­able purpose but it also in­tro­duces the members who are in charge of the charity, and how it operates. Ad­di­tion­ally, it should clearly define and outline the rules on payments made to trustees, and details on how expenses may be recovered. Most often charity trustees work for free, but in any case, financial trans­par­ency is key.

Should there come a time when your charity has fulfilled its goals or you feel that it’s time to move on, your governing document will include an outline that details how to close a charity. By in­tro­du­cing a ter­min­a­tion procedure right from the start, you’ll save yourself trouble later down the line. The final draft of a governing document is usually discussed during a meeting with all the charity's trustees. Once everyone signs the governing document, its contents become official.

After you’ve outlined the governing document and it has been signed by the trustees, the hard work begins. Here are a few key elements involved in running a charity day-by-day:

• The board of directors must focus all its efforts on reaching the char­it­able goal. Otherwise, your business will not fulfil its defining char­ac­ter­ist­ic of helping the general public.
• You need to make sure that your charity is run in a fin­an­cially re­spons­ible manner.
• Funding projects must be planned and im­ple­men­ted.
• In char­it­able or­gan­isa­tions, ad­vert­ising and fun­drais­ing are important tasks.
• Not to be forgotten: you must regularly update the public and your trustees on the progress of your charity’s work.
• There are also several ad­min­is­trat­ive duties a

charity has to fulfil to keep its tax-exempt status. The most important thing is that your business remains provably char­it­able and you can guarantee that you’re always working towards your charity’s purpose. As such, you will most likely be required to write an annual report to inform your trustees and the gov­ern­ment of your charity’s activ­it­ies.

Although charities are unique non-profit busi­nesses, they are not exempt from common business ex­pect­a­tions such as keeping books and ensuring that finances are trans­par­ent. In fact, when it comes to trans­par­ency, charities are under more scrutiny by the gov­ern­ment. For one, because it’s important to verify how public funds are being used and to ensure that tax exemption is granted to a business which isn’t acting to enrich its managers and owners. Keeping your books in order and being sensible about your spending are key aspects here.

Running a charity is a wonderful thing, and although setting up a charity can be a lot of work, knowing that you’re working to benefit society is in­cred­ibly rewarding. Some of the ad­vant­ages of running a business come from its unique char­it­able aim. Although sometimes charities come under scrutiny because of their spending and finances, the general immediate response to char­it­able status is positive. The public will hold your business in high regard if it helps society at large, a local community or is making a con­tri­bu­tion in­ter­na­tion­ally.

However, the ad­vant­ages of char­it­able status aren’t re­stric­ted to the public image. Running your business as a charity also has its distinct benefits in terms of taxes. That is why char­it­able status can be a hotly debated topic, and indeed why charities do come under scrutiny. In the UK, charities enjoy tax breaks and benefits more so than any other busi­nesses. This means that more of the money donated is left over to put towards a good cause. However, should it become evident that your business has only become char­it­able for tax purpose and not because of a genuine intention to do good, its repu­ta­tion could be damaged and serious legal con­sequences may follow.

Added scrutiny from the HMRC is almost certain. Your business may be audited more often, which can involve a lot of extra work and added ac­count­ing duties. Some of the dis­ad­vant­ages of a charity lie in the number of re­stric­tions your business will face once re­gistered.

Charities need to follow charity law, which requires subject knowledge and detailed study to ensure you’re not breaking it. It includes informing the Charity Com­mis­sion and the public about your char­it­able work on a regular basis. Fur­ther­more, your business cannot operate with a mix of char­it­able and non-char­it­able purposes. A charity is only ever re­cog­nised as such when it is 100% char­it­able, meaning that a charity must also be in­de­pend­ent and cannot merge with other or­gan­isa­tions.

Fur­ther­more, it could be chal­len­ging to find long-term staff to run your charity. Trustees are normally unpaid vo­lun­teers. Getting the au­thor­isa­tion to pay trustees can be difficult and is another separate process after you have set up a charity. This becomes all the more difficult because a charity cannot directly benefit someone in con­nec­tion with the charity. A trustee’s family member cannot be given paid work by the charity. There are ex­cep­tions, of course, but again, these must be au­thor­ised.

One final re­stric­tion concerns a charity’s purpose. Although the defin­i­tion of how a charity benefits society is somewhat open to in­ter­pret­a­tion, one re­stric­tion is that a charity needs to be “outward facing”. This means that where a charity benefits solely the interests of a closed group, it will not be approved for char­it­able status. The re­stric­tion is vital because it helps maintain a truly be­ne­fi­cial vision across the charity’s man­age­ment.

Please note the legal dis­claim­er relating to this article.