Establishing a charity fund or organization requires figuring out which legal structure such an entity will have. To be able to do so, the organization is to come up with a document called ‘directive’ which contains guidance about how it should go about performing its activities. The structure it chooses also impacts the manner in which the organization will carry out its activities, namely:
- who is going to be in charge and if the organization is going to have a broader membership;
- if the organization can conclude agreements or hire personnel on its behalf;
- if the owners are going to bear personal responsibility for the organization’s activities.
Charity organizations are divided into three types:
- CIOs (or a charitable incorporated organization);
- charitable companies;
- non-corporate trust associations.
Establishing a charity fund requires it to be properly structured, and that, in turn, hinges on whether it needs to have a corporate structure and/or hire more personnel.
An Incorporated Status and Its Benefits
Having an incorporated status enables charity organizations to engage in a number of activities on their behalf. In particular, they can carry out activities physical entities do, such as:
- hiring personnel that will provide charity services in accordance with commercial contracts
- concluding agreements on its behalf
- enjoying the right of ownership
- leasing land and other kinds of immovable property
Once a charity has acquired a corporate status, its trustees are not held personally responsible for its activities.
If a charity organization is not a corporate body, its board members bear personal liability for the activities it engages in. It is unable to conclude agreements or exercise control over certain investments on behalf of more than one trustees. In their turn, the trustees or members of the board own land plots for the organization in its name.
Charitable Foundations With a Broader Membership
Registering a charitable foundation with a broader membership enables its members to:
- appoint individuals who will be in charge of the charitable foundation and make amendments to the documents governing its activities;
- make it possible for the charitable foundation to wholly or partially engage in its activities thanks to the work of its individual members.
Founding a charitable foundation with a broader membership only makes sense if a sufficient number of members of the general public are able to become its members. Making it possible for any individual to obtain membership in the charitable organization is how it can render itself useful to society.
Foundations with an Incorporated Status: Which Type is More Suitable for an Organization That Has a Broader Membership?
If a charitable organization needs to have an incorporated status and attract a larger number of members, it can become a CIO. For this it needs a document that will govern its activities (i.e. a constitution) and be modelled on that of the Charity Commission.
Alternatively, a corporate entity having or not having a larger number of members can be established. To govern its activities, a document, such as the articles of association, can be used.
Charitable organizations are not allowed to engage in commercial activities. They are also forbidden to make their surplasses available to their stakeholders or individual members.
A charitable company is usually established as a limited liability company, whose assets can only be used for achieving goals that meet the interests of charity work.
A charitable company is to report on its financial status and activities on an annual basis. Setting up a charity fund in the form of a CIO only makes sense if the charity organization is a corporate entity and its sole members are members of the board. If there is no need for a broader membership, it requires having the Constitution as a governing document, using the constitutional basis for a CIO (or being very close to it), registering a CIO, keeping a register of board members and reporting on its financial status to the committee. Should the existing charitable organization desire to become a CIO, it can model itself on a CIO which best suits its main charitable activities.
Establishing a Charitable Foundation Without a Corporate Structure
Setting up a charitable fund without a corporate structure only makes sense if the organization has a need for a broader membership but requires no corporate structure. For instance, it will be relatively small in terms of the size of its assets.
Establishing a charity fund without a broader membership and corporate structure can be achieved by setting up a trust. This option is quite acceptable if an organization is unlikely to hire a large number of employees or engage in business activities.
Thinking of Creating a Charitable Foundation?
IQ Decision UK provides advice with respect to the establishment of an offshore charitable fund, as well as provides legal support at the stage of establishing a fund.