Non Profit Company Formation Answers

  1. I am thinking about starting a charity, what do I need to know?

    Our guide “How to Start a Charity” provides you with all the information you need to get started with your own charity. Including guidance on choosing the right legal structure, charitable objects, satisfying the public benefit test and more. If you are still stuck, contact our specialist charity registration team for further guidance.

  2. What is the Charities Act 2006?

    The Charities Act 2006 is main legislation that applies to the governance of charitable organisations. It contains the laws on the basic essentials of a charity, including the meaning of “charitable purpose” and the “public benefit test” as well as other legalities around charity registration.

  3. Who are the Charity Commission?

    The Charity Commission are the official registrar of charities within the UK. All charity registrations must go through them. According to section 7 of the Charities Act 2006, the Charity Commission has a number of responsibilities and functions including keeping a proper register of charities in the UK, encouraging better administration of charities, investigating misconduct and other related matters.

  4. How do I register a charity?

    Firstly you need to choose a suitable legal structure for your charity. Generally, most people find that a company limited by guarantee is an ideal vessel for running a non-profit organisation. Once a company formation has been carried out to register the new company with Companies House then as long as the organisation’s income is over £5,000 it can be registered as a charity with the Charity Commission. We can help you with the initial steps of setting up a charity, including drafting the necessary clauses, ensuring the business fulfils the legal obligations and more.

  5. What is the public benefit test?

    In order to start a charity within the UK an organisation must be able to show that it satisfies the “public benefit” test. This is simply demonstrating that your organisation is set up for the benefit of the general public or a section thereof. You can find out more about the “public benefit” test on our guidance page.

  6. What are charitable purposes?

    Another similar check and balance on charities is the requirement that they have exclusively charitable objectives (otherwise known as charitable purposes). Charitable Purposes are listed by the Charity Commission and generally include things like the relief of poverty, advancement of education, animal welfare, relief for the needy and the like. The law (section 2 Charities Act 2006) requires that a charity’s purposes are exclusively charitable and cannot include anything that isn’t. The normal profit making activities of business should not be included with a charity’s objectives – which is why there is a requirement for the non-profit distribution clause and dissolution clause upon formation.

  7. Who can run a charity?

    Charities are run by trustees. The trustees of a charity are similar to the directors of a limited company. They are responsible for the management and running of the charity and must act in a way which is in the best interests of the charity and within the boundaries of the law. Failing to do so may lead to a trustee being disqualified and forbidden from being a trustee in the future. Unlike a limited company, which can be setup with only one director, charity registration requires at least two trustees.

  8. What needs to be considered when choosing a charity's name?

    Finding the perfect name for your charity is just as important as for any other business. Choosing a company name involves finding a name which people will remember, be able to type (if you plan to have a website), stand out from the crowd and much more. It is equally as important to avoid confusing or misleading the public. Choosing a name for your charity, you will also need to take into account the legal aspects of sensitive words and how they may affect your business. Some words are prescribed from use and you may have to seek special permission to use certain words in your charity name.

    Also consider the protection you may need for your charity name, to protect your goodwill and the brand of your business. Carrying out a trade mark search will allow you to ensure your chosen charity name is not already registered as a charity and is available for you to register and protect as a trade mark yourself.

  9. Are there any minimum registration requirements?

    Yes. As previously stated a charity is required to have at least 2 trustees in order to be legally compliant with the Charities Act 2006. Similarly, in order to register with the Charity Commission, a charity’s income must be at least £5,000 per annum. A charity with less than this level of income can only seek to register under exceptional circumstances.

  10. Do I need to register as a charity?

    Not necessarily. Because you wish to start a non-profit organisation does not mean that you need to register as a charity. There are plenty of other options. According to the Charity Commission, there are around 500,000 voluntary organisations within the UK, only around 200,000 of those are registered as charities. There are plenty of other options which might be more relevant to your business:

    • Community Interest Company – formed for the good of the community, a CIC reinvests any profits made by the business in community projects. Community interest companies must act in a way which benefits the community and are legally required to have a number of clauses included in their memorandum and articles of association to cover “asset lock”, the “community interest statement” and other related matters.

    • Social Enterprises – these are businesses trading solely for social or environmental purposes. Non-profit orientated, they are similar to CICs in that they invest in the community and operate across a range of industries.

    • Company Limited By Guarantee – similar to a standard private limited company, except they are established by guarantors rather than shareholders and therefore may function without profit being the only objective. These sorts of company are often used for non-profit company formation and used to run sports associations, clubs and councils.

  11. Which is the best legal structure for my charity or non-profit organisation?

    This depends on your intentions. Each of the non-profit company structures has its own merits. If you would like further guidance on which would provide the best possible legal structure for you, then contact our non-profit formation team on 0800 0828 727.

  12. Can I use the word "charity" or "charitable" in the name of my non-profit company?

    Both the words “charity” and “charitable” are sensitive words according to the Companies Act 2006. They are prescribed in use, but not entirely prohibited. It is possible to use these words in the name of a new company as long as it is first approved by the Charity Commission prior to submission to Companies House. Our specialist team can help you with registering a charitable company and making use of sensitive words for a small extra cost.