Is A Charity A Business?
When donating to charity, I continuously think about whether or not the organisation is classified as a business. After all, unless they’re entirely non-profit, they’ll need to pay employees to create budgets, plans and gather data to back their reasoning.
To help gain a better understanding about “is a charity a business”, see below:
A charity may or may not be a business in the UK, depending on its charity structure. Both a charitable incorporated organisation (CIO) and charitable company (limited by guarantee) structure are classified as a company. But an unincorporated association and trust charity structure isn’t.
As you can see, a charity may be classified as a business. However, it doesn’t necessarily mean they operate like one. Instead of selling products or services to profit and expand their business, they may perform the same actions but give the profits to something or someone in need.
But, they’ll tend to not give 100% of the donation to the charitable cause. Typically, many overheads have to come out of this profit to pay people and services.
However, now you understand the basics behind whether or not a charity is a business. Let’s dive into the four main charity structures that we mentioned above, so you can start to develop a better understanding of what they really are.
What are the different CharityStructures?
To better understand “is a charity a business or not”, I thought it would be beneficial to describe the four different types of charity structures. From this, you can start to build a better knowledge of which charities are considered businesses.
Charitable incorporated organisation (CIO)
The newest charity structure to the block is a charitable incorporated organisation (CIO), which began in April 2011. This structure was created as an alternative to CLGs for charities by offering them a limited liability and a sole regulator (Charity Commission).
When a charity is enrolled within a CIO structure, they can work with both wider and focused memberships. This means they can either work with other charity trustees or focus on their own charity themselves.
Charitable company (limited by guarantee)
Next is a charitable company, or also known as a CLG. These have company directors and are an entity in charge of ensuring the charitable company abides by the local and charity law, which is regulated by both the Companies House and Charity Commission. However, this doesn’t mean they operate as an ordinary company because:
- They’re not allowed to distribute surpluses to their subscribers/members.
- They can only include assets that carry out their charitable purpose.
- It’s mandatory that they need to operate in a way that is best suited for the cause.
Without a doubt, a CLG is the most popular charity structure on the list, and it can be set up with or without a wide membership.
Lots of companies with this setup are reaching out to charity recruitment at aawpartnership.com to ensure they create a team of virtuous business people. This ensures they can run a well-oiled organization that manages to achieve charitable endeavors, while still acting as a business.
Unincorporated association
An unincorporated association charity is a simple way to start a charity for small events or just something part-time. It won’t require you to legally set up anything through Company House because it’s not a legal entity, but there are some restrictions. Here’s what they are:
- An external Trust are legally liable for what the charity does, and you’ll need to follow their charity structure guidelines.
- The unincorporated association charity won’t be able to enter contracts or control investments in its own name. This means that Trustees in the partnership will need to sign off these.
- Lastly, the charity cannot own any land in its name. Again, this will need to be appointed to holding Trustees on behalf of the charity.
Trust
If you’re aware of the foundation, you should be knowledgeable about trusts. Trusts make grants to support other charitable organisations and individuals to achieve their goals. It is common to see trusts set up by large companies such as Sainsbury’s. This is because they can give back to the community that shops with them while making extremely high tax right-offs. So, it’s a win, win for everybody. They pay less tax, yet they decide what happens with their charitable money.
Does Donating to Charity Make a Difference?
Within England and Wales, there are approximately 169 thousand different charities dedicated to making a change, but are they making any difference?
Many people are concerned about giving money to charities because it can be unclear where it’s going. So, does donating to charity make a difference? Let’s find out:
In the UK, Britons made an average donation in 2018 of £45 per month. If we times that £45 a month, by the 2018 population of 66.27 million, you’ll quickly discover that they grossed around £2.9 billion that year. This is an astronomical amount of money, and it’s helped many charities and people in need.
Let’s take the most noticeable animal charity, the RSPCA. Back in 2016, the RSPCA revealed that they received £11.5 million in donations. With this money, they’re able to ensure animals can live free from any pain and suffering. Through their campaigns, they raise awareness of the standard of care animals should undergo and daily welfare issues.
The money donated is spent on investigations, prosecutions, rehabilitation, veterinary care and rehoming. From this, they can track down people who miss treat animals, punish them with law, and rejuvenate life back into the animals.
The RSPCA has looked into 130,700 complaints about animals suffering across the UK and Wales from the public’s kind donations. This dramatically reduces the usage of valuable resources like the police.
Conclusion
As you can see, a charity can be looked at like a business, depending on its structure. However, just because it’s classified as a legal business doesn’t mean it operates like one. Instead of selling goods or services for pure profit and sales, they generate income and plan on how they can donate it to their charitable cause.
Now you’ve developed a better understanding of whether or not a charity is a business. I hope this has changed your outlook and helped build trust within these remarkable organisations.
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