Providers need to be alive to the risk of contractors becoming insolvent and how to limit the resulting inevitable disruption.
What is so great about being a charity?
- Some charities find that they have greater access to grant funding compared to non-charities.
- A charity receives preferential tax treatment, including tax relief on most types of income (provided the money is used directly for charity’s purposes), relief from business rates charge and access to the HMRC gift aid scheme.
We are not a charity at the moment, we run our pre-school as a business...
Once the pre-school becomes a charity, it is subject to charity law and there will be certain restrictions imposed on the charity, such as a payment to a trustee/connected person (e.g. as an employee of the pre-school), undertaking non-charitable activities or trading, etc. None of these reasons should be a barrier to register the pre-school as a charity, so we would recommend taking legal advice before proceeding.
We are an unincorporated charity registered with the Charity Commission, but why should we incorporate?
An unincorporated charity does not have a separate legal personality and therefore anything which it does is through its trustees e.g. entering into contracts and holding property. This, unfortunately, creates personal liability for the trustees if the charity is not able to meet its liabilities, either through its assets or insurance.
The ACS pre-school is registered with the Charity Commission and is established as an unincorporated charitable trust. The ACS pre-school has entered into a service contract with Edmund Electricals for the supply of electrical services. The contract makes clear that the contracting party is Joe, Fred, Sally and Pippa as trustees of ACS pre-school. If the trustees are unable to meet their obligations under the contract then Joe, Fred, Sally and Pippa would be personally liable to Edmund Electricals.
If, however, ACS pre-school had registered as a charitable incorporated organisation or a charitable company (see below), then the contract would be in the name of ACS pre-school. This would allow the trustees to reduce their personal liability (unless it was found that the trustees had not acted in the best in interests of the charity).
What if we don’t want to be a charity?
Of course, you may have already decided that you do not wish to run the pre-school as a charity, but still wish to create a robust structure for your organisation. Other structures that you may wish to explore are a private company limited by guarantee or shares or a community interest company.
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