Establishing a social enterprise: the options
In many ways, starting a nonprofit is just like starting a business – in both cases, you’ll need to decide on a business structure in order to form a ‘social enterprise’ which helps individuals and/or communities. If you’re looking to establish a business that has charitable or community-based objectives, you have a couple of options for your structure.
You can set up as a limited company, a co-operative, a business partnership or as a charity. For the purposes of this article, we’ll be looking at the last of these options, but if you’d like to find out more about social enterprises which don’t fall under the category of charity, check out this page.
In this guide, we’ll run through the step-by-step guide for setting up a charity in the UK, establish the best practices for raising your first funds and then cover all the technicalities. If you’re looking to start a charity in Northern Ireland or Scotland, check out our other article here!
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Starting a charity: a step-by-step guide
This gets a little complex, but if you’re looking to start a nonprofit in the UK, this is probably your best option. There are six steps to setting up a charity, so brace yourself:
1. Finding trustees for your charity.
You’ll usually need at least three trustees to start a charity in the UK, so it’s time to start looking. Charity trustees are people who serve on a charity’s governing board, making up the group which will decide how to run the charity once it is established.
They’re normally responsible for the control, administration and management of your charity, so a trustee should be expected to run your charity with as much care as they would take with their own affairs. You should aim to choose trustees with the relevant skills and experience to take care of your charity. GOV.UK’s great recruitment, appointment and induction process for new charity trustees can be found here and more information about trustee recruitment in general is also available.
2. Make sure your charity has a ‘charitable purpose for the public benefit.’
As an essential part of your application to GOV.UK, you will need to specify your charity’s ‘charitable purpose’, so it’s worth double-checking that you have a clear definition of your aims and purpose beforehand. Things that count as a charitable purpose include contributions to education, health, the arts and relieving poverty. Find out more about what does and does not count as a charitable purpose here.
3. Choose a name for your charity.
This step is a lot trickier than might first appear. Your charity’s name can’t be too similar or the same as the name of a pre-existing charity unless you can prove you need to use it, so try to use words that are non-offensive, straightforward and free from copyright laws.
It’s also a great idea to check out domain names to make sure you can secure the one you want at this stage. If you have a great name but all of its online variations are already taken, it might be worth rethinking what to call your charity.
All in all, we’d recommend choosing something as punchy and memorable as possible – simplicity is often the best way to achieve this. Find out more about the rules for choosing a name for your charity here.
4. Choose a structure for your charity.
Choosing a structure for your charity affects things like who runs the charity, how it is run and what the charity itself can and cannot do. In general, there are four common charity structures:
– the charitable company
– the charitable incorporated organisation (CIO)
– the charitable trust
– and the unincorporated charitable association.
It’s probably easiest to break them down in order:
a) The charitable company is a ‘limited by guarantee’ company. The trustees for this kind of company have limited or no liability for the charitable company’s debts or liabilities. Defining a ‘limited by guarantee’ company is quite tricky, so we’ve put a section explaining that below: check it out for a more in-depth analysis of this option.
If you choose one of these top three structures, the law considers your charity to be a person in much the same way that an individual is. This grants your charity the legal capacity to do many things in its own name that another person could do. For example, this allows you to employ paid staff, deliver charitable services under a contractual agreement, enter into a commercial contracts in its own name and own freehold or leasehold land/property. This also applies for charitable incorporated organisations and trusts, but not for unincorporated charitable associations. If you want your charity to have these legal capacities, make sure you choose one of the top three options listed here.
You can apply to register as a charitable company online with the Companies House. If you like things a little more old school, you can also register by post with this form, but be warned that it costs an extra £40 and will take longer.
b) A charitable incorporated organisation, or CIO, is an incorporated structure designed with charities in mind. Just like charitable companies, trustees have limited or no liability for the debts and liabilities of a CIO.
In general, you should set up a CIO if you want your charity to be a corporate body with a wider membership, including members who vote on what the charity does and how besides the trustees. This is a great guide on which structure to choose when it comes to membership, incorporation and the legal rights of your charity. If a CIO is a good fit for you, you can register with the Charity Commission here.
c) A charitable trust is a way for a group of trustees to manage assets such as money, buildings or land. If you are managing large investments with the aim of repurposing them for the good of the public, this is probably the best choice for you. You can find out more about this option here.
d) An unincorporated charitable association is a simpler way for a group of volunteers to establish and maintain a charity for a common purpose. It’s worth noting, however, that this kind of charity can’t employ staff or own their own premises.
