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Governance

Introduction

If you are thinking of setting up a community group, charity, or social enterprise in the UK, it’s important to understand how organisations are legally structured. The right structure affects who is responsible for debts, how you manage property, and what tax or funding advantages are available. This guide explains the main options in simple terms, including both charitable and non-charitable “body corporate” forms.

A body corporate is a legal entity recognised by law that can enter into contracts, own property, and operate independently of its members. Without this status, individual members could be personally liable for debts or legal issues.

1. Non-Charitable Structures

These structures are often used for community projects or social enterprises that do not register as charities. They allow groups to operate safely, own assets, and manage community projects.

Community Interest Companies (CICs)

A Community Interest Company (CIC) is a limited company designed to benefit the community rather than private individuals. CICs can be limited by guarantee (membership-based) or by shares.

Key features:

  • Can trade and generate income for social purposes.
  • Directors can be paid, unlike in many charities.
  • Must pass a “community interest test” and have an asset lock, which ensures profits and assets are used for community benefit only.
  • Regulated by the CIC Regulator.

Limitations:

  • CICs do not receive the tax benefits or rate relief available to charities, thoughsome local authorities may offer rate relief.

Not-for-Profit Company Limited by Guarantee

This is a company with no shares and a democratic membership structure. Members agree to pay a small guarantee (usually £1-10) if the company gets into financial difficulty.

Key features:

  • Operates not for personal profit.
  • Can trade to fund community purposes.
  • Suitable for groups aiming to register as a charity if:
  • Directors do not receive payment.
  • Objectives are exclusively charitable.
  • Assets are restricted to other charities if the company dissolves.

Industrial and Provident Societies (IPS)

An IPS conducts a trade or business either as a co-operative or for community benefit, registered with the Financial Conduct Authority (FCA) under the 1965 Act.

Community Benefit Societies (BenComs):

  • Run for the wider community, not just members.
  • Profits reinvested in the community.
  • Can raise funds by issuing shares to the public.
  • Charitable BenComs (exempt charities) report to the FCA, not the Charity Commission.
  • Must have an asset lock if charitable.

2. Charitable Structures

Public Benefit Requirement


All charities must show that their activities benefit the public. The Charity Commission highlights two key principles:

  1. Identifiable benefit: The charity must clearly show what benefit it provides and balance it against potential harm.
  2. Benefit to the public or a section of it: Only people connected to the charity’s objectives should benefit, without unreasonable restrictions.

Advantages of Charitable Status

        • Tax relief on income, corporation tax, capital gains, and inheritance.
        • Up to 80% rates relief on property used for charitable purposes.
        • Special VAT rules in some cases.
        • Easier fundraising from the public, trusts, and local authorities.
        • Ability to formally represent community needs.
        • Free advice and guidance from the Charity Commission.

A Charitable Company

A Charitable Company is a company limited by guarantee that meets Charity Commission requirements.

Key features:

  • Registered with both Companies House and the Charity Commission.
  • Must have voluntary directors, charitable objectives, and an asset lock.
  • Can trade to generate income for charitable purposes.
  • Recommended to use model governing documents from the Charity Commission.

Charitable Incorporated Organisation (CIO)

A CIO is a simpler, fully incorporated charity structure.

Key features:

  • Only registers with the Charity Commission.
  • Trustees have limited liability.
  • Can operate once registered.
  • Two forms: membership-based (recommended for community organisations) or trustee-only.
  • Registration takes about 40 days if using model documents.

Other Charitable Structures

  • Charitable Trusts: Set up by a Trust Deed, usually to manage assets or funds. Trustees are self-selecting.
  • Excepted Charities: Not registered with the Charity Commission (e.g., certain churches, Scout groups).
  • Exempt Charities: Regulated elsewhere (e.g., universities, some museums, Industrial and Provident Societies).

Summary

Choosing the right structure for your community or third sector organisation is critical.

Non-charitable structures like CICs and BenComs allow flexibility and community focus, while charitable structures provide tax relief, funding opportunities, and public trust.

Using model governing documents from regulators simplifies registration and ensures compliance.

For further guidance: