Setting up a charity

If you have decided that a charity is the right legal structure for your social enterprise you will need to choose the purpose of your charity. Your charity’s ‘purpose’ is what it is set up to achieve and the reason it exists.

This means that your purpose must:

• fall within one or more ‘descriptions of purposes’ to be a charity. While it can have more than one purpose, it can’t have any purposes that aren’t charitable

• each of its purposes must be of benefit to the public in general or a sufficient section of the public

It is vital that you run your charity in a way that is consistent with your purpose.

You will then need to choose your charity's name and write your charity’s governing document. This is a legal document that creates the charity and says how it should be run. As a final step, you will have to find trustees who will serve on the governing body of a charity and decide how your charity is going to be funded.

Usually, a charity must register with the Charity Commission if:

• it is based in England or Wales 

• has over £5,000 income per year

You can read the government’s guidance on registering a charity. 

A charitable incorporated organisation (CIO) is one of the four main types of charities. The other three are:

• charitable companies limited by guarantee

• unincorporated charitable associations

• charitable trusts

The main advantage to choosing a corporate body for your charity, instead of an unincorporated association, is that it will be able to do many things in its own name and trustees will not be personally liable for what the charity does. A CIO will always need to be registered with the Charity Commission, whatever its income. 

Some of the factors you will need to consider when picking your structure include:

• who will be running the charity

• will it have a wider membership

• whether it will have to enter into contracts or employ staff in its own name

• whether the trustees will be personally liable for what the charity does

Some of the many advantages to being a charity include:

• tax incentives

• a good level of public trust

• a defined purpose, acting for the public benefit

There are also many restrictions on what charities can do. For example:

• charities must follow charity law, which has many stringent rules, including telling the Charity Commission and the public about their work

• charities can only have purposes the law recognises as being charitable and cannot have a mix of charitable and non-charitable purposes

• charities must be independent - a charity can work with other organisations but must make independent decisions about how it carries out its charitable purposes

• charities must be run by trustees who are normally unpaid volunteers, unless authorised

• charities can’t usually benefit anyone connected with the charity

• charities can’t take part in certain political activities

• registered charities must provide public, up-to-date information about their activities and finances

To get tax relief your charity needs to be recognised by HM Revenue and Customs (HMRC). This will allow you to claim back tax on things like Gift Aid donations. For more information, read Tax relief on donating to charity.