The regulations governing non-profit charities, and the process for becoming one in the UK, can sometimes be confusing. Here we’ll break down what the official definition of a non-profit charity—vs. simply a non-profit—is in the UK, and then go into the process you need to follow to actually be registered as one.
What is/how do you become a nonprofit charity in the UK?
A charity is a type of non-profit organization that focuses on educational and philanthropic goals, including religious, educational, charitable, and other activities that serve the common good. It differs from other non-profit organizations in that it has a different legal status and it must meet stricter criteria in regards to its mission, the way that it makes decisions, and the way that it reports its finances.
In the UK being a “registered charity” means you have financial advantages, such as certain tax exemptions, the ability to raise funds from the public, and are allowed to represent the needs of the community. There are specific legal requirements to be considered a charity (governed by the Charities Act 2006): a “charity” is 1) established only for charitable purposes, and 2) subject to the control of the High Court in the exercise of the court’s jurisdiction in regards to charities. The charitable purposes are, as stated in the Charities Act 2006:
- The prevention or relief of poverty
- The advancement of education
- The advancement of religion
- The advancement of health or the saving of lives
- The advancement of citizenship or community development
- The advancement of the arts, culture, heritage or science
- The advancement of amateur sport
- The advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity
- The advancement of environmental protection or improvement
- The relief of those in need, by reason of youth, age, ill-health, disability, financial hardship, or other disadvantage
- The advancement of animal welfare
- The promotion of the efficiency of the armed forces of the Crown or of the police, fire and rescue services or ambulance services
- Other purposes currently recognized as charitable and any new charitable purposes which are similar to another charitable purpose.
A charity must also provide a public benefit of some sort, as opposed to profit, and this must be proven to the Charity Commission. In order to raise money to fund your charitable cause, you will need to set up a Company Limited by Guarantee. This is a company with “guarantors” instead of investors, where profit is not distributed through dividends. The two steps of charity registration, which I will go into in more depth below, are:
- Registering a Charitable Limited Company by Guarantee
- Applying to the Charities Commission
1st Step: Register a Charitable Limited Company by Guarantee
The first step you have to take is to register a Charitable Limited Company by Guarantee with the registrar of companies, and then receive a company number for your company.
In order to meet the requirements of the Charity Commission, a Company Limited by Guarantee needs to have drafted into its Memorandum of Association clauses that guarantee that the company is set up and intends to carry out its mission for the proper reasons. These will include a “charitable objects clause, “non-profit distribution clause”, and a “dissolution clause.”
You must also be set up for the “public benefit.” If your purpose is for the benefit of a certain person or persons, you won’t pass the “common good test.” This test can be broken down into two sections:
- The purpose of the charity must have a clear benefit.
- That benefit must be one to the public or to a part of public.
2nd Step: Register with the Charities Commission
You will then need to apply to the Charities Commission to have your company added as a “registered charity” and provided with a unique charity number. If the organization will have an income that is more than £5,000, then registering with the Charity Commission is vital.
The Charity Commission will need to fully assess the company—part of this assessment will include looking at the “objects” of the charity as mentioned above. This will be a clause in the Memorandum of Association that needs to be very clearly expressed to show that the objects of the charity are strictly charitable and nothing else. If these objects are not expressed clearly, or are expressed in a way that implies that the goal of the company is not strictly charitable, the Charity Commission may deny your registration and your company will not be considered a legal charity.
Another part of registering with the Charities Commission is that you will need to choose a name for your charity. To do this, you can search the register to make sure that there is not a charity that already exists with a similar name, and then settle on a name that best suits you. There are some organizations that can help you with this as well.
Have any more information or advice on starting a charity in the UK? Add it in the comments below!