When is a charitable company the best option?
It is a common understanding that Charities must be trusts. However, of the 28,000 total registered charities many of them are other entity types such as incorporated societies, associations and companies. What did you have for breakfast? A famous example that probably was involved in supplying some part of that is the registered charitable company is Sanitarium.
It would be suitable for a charitable company to be used where the entity has a purpose that is capable of fitting one of the four heads of charity: advancing education, relieving poverty, advancing religion or other purposes that benefit the community. In describing this purpose, it will need to be ensured that it does not stray into “helping entrepreneurs” as the entity should not be about individuals making more profit.
Setting up a new legal entity that is a charitable company does two things. Firstly, it helps to crystallise the identify for a project in mind which will be helpful when talking with collaborators, customers, other unions and government. Secondly, it will “ring fence” liability so if something goes wrong, only that new entity ends and it does not cross infect to other persons or entities.
As the entity has a hybrid structure it also has hybrid obligations. The new entity would need to register with Charities Services. A registered charity will ensure:
- Credibility with others such as philanthropic trusts or Councils;
- A better tax position; and
- The ability to give donation receipts to those who donate (as they get 1/3 back).
The company would also need a constitution that sets out how it operates and importantly makes clear the charitable purpose and prevents private gain. You can pay salaries from the company but they must be at market rate.
There are many times when a charitable company will be the best legal structure to choose – don’t just assume that you should set up a charitable trust.
This article is not a substitute for legal advice. If you have any questions or would like advice on your specific situation and objectives feel free to contact one of our charity specialists Steven Moe, Michael Belay, Sophie Tremewan or Yang Su at Parry Field Lawyers.