Charities as corporations.

What type of work is included and where are there likely to be overlaps with corporate work.

The voluntary sector used to be known as the Third Sector and sometimes as part of the public sector. Recently, the trend has been that on a change of government the sector is often rebranded. It is currently referred to as the Civil Society.

Any of the following may be considered to be part of the Civil Society

Type Value Quantity
Employee owned businesses £25 billion 200 organisations
General charities £35.5 billion 171,000
Cooperatives £24.5 billion 4,600
Universities £23.4 billion 170
Housing Assoc. £11.6 billion 1,820
Independent schools £6.3 billion 2,400
Companies limited by guarantee £6.1 billion 22,700
Financial mutuals £7.3 billion 20
Sports clubs £5.3 billion 127,010
Faith Groups £3.8 billion 13,700

Others may include:

  • Benevolent societies
  • Excepted charities
  • Credit Unions
  • Co-operative trust schools
  • Trade Unions
  • Unincorporated organisations
  • Community Interest companies
  • Common Investment Funds
  • Clubs and societies
  • Leisure Trust

Some organisations are purely grant giving charities but others operate akin to a modern services business. Others are mutual or are formed as “social investment” vehicles, i.e. where profit is important but so too is achieving other non monetary aims.

Many charities operate significant trading operations through subsidiaries the shares of which are owned by the parent charity. Examples of this include larger charities such as Oxfam. Trading companies are used where the activities of the charity are not purely charitable and the profits are then paid to the parent charity for use in charitable activity.

Many charities are in the form of companies limited by guarantee. They are still charitable trusts for the purposes of charity law but have adopted a corporate form for convenience. Changing directors/trustees is easier than with a trust as appointment does not require a deed. Most adopt standard Articles used within the sector which reflect the provisions of charity law.

  • Objects clause
  • Membership
  • Directors duty/conflicts
  • Credit Unions
  • Winding up clauses

The law on trusts and equity applies to charitable corporations in addition to company law. It is wrong to assume that the directors will not be held personally liable for the acts of the charity and it is wrong to assume that they will be protected by the corporate form. The added protection given to charity trustees in forming a company only applies to dealings with third parties, e.g. through contracts.

Other areas where a corporate body may be used include

  • Where the trustee board is itself a corporation- usually larger charities
  • Charities incorporated by Royal Charter
  • Charities incorporated under an Act of Parliament
  • Quasi corporations such as Industrial and Provident societies/ friendly societies.
  • Community interest companies

Clubs and societies can take any of the above forms and may or may not be charitable- see for example community amateur sports clubs which are not charitable due to the provision of social facilities (the bar) but do have special tax treatment.

Unincorporated associations

Some very large charities still operate as unincorporated associations and this can cause legal problems with succession, dissolution and actions with third parties.

Unless the charity is exempt from registration with the Charity Commission it will be regulated by Companies House and also the Charity Commission. Even exempt charities now have some regulation by the Charity Commission. (see Oxford and also academy schools). There are moves to ensure that institutions do not have to suffer too much regulation and the concept of a “principal regulator” is now enshrined in statute. NHS trusts/ special trustees.

Corporate Foundations

Some large corporations have established charitable Foundations of their own. These can take different forms. E.g. Lloyds TSB. There is a growing trend for these types of charity which formalises a company’s giving or charitable activity. Currently trying to persuade Marks and Spencer to found a charity.

Areas where legal advice is likely to be needed

  • Changing/updating constitutional documents- regulated changes
  • Forming new charities
  • Mergers- not always possible or easy

Even if a charity is in a corporate form there may well be several trust documents which underlie that form all of which need to be taken into account.

Charity accounts also have their own distinctive appearance as there are additional accounting requirements for charities, e.g. restricted funds indicating a specific trust.