If you’re planning to start a charity, it’s important to follow the correct procedure to avoid any legal complications. Darren Davies, partner at Hutchinson Thomas, outlines the key legal considerations when founding a charity.
If you’re inspired to really make a difference to the lives of people, animals or the planet, you’ve almost certainly made plenty of donations to charity. But what if you want to go a big step further and found a new charity? Doing this could enable you to direct funds and support exactly where you feel they are most needed, with full knowledge of how they are being spent. Founding a charity may sound daunting, but it can be immensely exciting and satisfying, especially as you bring other people on board who share your vision and commitment.
In this article, we will outline the steps you need to take on order to create a new charity, the key legal considerations along the way, and how we can help.
- Decide on your charitable purpose. For this vital first step you’ll need to decide on the objectives of your charity. Who will it help? What does it set out to achieve? How will you achieve this? We can help you gain clarity about these points and create a document that encapsulates all of this.
- Decide on a name for your charity. It’s important that you don’t pick a name that is already in use by an existing charity. You must also make sure you don’t use any words you don’t have permission to use – a trademark, for example. You must not use offensive words, and the name must not be misleading. There are other restrictions and rules that have to be considered, which is where we come in. We can run the necessary checks to make sure you have chosen a suitable name, and we can register it for you. If you want to use the word ‘charity’, ‘charities’ or ‘charitable’ in your charity’s name and you register a company name with Companies House, you’ll need approval from the Charity Commission. We can arrange this for you.
- Decide on the structure of your charity. At this stage the help of a solicitor is invaluable. We can advise you on whether your charity should have a corporate structure, and help you decide whether it will be run solely by trustees or have a wider membership who can take part in making decisions. The most common incorporated structure for charities is a Charitable Incorporated Organisation (CIO). This has a corporate body and a wider membership, including voting members. Alternatively, you could set up a charitable company – a corporate body with or without a wider membership. If you want to create a corporate body run solely by the trustees with no voting members, you’ll need to set up a foundation CIO. Another option is to set up your charity without a corporate structure and with or without wider membership. We can advise you on the positive and negative points of all these options and help you choose the most suitable structure.
- Before you can recruit trustees, you’ll need us to create a governing document for you. This will set out the maximum and minimum numbers of trustees your charity will have, how they will be appointed, and how long they can stay in office.
- Next, you need to recruit trustees for your charity. Trustees are volunteers who play a vital role in making sure the charity has a clear vision and strategy, and that its work is in line with that strategy. First, you’ll need to decide where to advertise for trustees and how to conduct the recruitment process. Here are two important legal factors that you should consider:
You need to be sure that your candidates are not automatically disqualified from being trustees. We can advise you on this and carry out the necessary checks. We can also obtain a declaration from any prospective trustees that they are not disqualified. If you fail to make proper checks before the appointment, you may be deemed to have acted improperly, so legal advice at this stage can save you a lot of trouble in the long run.
- Conflicts of interest
You need to ensure that no potential trustee has a conflict of interest – for example, if a business they own is awarded contracts by the charity, they could be seen to be benefitting financially from their involvement with your charity. It’s better to pre-empt any conflicts of interest rather than to discover them later. Potential trustees should be asked to declare any potential conflicts of interest. If a conflict is only like to occur occasionally, you may decide it’s still acceptable to appoint them as trustees. We can offer advice to help you make that decision.
As situations can change, it’s good practice to get your trustees to submit an annual declaration of any potential conflicts of interest. We can arrange this for you, and we can also make sure your trustees comply with the Trustees Act.
- Register your charity. This is required if your annual income is over £5,000 or if you set up a charitable incorporated organisation (CIO). We can do this for you.
Once we have completed these steps your charity is good to go. Good luck – you’re about to do something amazing. Don’t forget, if you have any questions about founding a charity, you can get in touch with the team at Hutchinson Thomas for support and guidance.