Charity | Wellers Law Group

If you’re an international religious organisation looking to establish a formalised legal charity in the UK, there are several structures you can adopt to carry out your philanthropic activities. You may wish to bring overseas workers to support your endeavours, but it is crucial to establish your charity and obtain your charity number before considering visa applications.

The three primary structures to consider are trusts, charitable companies, and charitable incorporated organisations (CIOs).

Trusts

Trusts are a well-known but often considered an archaic structure. Trusts are unincorporated, meaning that the trustees of the charity have personal liability and can be sued personally. To register with the Charity Commission, a trust needs a minimum income of £5,000, which is standard for most charity structures.

It is good to be aware of trusts, but they are generally not recommended due to the personal liability involved.

Charitable Companies

A charitable company is established as both a company and a charity. It is considered established from the point of registration with Companies House, which can take around 72 hours. This means you don’t have to wait for registration with the Charity Commission to begin charitable activities in the UK, which can take up to six months. This is particularly beneficial if you wish to purchase property in the UK quickly. Like trusts, a charitable company requires a minimum income of £5,000 to register with the Charity Commission.

Unlike trusts, charitable companies are incorporated structures, limiting trustee liability, meaning trustees cannot be personally sued. Another significant advantage is that charitable companies are generally recognised internationally, which can facilitate dealings with foreign banks and reduce the need for extensive explanations. This structure can also be advantageous if you need to borrow money, for example, to purchase property, as banks often prefer charitable companies over CIOs, although this preference is changing.

The primary disadvantages of charitable companies are that they are subject to both the Companies Act and the Charities Act, and the trustees are also directors. This dual responsibility requires some education to ensure compliance with both sets of regulations, including dual reporting.

Charitable Incorporated Organisation (CIO)

The Charities Commission introduced the CIO structure because many people found the concept of a charitable company too complex. CIOs are incorporated structures that limit trustee liability, meaning that any legal claims are limited to the assets within the CIO.

There is no income threshold for registration with the Charity Commission, so you do not need a pledge letter from your parent charity. However, you must wait for the Charity Commission to grant charitable status and provide a charity number before commencing philanthropic work and bringing overseas workers to the UK.

A key advantage of a CIO is that you only need to file annual reports with the Charity Commission, unlike a charitable company which requires dual reporting. CIOs are more suitable for smaller organisations not looking to purchase property immediately and are comfortable with the wait for Charity Commission registration.

It is essential to remember that before bringing overseas religious workers to support your charitable activities, you must have chosen your charity structure and received your charity number from the Charity Commission.

If you want to set up a charity in the UK to facilitate your philanthropic work, get in touch with Peter Spencer today by email at peter.spencer@wellerslawgroup.com.

If your charity provides grants to non-charitable organisations, or intends to do so in the future, this article is for you.

Many charities pursue their purpose by providing grants to non-charitable organisations to fund certain programmes or projects. However, not all charities consider or manage the risks of doing so. What happens if the organisation doesn’t use the grant funding properly? What happens if the organisation is defunct or corrupt? What if a scandal effects the organisation and your charity is tied to it? These risks exist and it is the role and responsibility of the trustees to ensure these risks are mitigated.

Important Differences between Charities & Non-Charitable Organisations

To understand the risks associated with providing grants to non-charitable organisations, it is first necessary to understand the important differences between charities and non-charitable organisations.

Unlike charities, non-charitable organisations are not restricted by charitable purposes or public benefit. As a result, non-charitable organisations have the ability to do a lot of things that charities cannot. For example, they can:

pay dividends to their shareholders;
provide private benefit to stakeholders; and
undertake activities that are aimed at non-charitable purposes.

On the other hand, charities are required to carry out activities in line with their charitable purpose for the public benefit. As a consequence, when providing grant funding, charities need to ensure the grant will only be used by non-charitable organisations to fund projects or activities that are intended to further the charity’s purpose for a public benefit. Significantly, if grant funding is used inappropriately by a non-charitable organisation, there is a risk that the charity might lose its charitable status. Therefore, it is crucial that charities and their trustees take steps to mitigate these risks.

We have summarised the key ways to do so below.

Due Diligence

Before providing a non-charitable organisation with a grant, you want to make sure you have undertaken sufficient due diligence on the organisation. Depending on the circumstances, you may want to look at:

The nature of the organisation (e.g. is it incorporated, who are its directors, where does it operate, what does its ordinary business entail).
The financial stability of the organisation.
Whether the organisation has undertaken similar projects or programmes in the past, and if so, whether they have been successful.
The organisation’s mission statement and values.
The organisation’s reputation.
How decisions within the organisation are made.

There are many advantages to undertaking due diligence. It should help assure you and your co-trustees that:

The organisation is genuine, reliable and competent to carry out the project or activity being funded.
The organisation is suitable for your charity to work with and fund.
You will be able to check and confirm that your charity’s funds have been properly used in line with its purposes.

Overall, the trustees of a charity need to be satisfied that awarding the grant is in the best interests of the charity. Due diligence provides an opportunity to expose any potential issues that trustees might have been otherwise unaware of. In this way, it is an extremely important undertaking as if the due diligence reveals concerns, the trustees may decide against awarding the grant to that specific organisation due to it not being in the charity’s best interests.

Trustees should ensure they record the findings of their due diligence and the reasons for choosing a particular organisation because if something goes wrong, the trustees may need to be able to explain and justify the decisions they made.

Charities should consider whether a policy should be adopted that outlines the due diligence requirements, especially if the charity often provides grants to organisations.

Grant Agreement

Once your charity has identified a suitable recipient of the grant, the next step is ensuring the grant will be governed by an appropriate agreement. This agreement should be in writing and should contain (amongst other things):

A requirement for the organisation to only use the grant in specific ways, which must be in line with your charity’s purpose for the public benefit.
A requirement for the organisation to account for how the funds have been used and report on the progress of the project/program.
A requirement for the grant funds to be returned to the charity if the organisation fails to comply with the requirements of the agreement.

Failure to formalise a grant agreement can lead to misunderstandings around how the grant should be used, and may lead to the funding being misappropriated for non-charitable purposes. Therefore, it is of great importance that charities have written grant agreements that are properly executed by both the charity and the organisation.

Moreover, it is of importance to have a well-drafted grant agreement in place as the Charity Commission may request to see it to verify that funds are being used appropriately.

Monitoring

Once a grant is provided, monitoring should then take place as charities need to ensure that the grant is used for the purposes specified in the grant agreement. Monitoring can take a variety of forms and depending on the requirements in the grant agreement, may include (amongst other things):

The organisation providing receipts showing how the grant was spent.
The organisation providing photographic evidence of the project or programme funded by the grant.
The organisation providing a report describing how the project or programme achieved the specific purpose.
The charity visiting the organisation’s premises to witness the project or programme.

It is important for charities to carry out monitoring both to ensure legal compliance with their charitable purpose, but also to maintain the confidence of their donors.

Next steps

If your charity needs help with its grant-giving policies, procedures or agreements, please reach out to our specialist charities team. We can help in a variety of ways, including by drafting your grant-related policies, drafting your due-diligence procedures, and preparing a template or bespoke grant agreement.

Please contact Katherine Pipe on kate.pipe@wellerslawgroup.com or call 020 3831 2666 to discuss your charity’s requiements.

Practice Area: Charity

Charity Structures for International Religious Organisations