Charities, Not-For-Profits & Social Enterprises FAQs

The steps involved in registering a new charity vary depending on the legal structure you choose to adopt. However, as a broad rule, we’d usually estimate a timeframe of between three and six months.

In some cases, registration may be achieved much more quickly. 

This may happen where:

• a new incorporated charity is being set up to replace an unincorporated charity
• the new charity being registered is only intended to be a grant maker, with very limited operations 
• compelling reasons exist as to why a registration case should be expedited (such as the existence of funding deadlines or the immediate aftermath of a significant event) and the Charity Commission agrees to prioritise the application.

Our team can discuss timescales with you in our initial conversations.

Incorporation is a process through which an existing unincorporated charity comes to be replaced with a new, incorporated charity. The most common examples are unincorporated charitable trusts or associations incorporating as charitable companies limited by guarantee or charitable incorporated organisations (CIOs).

Incorporation is not a step that all unincorporated charities need to take. An unincorporated structure might be entirely appropriate for your charity.

However, if your charity provides services to beneficiaries, enters into contracts, employs staff, owns property and has other operations, there are a range of associated risks that might be more preferably contained in an incorporated structure and a manner that affords better protection to the trustees against the risk of personal liability.

If your charity is unincorporated and your trustees are considering whether incorporation is right for them, we can advise on your options.

Community Interest Companies (CICs) are a special type of limited company. They exist to benefit the community, rather than private shareholders. CICs contain particular provisions in their governing documents that reflect their community purpose and restrict how the company’s assets can be distributed.

CICs tend to be the ‘go to’ legal structure for social enterprises — businesses that trade for a social or environmental purpose. However, it’s important to recognise that CICs aren’t (and can’t be) charities as they allow for a degree of private gain that goes beyond what’s permissible in charities.

While some charities might describe themselves as ‘social enterprises’, it’s important to understand the fundamental differences and legal status of third-sector organisations — both at the point of registering a new organisation and as your organisation develops and works with third parties. 

Get in touch with our team to discuss your available options.

A charity with a separate, wholly-owned trading subsidiary could legitimately describe itself as forming part of a group. However, the term is used more commonly to describe charities that sit as part of more complex collection of inter-related charities and non-charitable subsidiaries.

The establishment of a group structure can be an important method of separating the risks associated with very different forms of charitable activity. For example, some charities run schools and health and social care services — both of which attract very different forms of risk and operate under different regulatory regimes. Separating these risks into distinct yet clearly linked legal entities can neatly isolate the different types of risk from one other, while also presenting a clear governance structure to the different regulatory bodies.

We act for many charities that form part of group structures. In addition to providing full-service, expert legal support, we can work closely with your other professional advisers to ensure the most effective and efficient governance, financial, tax and administrative arrangements.

Regardless of the nature and extent of a partnership arrangement between two (or more) charities, there should usually be some form of written document in place that sets out the terms of what’s agreed and what the parties are working towards.

In some cases, a simple Memorandum of Understanding will suffice. In other cases, a more comprehensive, legally-binding agreement should be negotiated to ensure clarity around each party’s obligations and responsibilities. What is advisable will depend on the circumstances of each particular case.

We work with many charities with partnership working arrangements and can advise on the most appropriate manner of documenting them.

While the way in which merger discussions should develop depends on how they commence, in our experience most mergers start slowly and informally before generating seriousness and pace over a relatively short period of time.

If your charity is in conversations with a potential merger partner, it’s sensible to agree on a plan as to how discussions will develop in the short term. Confidentiality is an important point to agree on at an early stage, given that any eventual merger will affect beneficiaries, staff and other third parties. Where appropriate, establishing a merger committee is a sensible step to ensure that the charity does not lose sight of its day-to-day activities and operational priorities.

While merging organisations may operate very differently in terms of their service delivery, real differences in mission, vision and culture can be difficult to overcome.

Operational, legal and financial due diligence ordinarily follows, involving a ‘deep dive’ — or ‘deep-ish dive’, depending on the circumstances and timescales — into the inner workings of each organisation. This provides an understanding of asset bases, liabilities and other factors that will come to be relevant to the decision on whether to proceed. 

If you’re exploring a potential merger and wish to start formalising discussions, talk to our team.

