Understanding Charity Organisational Structure
Charities operate differently from other organisations. As they exist to meet a demanding need, they have greater responsibility to account for the important progress being made.
To ensure that the charity’s best interests are always at the fore, a strong organisational structure must be put in place. There are several options available when it comes to charity organisational structure, all of which must be carefully considered before any positive change can be done.
The first challenge is understanding the different structures and what they entail. In this blog, we will talk you through the different routes charity’s can take, and what to expect from each.
The Importance of Understanding Charity Structures
It is essential that charities are aware of the options they have, as any change of organisational structure further down the line will result in the need to submit a fresh application to the Charity Commission for formal registration as a charity.
This can be a stressful and strenuous process. It can also cause delays, especially if the charity needs to recruit newcomers to accurately reflect the new structure. All of this can hinder and put a hold on the charity’s good work, causing issues for stakeholders and beneficiaries alike.
The more a charity is familiar with its internal operations, the better equipped it is to serve those in need.
When considering which a charity organisational structure to choose, there are two options to weigh-up:
Whether the charity should be run by trustees only, or whether it should have a wider membership
Whether to have an incorporated structure or to take the simpler, but sometimes riskier, choice of being unincorporated
Let’s take a closer look at what each of these mean.
Trustee Only Structure
Trustees are legally responsible for the control, management and administration of a charity. They ensure that a charity is doing what it is set up to do, is operating within its charitable purposes and its beneficiaries are being fully supported. They do this by setting goals, securing and allocating funds and organising resources.
If a charity chooses to be run entirely by its trustees, then they are the only decision-making members of the charity. They can choose who to appoint as a trustee and whether to make changes to the constitution without having to consult any wider group. This type of charity can also be called a ‘charitable trust’.
Wider Membership Structure
Compared to the previous, a wider membership is far more democratic because the trustees will be accountable to those members. In this structure, there are some decisions that can only be made by the wider membership. These include: electing trustees, approving the annual accounts, and approving any changes to the constitution.
With this, you will need to consider how large you want your membership to be. This is because the charity will have a duty to keep records of all members so that they can invite them to an Annual General Meeting (AGM). During this, all involved parties vote on important matters such as: electing trustees, approving the accounts and asking questions about how the trustees have been managing the charity.
This type of charity can also be referred to as an ‘Association’ or ‘Society’.
Incorporated vs Unincorporated
The differences between being incorporated versus unincorporated are vast. The bullet points listed below provide a snapshot comparison between the two:
If a charity is a corporate body (incorporated), it is given the legal capacity to do many things, such as:
Employing and paying staff
Delivering charitable services under contractual agreements
Entering into commercial contracts in its own name
Owning freehold or leasehold land or other property
If a charity isn’t a corporate body (otherwise known as ‘unincorporated’):
The trustees are personally liable for what it does
It won’t be able to enter into contracts or control some investments in its own name
Two or more trustees, a corporate custodian trustee or the charities’ landholding service will have to ‘hold’ any land on the charity’s behalf
Let’s dive deeper into what separates these two structures from one another:
An incorporated charity, as mentioned above, is recognised as a legal form (like a company). This means it can own property and sign contracts in the charity name.
Incorporation is beneficial as it gives trustees greater protection from being personally liable. But this added protection comes with much tighter rules, regulations and control, including:
The need to arrange an annual independent examination of the charity’s accounts (if the annual income is over £25,000)
The need to submit the charity’s annual report and accounts to the Charity Commission, to be published online
These days, the most commonly used incorporated structure is called a Charitable Incorporated Organisation (CIO).
An unincorporated charity is fundamentally the opposite of the above. It doesn’t have its own legal personality, meaning that contracts must be signed by one of the trustees who can then be held personally liable for any debts.
This structure suits charities which don’t expect to rent premises, own property, employ staff, etc.
The unincorporated structures are also known as:
Unincorporated Charitable Association
The choices you make will affect the type of governing document that your charity will adopt. By better understanding the different charity structures available, you can better align your charity’s codes of practice with its purpose, and better meet the needs of those you wish to help.
If you want more information and advice about which charity organisational structure you should choose, have a chat with one of our consultants by getting in touch with S3 Solutions, today.