Non-Profit

Legal Advice for Not-for-Profit Organizations

We advise charities, community interest companies, and other not-for-profit organisations at all stages of their development. The legal and regulatory landscape in this sector continues to evolve, and we provide tailored, ongoing advice to ensure compliance and support organisational growth.

Our Services

We offer legal assistance across a broad spectrum of matters relating to not-for-profit organisations, including:

• Trading arrangements and trading subsidiaries
• Fundraising and regulatory compliance
• Duties and responsibilities of trustees
• Commercial agreements, including participation agreements
• Mergers and acquisitions involving charitable entities
• Liaison with tax advisers and HMRC
• Legacies and donations
• Charity Commission regulatory requirements
• Appeals against decisions of the Charity Commission
• Property acquisition, disposal and management
• Employment matters and volunteer arrangements
• Probate and charity-related contentious estates matters

What is a Charity?

Charity is not a legal structure in itself, but rather a legal status conferred on an organisation due to the nature of its activities. Under the Charities Act 2011, a charity is defined as an institution that:

• Is established exclusively for charitable purposes; and
• Falls within the jurisdiction of the High Court.

Not all charities are required to register with the Charity Commission. A charity may be exempt or excepted, or its annual income may fall below the registration threshold (currently £5,000).

The principal advantages of charitable status include:

• Tax reliefs and exemptions
• Relief from business rates
• Eligibility for specific grants and funding
• Enhanced public trust and recognition

Charitable Purposes

Each purpose of a charity must be exclusively charitable. An organisation cannot pursue a mixture of charitable and non-charitable purposes. The Charities Act 2011 outlines recognised charitable purposes, which include:

• 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 the promotion of equality and diversity
• The advancement of environmental protection or improvement
• The relief of those in need due to youth, age, ill-health, disability, financial hardship or other disadvantage
• The advancement of animal welfare
• The efficiency of the armed forces, police, fire, rescue, or ambulance services
• Other purposes recognised as charitable by law

To qualify, the charity’s purposes must be for the public benefit.

Key Features of a Charity

• All assets and income must be applied solely for the charity’s purposes
• Profits must be reinvested in furtherance of the charity’s objects
• The organisation must have charity trustees
• Charities must not be established for political purposes

Governing a Charity

A charity’s governance is ordinarily set out in a written constitution. The content and format of this document depend on the legal structure adopted. The constitution should clearly express the charity’s purposes and the rules by which it will be governed.

Legal Structures Available to Charities

Charities in England and Wales may take one of several legal forms:

• Trusts
• Unincorporated associations
• Companies limited by guarantee
• Charitable incorporated organisations (CIOs)

Our Corporate and Commercial team advises on the most appropriate structure for each client’s needs and prepares tailored constitutional documents.

Unincorporated Associations

An unincorporated association is formed by an agreement between members for a non-commercial purpose. This is a common structure for smaller charities, sports clubs, and community groups.

Key features include:

• No separate legal personality
• Potential personal liability for members and officers
• Difficulties with owning property, contracting, or borrowing

Unincorporated associations should be governed by a written set of rules, representing a contract between members. These rules should address matters such as:

• Membership admissions and resignations
• Disciplinary procedures
• Management and committees
• Fundraising and finance
• Governance and decision-making
• Dissolution procedures

In the absence of clear rules, the courts may imply terms or examine the effect of the rules where disputes arise.

Tax and VAT Considerations

Unincorporated associations are liable to pay tax unless they fall within a specific exemption. They may also be subject to VAT if they supply taxable goods or services and their income exceeds the VAT threshold.

Charitable Incorporated Organisation (CIO)

A CIO is a corporate form created specifically for charities. It provides the benefit of legal personality and limited liability, without the need for dual registration with Companies House.

Key features of a CIO:

• Registered with the Charity Commission only
• Exempt charities cannot take CIO form
• Legal personality: can contract, own property and sue/be sued
• Limited liability for members and trustees
• Governed by a constitution approved or recognised by the Charity Commission
• Must file an annual return and accounts with the Charity Commission
• Subject to charity law, but not company law
• Offers reduced administrative burdens compared to charitable companies

Community Interest Companies (CICs)

A CIC is a limited company established for social enterprise purposes. It must satisfy a community interest test and is regulated by the Regulator of Community Interest Companies. It is not a charitable entity and cannot access charitable tax reliefs.

Key features of a CIC:

• Must serve a community purpose and pass the community interest test
• Personal liability is limited
• Must submit an annual CIC report and accounts to Companies House
• Governed by articles of association
• Subject to company law and oversight by the CIC Regulator
• Cannot be politically affiliated

Asset Lock

A defining feature of CICs is the asset lock: company assets must be used for the benefit of the community, and may not be transferred for less than market value unless to another CIC or charity.

Community Interest Test

A company meets the community interest test where a reasonable person would consider that its activities are conducted for the benefit of a community or a section of the community.

Our Experience

We have substantial experience advising a wide range of not-for-profit entities. Recent examples of our work include:

• Advising on the formation and registration of new charities
• Incorporating existing unincorporated organisations
• Advising trustees and boards on governance issues
• Drafting and reviewing charitable constitutions
• Advising on and facilitating mergers between charitable bodies

If you require legal advice in respect of forming, operating, or restructuring a not-for-profit organisation, please contact our Corporate Commercial team.