Charitable Company vs. Trust Deed

Attribute	Charitable Company	Trust Deed
Legal Structure	Company limited by guarantee	Legal document
Registration	Registered with Companies House	Not required to be registered
Members	Members are guarantors, not shareholders	No members
Directors	Board of directors	Trustees
Liability	Limited by guarantee	Unlimited liability

Introduction

When it comes to setting up a charitable organization, there are various legal structures to consider. Two common options are a charitable company and a trust deed. Both have their own unique attributes and benefits, which can make it challenging to decide which one is the best fit for your charitable goals. In this article, we will compare the attributes of a charitable company and a trust deed to help you make an informed decision.

Legal Structure

A charitable company is a legal entity that is incorporated under the Companies Act. It is a separate legal entity from its members and directors, which means that the company itself can enter into contracts, own property, and sue or be sued in its own name. On the other hand, a trust deed is a legal document that establishes a trust, which is a relationship where one party holds assets for the benefit of another. The trustees are responsible for managing the trust and ensuring that its assets are used for charitable purposes.

Regulation and Compliance

Charitable companies are regulated by the Charity Commission in England and Wales, or the Office of the Scottish Charity Regulator in Scotland. They are required to submit annual reports and accounts, as well as comply with various regulations to maintain their charitable status. Trust deeds, on the other hand, are not regulated by a specific government body. However, trustees are still required to comply with charity law and ensure that the trust is operating in accordance with its charitable purposes.

Liability

One of the key differences between a charitable company and a trust deed is liability. In a charitable company, the members and directors have limited liability, which means that their personal assets are protected in the event of the company's insolvency. This can provide a level of security for those involved in the organization. In contrast, trustees of a trust deed do not have limited liability and can be personally liable for any debts or liabilities of the trust. This can be a significant risk for individuals involved in a trust deed.

Governance Structure

Charitable companies are required to have a board of directors who are responsible for the overall management and decision-making of the organization. Directors are appointed by the members of the company and have specific duties and responsibilities under company law. Trust deeds, on the other hand, are governed by trustees who are responsible for managing the trust and ensuring that its assets are used for charitable purposes. Trustees are usually appointed in the trust deed itself and have fiduciary duties to act in the best interests of the trust.

Flexibility and Control

Charitable companies offer a greater level of flexibility and control compared to trust deeds. Companies can have a wider range of legal powers and can enter into contracts, own property, and employ staff in their own name. They also have the ability to raise funds through various means, such as donations, grants, and fundraising activities. Trust deeds, on the other hand, are more limited in terms of their legal powers and are primarily focused on holding and managing assets for charitable purposes.

Tax Considerations

Both charitable companies and trust deeds are eligible for tax exemptions and reliefs as registered charities. Charitable companies are subject to corporation tax on any trading profits, but they may be eligible for exemptions on certain income and gains. Trust deeds are not subject to corporation tax, but trustees are responsible for ensuring that the trust complies with tax regulations and reporting requirements. It is important to consider the tax implications of each legal structure when setting up a charitable organization.

Conclusion

In conclusion, both charitable companies and trust deeds have their own unique attributes and benefits for setting up a charitable organization. Charitable companies offer limited liability, a formal governance structure, and greater flexibility and control. Trust deeds, on the other hand, provide a simpler legal structure, but trustees may face personal liability for the trust's debts. When deciding between a charitable company and a trust deed, it is important to consider the specific needs and goals of your charitable organization to determine which legal structure is the best fit.