Charitable Company Legislation

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Charities in general, whether incorporated or not, are subject to the provisions of the Charities Act 2006. (If the charity also happens to be a company, then it will have to comply also with the provisions of the Companies Act 2006.) The Charities Act is a large body of legislation which has been designed as a means of restructuring the legal framework around which charities operate. Until recently, charities were subject in the main to the provisions of common law. The Act has thus been seen as an attempt to bring charity law into a codified statutory form, while at the same time updating the rules concerning the process of setting up as a charity and the prerequisites to qualification for charitable status.

To be a charity an organisation must have exclusively charitable purposes (i.e. a charity cannot have some purposes which are charitable and others which are not). The Charities Act 2006 lists thirteen charitable 'heads' under which a charity can operate. These are:

  1. The prevention or relief of poverty
  2. The advancement of education
  3. The advancement of religion
  4. The advancement of health or the saving of lives
  5. The advancement of citizenship or community development
  6. The advancement of the arts, culture, heritage or science
  7. The advancement of amateur sport
  8. The advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity
  9. The advancement of environmental protection or improvement
  10. The relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage
  11. The advancement of animal welfare
  12. The promotion of the efficiency of the armed forces of the Crown, or of the efficiency of the police, fire and rescue services or ambulance services
  13. Any other purposes currently recognised as charitable and any new charitable purposes which are similar to another charitable purpose

To be 'charitable' under the meaning of the Act, the purposes of the charity must fall under one of the categories listed above. They must also, though, be demonstrated as being 'for the public benefit' (this is sometimes known as 'the public benefit test'). In particular, there are two key principles of public benefit:

  • There must be an identifiable benefit or benefits
  • The benefit(s) must be to the public, or section of the public

It is up to the charity to show explicitly that its activities fall under one or more of the heads listed above, and that they are being pursued for the public benefit in line with the requirements of the Act.

The 2006 Act also provides that charities whose turnover is under £5000 per annum need not register with the Charity Commission, in order to cut administration costs for small charities (previously, this threshold was set at £1000). Such charities are instead regulated by HMRC.

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The Charity Commission
The Charities Act 2006 - full text

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The Companies Act 2006
CIC and other legislation
Charitable companies
Charitable solutions

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