Charity is the act of unselfish giving to those who are less fortunate or who have fallen on hard times, in a legal sense the term charity is used to describe any organisation whose activities help alleviate suffering, improve health and welfare and provide education to a defined group of people.
Charities can be natural or non-natural persons and so you will hear terms such as trustees and members, which are the equivalent of directors and shareholders of a company limited by guarantee rather than shares. Trustees may also be members, especially in smaller charities. In larger charities, a wide and active membership base is vital to raising a sustainable income to keep the charity functioning. Members are different to donors, who make one-off or multiple donations of any amount whenever they like. Examples of charities with a larger number of members are National Trust, The Scout Association and the Royal Society for the Protection of Birds. The National Trust has over 5 million members.
It is important to know that a charity can either be an incorporated or an unincorporated body. An incorporated body is a legal entity, meaning it can do the things that a normal individual can do. This includes employing paid staff, owning property and executing agreements in the organisation’s own name. The trustees in an incorporated body are not normally personally liable, this means that they are not responsible to contribute to the organisation’s liabilities except up to the amount they will have guaranteed usually £10.
The various types of incorporated charities include the Foundation and Association form of Charitable Incorporated Organisation (CIO), and the Charitable Company. The difference between a Charitable Company and a CIO is that the Charitable Company must register and file accounts with Companies House and the Charity Commission whereas, the CIO only needs to file accounts with the Charity Commission. In a Foundation CIO the members are themselves trustees whereas in an Association CIO there may be members who are not trustees. This means that an Association CIO will be able to generate income from members who may pay a subscription but as the members also have voting rights the trustees will have less control over the charity’s decisions. This is similar to a limited company which has shareholders. The other two types of charitable organisation have an unincorporated structure; these are charitable trusts and unincorporated associations. In a charitable trust, the trustees have the responsibility to own and manage assets in the manner set out in the trust deed for the best interest of the beneficiaries who may be a charity or a charitable cause. A trust is set up by the settlor who first transfers the assets to the trust. Examples of unincorporated associations are sports clubs and voluntary groups which have trustees, a committee, members and some for of rules called a constitution. The Royal Yacht Association is a well know club an operates as an unincorporated organisation.
There are several reasons as to why the trustees of a charity may choose the CIO route over a Charitable Company. A CIO only needs to file accounts with the Charity Commission, whereas a Charitable Company will need to file accounts with the Charity Commissions and Companies House. This is appealing to organisations who wish to reduce administration and cost burdens but still retain all the benefits of a charitable company namely limited liability for trustees and recognition as a legal person. With this in mind, it may seem unclear as to why a trustee/s may still decide upon a Charitable Company over a CIO. A CIO that does not follow the legislation and regulations mentioned in the Charities Act 2011 may be discontinued in which case it will no longer be able to function whereas a Charitable Company under similar circumstances may continue to trade as a company. This is the main point in support of registering a Charitable Company over a CIO.
The place of generosity and altruism should not be confined and limited by borders and so it is reasonable to expect charities registered in the U.K. to carry out their work in regions outside of the U.K., and this is often the case for many charities. However, due to the current turbulent global socio-economic and political climate, there are rightful concerns raised by the Commission over charities who operate cross-border especially in zones of conflict which in turn has led to increasingly stringent regulations and checks. The international movement of funds is an area closely monitored and charities may unwittingly be caught by the laws of money laundering and terrorist funding activities.
There are useful housekeeping rules which if followed can greatly increase the credibility, authenticity and so the outcome your application for registration. Having an audit trail ensures a clear record of the financial outgoings of a project and increases transparency, important if the Commission wishes to establish the final destination of the funds that are being transferred. In the case of cash movements, a cash payments record form can be used to assist with the audit trail.
When registering a charity in an area deemed to be of high risk, it is likely that you will be required to supply additional information more specific to your activities before your application is finally approved by the Commission. Demonstration of good governance and audit procedures and risk based proportionate approach systems will add weight to your application.
It is important to understand which specific overseas regional locations the charity will be performing its activities And how potential beneficiaries there will be identified and who will be interacting with beneficiaries over there. A visit plan is also vital when Organising the first trip to the location and also to make it clear to the Commission that there is a monitoring system in place for recording and keeping track of future visits. There are usually three types of visits that take place throughout a project. An initial assessment is made before any work is carried out and aims to identify the need of the beneficiary and to create an effective action plan. This is vital to ensuring the smooth running of the project. The second visit would be the monitoring visit. This usually takes place whilst the project is running and aims to ensure that the original action plan is being followed and the reasons for any deviation. There are key documents that can be kept as part of the overall audit trial; this includes a monitoring visit log which can be used to keep track of the visits made, the work that has been completed to date and any significant milestones that have been reached. It is important to note that not all projects will have a monitoring visit. An example of this would say a medical treatment in which case only an initial assessment and follow-up visits are required. The third and final visit is the follow-up visit. This takes place after the project is completed and aims to ensure that the pre-determined goals have been achieved. There should also be a clear system in place that is used to select which individuals are to benefit from the charity’s work. This relates back to the initial assessment and demonstrates to the Commission that the genuinely less fortunate individuals are benefiting from the charity’s activities.
In conclusion, the Commission is there to provide you with guidance on how to safeguard the trustees, beneficiaries and the charity’s assets. British charities are respected throughout the world and so it is important that we all work to preserve this image.
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Article written by Dev Barman (Charity Registration Manager, Meer & Co Chartered Accountants and Tax Consultants)