The Big Question! Limited Company, CIC or Registered Charity?

Over the years I have helped set up and register a number of limited companies (both by shares and guarantee) and a number of registered charities and then on top of that countless voluntary organisations with no more than a constitution and a bank account. What is missing is a Community Interest Company or CIC. One reason for the omission is simply my own failure to grasp their benefit and the other is the wider ignorance concerning them which can prove detrimental to an organisation. The most common scenario being that potential donors are not sure about the eligibility of CICs to receive grants or other concessions automatically granted to registered charities.

Also the “asset lock” clause that seems to differentiate CIC is not actually that useful and can be accommodated within existing models.

However, in general terms that does often leave the question of whether a limited company or a charity (or indeed neither or both). For some smaller specific groups starting out I often advise setting up with a simple constitution similar to that of a registered charity, gather then trustees, get a bank account and then get going. This is more than enough for many groups who will never go beyond that even if there income exceeds £100,000. For me the natural progression here is straight to a registered charity.

If I have a group that has charitable aims but will perhaps make almost all of it’s money from charging for services then I will often prescribe a company limited by guarantee making sure that there are provisions allowing subscribers to also work and get paid through the company. When/if the need arises it will always be straight forward to add a charity registration and deal with that extra set of accounts and submissions that will now need to be lodged with Charity Commissioner.

In the past a limited company was used for just about everything else including partnerships, but I must admit that i’m now inclined to recommend the Limited Liability Partnership (LLP) as it does actually support the way most partnerships do (and perhaps should) work. Particularly as the partnership agreement is separate from the LLP registration.

This leads me to mention here one of the first questions I ask new clients which concerns “motive.” I ask why the client wants to set up a charity, especially if they are on their own. It often transpires that some indeed have a quite noble and charitable cause they wish to support. For some it is about getting employment for themselves. For others it’s about making money. So my advice varies. Sometimes the best thing someone can do is go and volunteer or fundraise for an existing charity. Others need to build a team before they do anything else. Another set I advise to spruce up their CV and stay away from the voluntary sector and simply get a real job. Most others can normally be facilitated through acting as either a sole trader or a limited company and then simply offering themselves and their services commercially.