Charities have to adapt and advance quickly to changes within the sector. Many will consider changing their current governance and legal structures as a way to better improve the practises and allow flexibility within the scope of their governing document. But should charities be considering a structural change to benefit the organisation?
Improving public trust and revolutionising the charity sector is at the top of the government’s agenda, and charity trustees and executives are now taking proactive steps to ensure that they are operating at an adequate standard. A recent report by New Philanthropy Capital, “Charities taking charge: Transforming to face the changing world” expressed that 69% of charity executives had discussed changing their governance structure whilst 36% had made the change. More and more charities are reviewing their legal model as a response to the changing demands of the sector.
Why change my model?
Some charities have been around for many years and a restructure can facilitate growth and allow them to better meet their current aims, objectives and strategies. Most organisations will change their legal structure as their current model restricts them from undergoing certain activities. Depending on an organisations structure, changing your model can allow you to:
- Deliver services and offerings under charity contracts (unincorporated charities cannot enter into contracts)
- Reduce financial risk: Incorporated charities are able to provide more protection for trustees who act in the best interests of the organisation
- Register property: depending on the structure, charities will be able to register a property under the charity as opposed to their name
But how is this done?
Upon forming the charity, the legal structure would have been defined in the organisation’s governing document. This will ultimately decide how a charity is run, operated and the flexibility it has. There are four main legal structures a charity can opt for:
- Unincorporated Association: An unincorporated association is a based on a membership model. It can be whatever its members want it to be, and carry out whatever activity you choose. It is the easiest, quickest and cheapest way for a charity to be set up.
- Charity Incorporated Organisations (CIO): CIOs are a legal entity that can enter into contracts, buy or lease property, and employ people. The trustees/ and board also benefit from limited liability.
- Association CIOs– suitable for groups that have a wider membership who have voting rights.
- Foundation CIOs – run solely by its trustees and doesn’t have voting members.
- Charity Company: A charitable company works in the same way as a limited company but has charitable aims. It is an incorporated organisation like the above which means that it has a legal identity separate from its members and trustees have limited liability.
- Trusts: A charity trust is run by a small group of trustees who have the manage money or assets for a charitable purpose
How to change?
Changing the structure of your charity can be a complex and extensive task especially for charities that have ‘permanent endowment’ – where money and/or property are meant to stay in possession of that charity forever. This is because changing your legal structure means setting up a new charity where assets and liabilities are transferred over too. It is advised that you seek professional financial advice to review how this may impact your organisation financially.
To discuss this article in more detail or if you would like to review your current financial position if you were to change your legal structure, please contact email@example.com.