IFKF

Registration of an organisation Charity/Foundation/Not For Profit or Limited Company

Combined organisations

The process of forming a charity or Not For Profit Organisation (NFPO) is very similar to a normal financially trading company, and you can usually find the legal documents prepared to allow you to form a charity online in most major territories.

A charity or NFPO is an organisation set up for exclusively charitable Not For Profit purposes, which carries out activities to achieve these purposes. A charity or NFPO must be set up to help the public and not particular individuals.

Charitable purposes can be broken down into these four main categories: the relief of the poor, handicapped and the aged; the advancement of education; the advancement of religion; other charitable purposes which help and benefit the community or society as a whole.

When looking to start a new charity or a "not for profit" company, you need to form a company Limited By Guarantee, rather than Limited By Shares and then apply to the appropriate authority for approval.

Before continuing, Directors or Trustees of the charity have responsibilities different to that of directors in a trading company and being aware of the requirements will help to determine if a charity or NFPO is the best option.

A charity or NFPO must register with the appropriate authority in its country or region if it to operate and enjoy certain advantageous relief afforded such organisations. Furthermore, it usually has to be registered if any one or more of the following apply:

  • The organisation has permanent endowment (land, buildings, investments or cash which may not be spent by the organisation)
  • The organisation has above a certain total income each year defined by the state
  • The organisation has a ratable occupation of any land, including buildings. This usually applies even where the authority has agreed not to charge any rates, or has reduced the rates.

There are three main types of governing document:

A Simple Constitution or Rules

  • A Trust Deed
  • Memorandum and Articles of Association Template documents for constitutions for unincorporated organisations can normally be found at the local governmental web portals for NFPO’s

This is a list of the most common things that are covered in a constitution. These are generally a few brief, overall statements:

  • Name of the group or organisation
  • The Objects of the group, which can be called aims, objectives, or purposes,
  •  These are generally a few brief, overall statements.
  • The Powers and Authority - this is a description of how the group may achieve its objectives or purposes
  • The Committee structure and Governance - a description of how the management committee is elected or appointed.
  • The Membership - if the group has a membership, a description of how people can join. NB - if the group is set up for the benefit of members the membership must be available to all those who could reasonably benefit.
  • Payment or benefits - if expenses or other costs are made to members or the management committee this should be explained.
  • Closing down - a description of what will be done with any surplus funds or assets if the group is wound up; this is sometimes called dissolution. The Constitution must be signed and dated as agreed and adopted by the committee. Model constitutions, and detailed guidelines for writing them, are usually found on Government web portals for NFPO’s.

There are several ways of setting up a trust, but the basic model needs: a donor or 'settlor', trustees, charitable purposes or objects and a trust deed (which forms the trust's constitution).

The trustees hold and control the trust's assets. They decide how the income and capital (assets) of the trust should be distributed, and make sure that this is in line with the charitable purposes of the trust.

The charitable purposes or objects describe the sort of causes that the trust can support. These are usually worded in quite a general way so the trustees can keep their options open and allow the areas of interest to develop over time. The charitable purposes must be for public benefit within the purposes that the law regards as charitable, which include relieving poverty, promoting education or religion, or helping the community in many other ways. Within the charitable purposes, a trust can help organisations or individuals. It can operate anywhere in the world unless the charitable purposes restrict it to the UK or a more local area.

The trust deed is the constitution of the charitable trust. It sets out the framework within which the trustees must operate. Apart from describing the charitable purposes the trust has been set up for (which can be general), a trust deed will generally describe:

  • the powers and responsibilities of the trustees;
  • how they are appointed and removed;
  • the approach to investment;
  • how the constitution (but usually not the charitable purposes) can be altered; and what will happen in a ‘winding up’ situation

Although, with help, it is relatively easy to set up a charitable trust, it can need some effort both at the start and in terms of running costs (which can be paid for out of the trust's own income). Usually a lawyer or accountant will manage all of that, for a fee. Running costs are generally not high. But it is often worthwhile or necessary to employ professional staff to manage it.

Memorandum and Articles of Association [Dependant on Territory Legislation]

Memorandum of Association of a company sets out the company's name, the proposed location of its registered office, the objects of the company, a statement regarding the liability of its members and details of its share capital, if any, (or in the case of a company limited by guarantee, the amount which members will contribute in a winding up). Also, in the case of a company having a share capital, the memorandum must show the name of each initial member/shareholder (also called 'subscribers') and the number of shares each takes.

Articles of Association (often just called 'articles') of a company contain the rules for its internal regulation and management. The articles deal with such things as meeting procedure, powers of directors, members' rights, procedure for paying dividends, winding up etc.

The articles can often be quite lengthy (for example they could typically comprise over 100 numbered paragraphs spanning, say 30 pages). However, the there are mechanisms intended to simplify the task of preparing articles of association - various standard articles of association documents have been enacted. These are usually contained in regulations in each territory.

Memorandum of Association of a company sets out the company's name, the proposed location of its registered office, the objects of the company, a statement regarding the liability of its members and details of its share capital, if any, (or in the case of a company limited by guarantee, the amount which members will contribute in a winding up). Also, in the case of a company having a share capital, the memorandum must show the name of each initial member/shareholder (also called 'subscribers') and the number of shares each takes.

Articles of Association (often just called 'articles') of a company contain the rules for its internal regulation and management. The articles deal with such things as meeting procedure, powers of directors, members' rights, procedure for paying dividends, winding up etc.

The articles can often be quite lengthy (for example they could typically comprise over 100 numbered paragraphs spanning, say 30 pages). However, the there are mechanisms intended to simplify the task of preparing articles of association - various standard articles of association documents have been enacted. These are usually contained in regulations in each territory.

Despite the name, this is actually a legally recognised structure. It usually consists of a management or executive committee and a number of members. The association normally has a constitution, which sets out its aims and objectives and provides the terms of reference which regulate the association's activities. The membership may attend meetings (apart from the Committee meetings). The committee is normally elected during the Annual General Meeting where members are nominated to serve as officers and members of the Committee and members attending the meeting vote on these proposals.

The classic example of this kind of group is a local community association where there will be a continuous membership, which represents the community. The members will come together to co-operate on a project but not all the members will want to be involved in the detail of everyday activity and will be happy for the Committee to take over these responsibilities. This structure is ideal where there are no serious contractual obligations (such as leases or full-time employees) for which the management committee members could become liable.

Community Interest Companies (CICS) are limited companies with special additional features created for the use of people who want to conduct a business or other activity for community benefit, and not purely for private advantage. CICs can be limited by shares, or by guarantee, and will have a statutory 'Asset Lock' to prevent the assets and profits being distributed, except as permitted by legislation. This ensures the assets and profits are retained within the CIC for community purposes, or transferred to another asset-locked organisation, such as another CIC or charity. Registration of a company as a CIC has to be approved by a Regulator or Governmental body that also has a continuing monitoring and enforcement role.

Additional information