This completely depends on the charity and the types of activities you carry out. 

However, policies that tend to be universally applicable to all registered charities are:

• Financial controls policy.
• Social media policy.
• Conflict of interest policy.
• Safeguarding policy.
• Bullying and harassment policy.
• Complaints policy.
• Health and safety policy.

Often, a charity will engage and pay a third-party service provider or fundraising agency to act as its agent in raising funds from the public on its behalf.

By way of example, such professional fundraisers may carry out door-to-door collections, train street fundraisers or undertake telephone marketing services on behalf of the charity.

This completely depends on what your governing document states. 

Some charities may require permission from the Commission to edit certain clauses in their governing document, while others will be able to make that same amendment without the Commission’s consent. 

However, there are certain amendments for all charities that require the prior written consent of the Commission, known as regulated amendments. These are amendments to the trustee benefit clause, objects clause or dissolution clause.

Permanent endowment is any property or asset that your charity must keep for the benefit of your charity in the long term. 

A common example comes in the form of a donation of a sum of money that’s intended to be invested to produce an income. The capital sum of the permanent endowment must therefore not be spent, as it’s held on trust for the benefit of the charity over a long period.

Permanent endowment isn’t always strictly ‘permanent’ and could be freed from restrictions in certain circumstances. 

To determine the feasibility of freeing permanent endowment, trustees should seek legal advice.

There’s a complex definition of a commercial participator in the Charities Act 1992. To summarise, it’s any company that — as part of its everyday business — engages in a promotional venture that a charity will benefit from. 

Charities often enter into this type of arrangement to allow the commercial participator to use the charity's name and logo to promote its own products or services. In return, the charity receives a proportion of the income or some other benefit that’s generated from the promotion of those products. 

For example, Innocent Drinks gives 25p to Age UK for every ‘behatted bottle’ it sells. In this example, Innocent Drinks is the commercial participator that acts on behalf of the charity Age UK. 

Misconduct and mismanagement aren’t defined in the Charities Act. This means that there’s no legal definition of the terms. 

However, the Charity Commission has outlined how it views the terms in its guidance on statutory inquiries:

• “Misconduct includes any act (or failure to act) that the person committing it knew (or ought to have known) was criminal, unlawful or improper”.
• “Mismanagement includes any act (or failure to act) that may cause charitable resources to be misused or the people who benefit from the charity to be put at risk. A charity’s reputation may be regarded as the property or resources of the charity”.

An Official Warning can be issued to a charity or charity trustee that the Commission considers has committed a breach of trust or duty (or other misconduct or mismanagement). 

A relatively new power that was issued to the Charity Commission in the Charities (Protection and Social Investment) Act 2016, an Official Warning intends to notify trustees that a breach of trust or misconduct or mismanagement has occurred. It ensures that the trustees know how to rectify the situation and avoid a future repetition. 

Official Warnings are often published by the Charity Commission. This means that the regulatory concerns of the Commission can be viewed by members of the public.

A statutory inquiry is a legal power that enables the Charity Commission to use its information-gathering capabilities to formally investigate matters of regulatory concern within a charity. 

The Commission will establish the facts of a case and identify the extent (if any) of misconduct or mismanagement in the administration of the charity. 

By opening a statutory inquiry, the Commission can also make use of its protective powers. 

These include: 

• Suspending a trustee, charity trustee, officer, agent or employee of the charity from their office or employment while the Commission considers removing or disqualifying them from that position.
• Vesting charity property in the Official Custodian for Charities.
• Preventing a person who holds charity property from parting with it without the Commission’s consent. This is sometimes referred to as a ‘freezing order’ as it can be used to freeze a bank account. 
• Preventing people from repaying any type of debt to a charity without the Commission’s consent. 
• Restricting the transactions that a charity can enter into — or the nature or amount of payments that can be made — without the Commission’s consent. 
• Appointing an interim manager to look after the affairs of the charity, alongside (or instead of) the trustees. 
• Suspending a trustee, charity trustee, officer, agent or employee from membership of a charity when they’re suspended from office or employment and try to use their membership to become reinstated. 
• Directing a person not to take a specified action that would be considered misconduct or mismanagement. 
• Issuing a warning to a trustee or charity for a breach of trust or duty (or other misconduct or mismanagement).