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The legal and financial considerations of setting up a charity


Photo by Bill Oxford on Unsplash
https://unsplash.com/photos/OXGhu60NwxU

In this article we explored the motivation behind the launch of your charity…for example, why you believe it to be the best course of action and what you hope to achieve/the change you want to see.


Now that you’re confident about your charitable plans, we’ll cover how to get your organisation up and running on a legal and financial basis.


Legalities

Every registered charity must adhere to The Charity Act. The Charity Commission is the regulator of the laws under the Act. The vast majority of funders require charities to be legally registered with The Charity Commission to be considered for grant funding.


One element of registration is the creation of a governing document. As well as the charity’s mission and aims, this should explain the legal structure of the charity, provide details of its trustees and the address where the organisation is legally registered to.


The governing document also declares the rules of your organisation, its control processes and how it would manage any disputes, how monies from funders will be managed, the conditions of trustees’ expenses payments, voting systems and what constitutes a majority, the process of a trustee joining the board and also when they step down…and so on—essentially, anything you believe will help cover your back and the reputation of the organisation if a change in how it’s run occurred or a serious issue arose. This is not one of those instances where ‘less is more’—it’s better to cover/outline as many scenarios as you can think of than create rules that are vague or woolly and which could be easily misconstrued.


Financial requirements

Sometimes, trustees of a charity receive payment for their time and the work they put into the organisation; however, most trustees donate their time for free and simply receive a reimbursement for any out-of-pocket expenses relating to the charity—though even this isn’t a given. It’s your choice how you define the running of the organisation in financial terms.


If you plan to employ staff, you will not only be subject to the UK’s laws on employment, you will also be required to pay (at least) minimum wage. Many third sector organisations incorporate to the Living Wage as it subscribes to their ideals of a fair and just world.


Charities with a gross annual income of more than £25,000 need to arrange, and have independently verified, annual accounts. Charities with an annual turnover of more than a million pounds need to be officially audited.


When funding is awarded by a trust or body, it can come with certain caveats; the funder may require receipts of other forms of proof that you have spent their money on the activities/things you said you would in your application.


The charity also has a responsibility to keep its monies safe. Therefore, no cash stashed under mattresses, but funds placed in a UK bank account. This also extends to the security of passwords used to log into said account digitally.


The bank account

It’s common—and advised—that more than one person’s signature is required to sign cheques/agree expenditure from the bank account, whether staff members and/or trustees.


The account should be in the name of the charity, rather than in an individual’s name, and it’s recommended, if your reserves/cash in the bank for longer-term projects exceed £85,000, that you consider spreading this across two separate banking institutions. This is because banks only guarantee the first £85,000 an organisation holds with them, in the event of their financial institution failing/crashing.


Trustees

It’s strongly advised that none of your trustees be related to each other. A funder or donor will look more favourably on organisations that can exercise objectivity and impartiality on the running of the charity, which is easier when there are no family ties or other external forces that could hinder this.


A charity should aim for a minimum of three trustees to help govern the organisation; however, whilst there is no upper limit, keep in mind the saying ‘too many cooks spoil the broth’. If you’re in the lucky position of having to choose between a large pool of trustee candidates, think about what each one would bring to the organisation. It’s a good idea to recruit/attract trustees from different backgrounds and who hold different skills to each other. This not only ensures diversity, it could also limit the number of tasks you outsource to third party companies.


The structure of a charity typically includes a Chair of Trustees and a Treasurer. The latter deals with the financials of the outfit, from day-to-day cash flow to short- and long-term financial planning; someone who has a financial or accounting background, therefore, would be a good fit for this role.


Trustees need to be 18 (16 if your organisation is a CIO), and without an unspent conviction relating to fraud, money laundering, terrorism, etc. An individual would be automatically refused as a trustee if they were currently bankrupt, a disqualified company director or listed on the sex offenders’ register.


Right! All that sorted? Now you can get going…