You’ve decided to set up a charity – and now you wonder what to do next. Well, one oft he first questions on the list would be what structure to use. In a nutshell, there are four structures you can chose from: 1. Trust 2. Unincorporated Association 3. Company Limited by Guarantee 4. CIO (Charitable Incorporated Organisation) These four categories can be grouped into „Unincorporated“ (1-2) and „Incorporated“ (3-4). Incorporated entities are a legal entity in their own right, whereas unincorporated entities aren‘t. There’s no ultimate answer to the question which structure is best. It depends – on your circumstances, income, plans, and even your risk-aversion. Trust This is by and large the simplest structure and quite suitable for small charities. The trustees run the charity and make all the decisions – nobody else is involved in the decision-making process. This set-up is particularly suitable for small, grant-making charities which don’t engage in any other business activities. In a nutshell, if your charity is simple and low-risk, a trust may well be the structure to go for. The administrative side of things is relatively simple and the charity is solely regulated by the Charities Commission, so you don’t have to worry about complying with Company legislation. One thing to keep in mind when running a trust is the fact that a trust is not a legal person in itself, so liability lies with the trustees, in other words – it’s their neck on the block! Unincorporated Association This might be the right structure for you if your charity has what is called a „wider membership“, that is, if people other than just the trustees make decisions. Else it is also unincorporated, so the administrative side of things is relatively simple, and it is suitable for smaller, low-risk charities. Again, it is not a legal person in itself, so it is not protected by limited liability. Company Limited By Guarantee For years, this was the only option for trustees who wanted to protect themselves against personal liability. The main advantage of running a company charity is its limited liability. The company is a separate legal person, so it can own land and buildings, buy and sell assets or employ staff in its own name. The trustees' liability is limited to a certain amount, usually £1 or £10. Some donors, grant or other finance providers may also prefer to work together with companies, but in how far this really makes much of a difference for smaller charities is an entirely different question and needs to be assessed on a case-by-case basis. The main disadvantage of running a Ltd Charity is bureaucracy. Ltd Charities are more complex and the administrative burden to run one is much higher than for unincorporated structures (or CIOs, see below). If you are running a Ltd Charity, the charity will have to comply with the Charities Act AND the Companies Act, so the accounts will generally be a bit more complex and have a bit more legal terminology in them. It also means that more documents need to be filed with Companies House, and there’s the risk of late filing penalties. Finally, a company charity must submit „accruals accounts“. They are more complex and formal than „receipts and payment accounts“ which are permitted for non-corporate charities and CIOs up to an income threshold of £250,000. As an accountant, I don’t promote the use of „receipts and payments“ and would only recommend them for very small charities, but that’s a whole new topic for another post. CIO (Charitable Incorporated Organisation) Introduced in 2013, CIOs appear to have proved quite popular, and understandably so – they combine the main advantage of a company charity (limited liability) with the main advantage or an unincorporated charity (relative simplicity). Like unincorporated charities, CIOs only register with the Charities Commission and are not governed by Company Law, which means less hassle. Yet, they are a legal entity in their own right and can be set up with or without a wider membership in mind. CIOs only file their accounts with the Charities Commission – but must do so regardless of size. Other charities only can (and indeed must) register if their income exceeds £5,000. It could be argued that this is a two-edged sword, because CIOs must submit accounts with the Charities Commission even if their income in any given year is below £25,000 (other charities don’t have to do this, but bear in mind that Ltd Charities must file accounts with Companies House regardless of size). So, if CIOs are so great, why aren’t all charities CIOs nowadays? In fact, a lot of new charities are! But it certainly isn‘t the right structure for everyone. To start with, you might be running a charity which was set up prior to 2013, with established processes and procedures, and converting from a Limited Company or Trust to a CIO might simply not be worth the cost and effort. The old rule applies: if it ain’t broke, don’t fix it! There are also some disadvantages to CIOs compared to Ltd companies, but how much they matter to small charities in real life is a completely different matter. One of the more significant disadvantages is that a CIO only exists for as long as it is registered with the Charities Commission. If it loses its registration, it ceases to exist. If a Limited Company loses its registration, it does not cease to exist as it is still registered with Companies House! But then, ask yourself the question, how likely is it that a well-run charity loses its registration? In addition to this, CIOs may find it more difficult to borrow money from banks, because charges can’t be registered with the Charities Commission (only with Companies House). Again , in how far this is relevant for small charities that don’t depend much on third-party loan finance is another matter. Also, some charities (for example exempt charities) cannot be CIOs. But exempt charities are quite a niche area. Some argue that one drawback of of a CIO is the fact that it is a relatively new structure and the public may not be very familiar with it. I don’t believe in this argument for two reasons: (1) CIOs have been around for 7 years – they can hardly be called new any more. (2) How many members of the general public would care whether your charity is a CIO, Ltd or trust as long as you are registered with the Charity Commission? Arguably grant providers might, but they operate in the industry, so should be familiar with the setup. So in summary, there is no perfect, one-size-fits-all approach, the right very much depends on the trustees' own preferences and the charity's circumstances! Get in touch if you would like to discuss this topic further … getintouch@k-vs.co.uk