If you’d like some more help choosing between structures, this is a great GOV.UK page explaining exactly what factors should help govern your decision!
5. Create a ‘governing document.’
A ‘governing document’ is basically a rulebook for your charity which explains how your charity is run. Your governing document allows trustees and other parties to find out about your charity’s purpose, who runs it and how, how trustees are appointed, rules about their expenses and payments, and how to close the charity down.
The kind of document you need depends on the structure you chose from the options above, so check out the following links in the order that they appear to find out exactly how to write your governing document and which model governing document you’ll need here.
6. Register your charity (if you earn over £5,000 or you’re a CIO).
Last but certainly not least, you’ll need to register your charity if your annual income is over £5,000 or if you’ve set up as a charitable incorporated organisation (CIO). When registering, you’ll be asked about your charitable purpose, how you benefit the public and for proof that your annual income is above £5,000 unless you’re a CIO.
You’ll also need to have your charity’s name, bank or building society details, most recent accounts, trustees’ names, dates of birth and contact details and a copy of your charity’s governing document in a PDF format. It’s quite a long list, so make sure you’re prepared.
What exactly does it mean to be ‘limited by guarantee’?
When it comes to starting a charity, you will most likely end up founding a company which is ‘limited by guarantee’. It’s probably easiest to understand what this means by comparing ‘limited by guarantee’ companies to their closest counterparts, companies which are ‘limited by shares.’
Companies which are ‘limited by shares’ are usually established with the aim of making a profit. This type of company is legally separate from the people who run it and has separate finances from your personal ones. On top of this, ‘limited by shares’ companies usually have shareholders and can keep the profits they make after paying tax.
‘Limited by guarantee’ companies, by contrast, are usually not for profit, which is exactly what you’re looking for if you’re reading this article! A ‘limited by guarantee’ company is also legally separate from the people who run it and has finances independent of personal accounts. The main difference, however, lies in its members, who act as guarantors. Alongside this, ‘limited by guarantee’ companies reinvest the profit they make back into the company.
Essentially, being ‘limited by guarantee’ means that there are no shares in the company. Instead, the members of a company limited by guarantee are bound by a guarantee to pay the company’s debts up to a fix sum, which is usually £1. To find out more about the difference between the two, we’d recommend checking out this GOV.UK page for further information.
Starting a charity: Raising funds
Fundraising can seem like an endless task when it comes to starting a charity, but your efforts will always be much more successful if you know exactly what you are raising the money for and have a clear projection of how much you need.
Make sure to plan your fundraising by making choices about what you and your trustees actually want to do and then working out how much these activities will cost – it’s not much use suggesting grand plans which no one is really willing to put the time and legwork in, so work around the capacities and time available to you and your trustees.
This should help you decide on how to best raise the money and also prevent you from spending time and money on things you don’t really need.
When it comes to strategy, there are a few stand out rules which help in every situation. Sticking to a budget, fundraising from local businesses, collating ideas in one place and monitoring your results are all good ideas for charities just starting out.
Each time you fundraise, you should be analysing how well your efforts panned out – it is, after all, the only real way to improve! You know what they say: practice really does make perfect.
As a charity, you’ll want to save as much money as possible for spending on your mission and goals, so cutting down unnecessary spending with the help of analytics is a must.
Before you establish your charity, it’s probably best to have some savings set aside for you to start with. Properly managing your incoming and outgoing funds is crucial to your efforts and results in the early stages, so make sure your trustees and staff have the relevant skills and experience for balancing the books. You will also have some additional accounting and legal requirements to consider, so it might be worth seeking professional help.
If you’re looking for more tips on strategy, check out this page on budgeting and fundraising. Their selection of relevant books and links is particularly useful if you’d like to research deeper on your laptop or in the library!
In order to get tax relief, your charity also needs to be recognised by HM Revenue and Customs, so get your application on the way. Find out more about charities and tax here.
This is an essential step for nonprofits looking to apply for the Google Ad Grant, a scheme available to nonprofits with a Google for Nonprofit account. If you’d like to learn more about Google for Nonprofits account, find out how to qualify or discover if you’re eligible.
How can Twenti help?
Setting up a new charity can be a daunting task, especially when it comes to establishing yourself online. Twenti can help with this in a variety of ways – our experts combine digital marketing, SEO techniques and content creation in an effort to continually improve your online presence. We also specialise in nonprofits and start-ups, so if you’d like advice on setting up your charity and its online presence, you can book a free consultation today!
We also offer a free eligibility check to find out whether you would qualify for the Google Ad Grant account – so if you’re considering going down that route get in touch.
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