Not-for-profit organisations: 5 alternatives to charities

28 July 2015
spotlight_insights_02.jpg
There are a number of alternatives to the traditional charitable organisation structure. Let’s take a closer look at some of them.

There is a lot that comes with being a registered charity. You’re most likely familiar with the traditional structure, where an organisation is registered with the Charity Commission. With this registered status usually comes the prestige and trust that the public has learnt to associate with organisations such as Cancer Research UK and the National Society for the Prevention of Cruelty to Children (NSPCC).

However, that prestige comes with extensive supervision by the Charity Commission, multiple filings in duplicate with Companies House and the Charity Commission, limitations on trustee and member benefits and a raft of potential liabilities for the trustees of a charity.

Many not-for-profit organisations may find that they do not meet the conditions to be a charity or that the restrictions involved in a charitable structure will not be suitable for them. The availability of tax reliefs will also be a critical factor in deciding whether or not to register as a charity.

There are a number of alternatives to the traditional charitable organisation structure. Let’s take a closer look at some of them:

1) Community Interest Company (CIC)

A CIC is a company registered at Companies House, but is regulated by the Office of the Regulator of CICs as opposed to the Charity Commission. Its constitution must restrict the distribution of its assets to its members (known as the “asset lock”) but otherwise it is subject to less regulation. This is one of the fastest growing types of social enterprise organisation. It varies from small locally based community organisations for the maintenance of community resources such as village greens to large multi-million pound turnover organisations in the health sector. A CIC cannot be a charity but is clear in the benefit it provides to the community.

2) Registered Community Amateur Sports Club (CASC)

This status is granted by HMRC for the purposes of tax relief on income, gains and profits on certain activities. Similarly to a charity a CASC can also gain business rate relief. For HMRC to grant this status an organisation must be able to establish that the money it holds is used to promote and provide facilities for eligible sports such as: tennis, swimming, rowing and Ultimate Frisbee.

3) Trading Subsidiary

The Charity Commission takes a dim view on registered charities that raise funds by carrying out trading activities. Their reasoning is that with trade comes risk, and by holding the assets of a charity in a trading company you are putting those assets at risk. To minimise the risk, a trading subsidiary can be used to carry out the trading activities of the charity and any profits generated will be filtered back up to the charity. The charity’s assets are protected from being used to meet the debts and liabilities of the trading subsidiary, even if it becomes insolvent.

4) Support for existing charities

Many organisations wish to raise funds for a charitable purpose but are not themselves charitable in nature. An example of this would be where a professional services firm has a list of charities chosen by its directors or employees that it supports by raising funds through events organised and sponsored by the firm. Donations can be structured in a tax efficient manner by using tools such as Gift Aid.

5) Community Benefit Society

The aim of these organisations is to conduct business for the benefit of their community. This alternative differs greatly to all of the above, as it is an organisation formed and regulated solely by the Financial Conduct Authority. The entity is governed not by the Companies Act 2006 or the Charities Act 2011 but by the Co-operative and Community Benefits Societies Act 2014. Due to this fact, these organisations are highly specialist in nature and can be very expensive to set up and maintain.

How can we help?

We have wide-ranging experience with not-for-profit organisations and can assist with registering and administering charitable companies, CICs and trading subsidiaries. The knowledge and expertise you need for your business or non-profit organisation, from day one through to day to day administration.

UK Company Formations

 

 


Author: Vistra Corporate Law