‘Which legal structure?’ A question asked to us during Small Charity Week

small charity week

As a small charity without limitations to the personal liability, and which is hoping to rent premises for the first time. Do we become a company limited by guarantee or a charitable incorporated organisation and why?

This was the question posed to us over Facebook by Dudley CIL (Centre for Inclusive Living) on Tuesday evening (on Small Charity Week’s Big Advice Day). I thought it might be worth providing some information here in case it’s useful for others in a similar position.

I’ll start by saying that we give support, information and guidance to support voluntary and community organisations to choose an appropriate way to set up their organisation, using some excellent textbooks such as the Russel-Cooke Voluntary Sector Legal Handbook. But our support does not constitute legal advice. We provide information to help people make a more informed choice.

CIO or company limited by guarantee?

When a charity is about to take on increased risk (such as entering into contracts, owning property or controlling substantial funds), it’s worth considering whether its current legal structure is appropriate. Many organisations choose to become ‘incorporated’, to reduce personal liability of the trustees if the organisation gets into debt or cannot meet its obligations.

Two types of incorporated structure are available to charitable organisations; the company limited by guarantee and the charitable incorporated organisation (CIO). The CIO structure is very new; it was made available in order to reduce the need for dual registration. Until very recently, charitable organisations that needed to incorporate had to register as companies with Companies House and register with the Charity Commission, meaning they had 2 regulators and obligations to report to both every year. CIOs have one regulator, the Charity Commission, which might seem advantageous, but there might be more compelling reasons for choosing one structure over the other.

I’d really recommend taking a look at Sandy Adirondack’s excellent article, ‘CIO Yes or No’, which is a thorough appraisal of the advantages and disadvantages of each. The logic here is that some factors may be more important to some organisations than to others. For instance, an organisation that needs to incorporate quickly might be better off becoming a company because the process of registration is quicker; but this might not be an issue for others. To give another example, a company’s register of its members must be open to the public, CIOs’ registers don’t have to be. The ability to borrow may also be a critical factor in favour of a company too. Sandy’s article summarises the differences between the two structures broken down into key factors and it indicates at what point these factors might be important or even critical to your decision. When we’ve supported other groups with choosing, we’ve gone through this to help them relate each factor to their own situation and hopefully that helps them to make an informed choice.

If you would like to arrange for a one-to-one meeting to help you consider your options, or if you would like help with developing your documents and registering your organisation, please feel free to get in touch with us on 01384 573381.

 

 

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