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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.
- Requirements and open questions
- Develop your mission: What is your charitable goal?
- How to find trustees
- Choose your type of charity
- Putting it all in writing: the governing document
- Keep it moving! Running a charity
- Advantages and disadvantages of starting a charity
Requirements and open questions
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.
You may be wondering why it is important to know if you want to invest private assets into your charity or not. It’s important because it indicates the difference between a trust and a charity. If you gather your funds mainly from the public domain, your charity is a true charity. If your funds come mainly from private assets and investors, your charity is actually a trust. This is the only difference between the two, but it is good to know the distinction. More information on charities and trusts can be found in our article on what a charity is.
Develop your mission: What is your charitable goal?
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.
Examples: Small and big charities in the UK
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.
How to find trustees
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?
Choose your type of charity
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.
Putting it all in writing: the governing document
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.
If you’re setting up a charitable trust, you’ll need to make sure you have an independent witness present during the signing of any documents.
Keep it moving! Running a charity
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.
Charities save and manage the personal data of their employees and donors. Since this is considered an important safety measure, every charity must adhere to GDPR data protection measures to avoid penalties. These include limiting electronic information to a minimum, receiving the approval of a person sharing their information in a timely manner, informing them on the purpose of information collection, and deleting any data upon request. Since the GDPR came into action, cookies and online personal data must be treated with extra care.
Advantages and disadvantages of starting a charity
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.
Although it may seem as if the disadvantages outweigh the advantages, that is not true. Charities often begin as passion projects. Their aim is usually genuinely charitable and seeks to help others. As a charity grows and advances its goals, the advantages will outweigh the disadvantages. The restrictions are rigorous, but as long as your business is run transparently, you’ll most likely get to enjoy the advantages of running a rewarding charity.