How to set up a charitable nonprofit organisation

Charitable non-profit organisations are exactly what they sound like: they’re organisations that don’t make any money for directors, members or shareholders.

Instead, any profit they turn over either goes to a charitable cause or is invested back into the business.

There are many types of non-profit organisation, and setting one up can be a little complicated. The legal steps can be quite different depending on the sort of organisation you’re looking to start.

Broadly speaking, setting up a charitable non-profit organisation will require you to:

1. Define your organisation’s purpose.
2. Choose the structure of your organisation.
3. Create a governing document.
4. Recruit trustees.
5. Register your organisation (if applicable).
6. Begin fundraising.

If you wanted help, our professional business solicitors could guide you through the process, to ensure you have the right regulations in place. 

What types of non-profit organisations are there?

Non-profit organisations tend to fall into two categories: charitable organisations and social enterprises.

The main difference is charities can receive tax relief, government grants and additional funding because they are designed to benefit the public.

Charitable organisations

Charitable non-profit organisations donate their profits to altruistic causes. The different legal formats of these organisations are:

• Unincorporated associations
• Charitable trusts
• Charitable incorporated organisations (CIOs)
• Charitable companies

The main differences depend on whether the charity has a ‘legal personality’. If it does, contracts and property can be controlled in the charity’s name. If not, the individuals who run the charity are legally responsible.

 

Type of charity	Run by	‘Legal personality’	Registered with Charity Commission?	Characteristics of charity
Unincorporated association	Whoever the members choose	No	Only if income is over £5,000 per year	Informal, such as a community group or club
Charitable trust	Appointed unpaid trustees	No	Only if income is over £5,000 per year	May be a grant-giving charity
Charitable incorporated organisation (CIO)	Appointed or elected trustees	Yes	Yes	Charity with employees and property
Charitable company	Body of volunteer directors	Yes	Yes, also registered with Companies House	Large charitable organisation with employees, property and assets

Social enterprises

Social enterprises are similar in nature to charitable non-profit organisations, but they work differently. They offer services or goods and invest the profit they make back into the business. They are either controlled by a selection of investors, a collective of employees, the owners of the company, the customers, or a group of community shareholders. Examples of social enterprises include:

• Limited companies
• Co-operatives
• Community interest companies (CICs)
• Sole trader
• Business partnership

Setting these up will vary depending on the scale and the circumstances. If you’re planning on setting up a social enterprise, it’s best to seek professional advice, to ensure you have the correct legislation in place.

How to set up a charitable non-profit organisation

Before setting up a charity, it’s important to understand the responsibilities and limitations that are involved. Your organisation must have entirely charitable purposes, remain unbiased about certain political activities and be transparent when reporting on activity and finances.

Visit the HMRC website for more information about what you should know before setting up a charity.  

Define your charity’s purpose

Once you’re confident about your charity’s legitimacy and purpose, you should put it into words and create a core definition for your organisation. Include details about your work and your goals, outlining:

• What your charity aims to do.
• Where that will happen.
• How it will be accomplished.
• Who will be involved.

Choose the structure of your charity

Knowing the purpose of your charity should help you decide which legal structure it best suits. Think about who will carry out the activities, whether it will have a ‘legal personality’ and, if not, who will be responsible for the legal aspects of it.

Create a governing document

You’ll need to outline the official regulations for your charity, to clarify the way the organisation will be run. Generally, this should include:

• The name of the charity – learn about official guidance surrounding choosing a name for your charity.
• Its purpose and objectives.
• How it will achieve these objectives.
• Who will be responsible for running it (e.g. trustees and members).
• How many trustees will be appointed and how this will happen.
• How it will be run (e.g. meeting structure).
• If applicable, guidance surrounding assets and employee salaries.
• A changes clause, should anything need to be altered.
• Instructions on how to close the charity.

Depending on an organisation’s circumstances, the governing document will need to include a range of terms. Speak to a business solicitor for bespoke guidance about what should be outlined in your charity’s official documents.

Recruit trustees

If you haven’t already done so, you’ll need to find people to take responsibility for deciding how the charity is run. Trustees will oversee the general organisation, management and administration of your charity, to ensure it functions at its best.

Choose trustworthy people who can give a range of insight, such as trustees with financial backgrounds, fundraising experience and management insight. They should be dedicated to maintaining a productive environment that stays true to the charity’s purpose.

Register your organisation (if applicable)

If your organisation is a charitable incorporated organisation (CIO) you’ll need to formally register it with the Charity Commission. For a charitable company, you must register with Companies House as well as the Charity Commission.

If you’re setting up an unincorporated association or a charitable trust you only need to register with the Charity Commission if you expect to earn more than £5,000 a year.

Begin fundraising

Once you have all the official parts in place, you’ll be ready to begin working towards your charity’s true purpose. While raising funds for your cause, make sure you keep your finances in line with legal expectations – all money should be securely held and reported on properly so the organisation stays lawful.

This typically means you’ll need to open a bank account in the charity’s name, and register with the charity commission if the income exceeds £5,000 in a year.

Setting up a non-profit organisation can be a community-minded and noble thing to do, but it’s also a complex process. 

Get in touch for a free review of your requirements, or read about our corporate and commercial law services

 

Note: First4Lawyers offers this information as guidance, not advice. Before taking any action, you should seek professional assistance tailored to your personal circumstances.