This guide explores the potential and reasons to set up as a

charitable organisation and signposts to the resources that tell you

how:

Can you set up a charity?

Should you set up a charity? Advantages and disadvantages

If so, what next?

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Establishing a charity is a more regulated and accountable process

than setting up as another type of organisation. You need to check

whether the type of organisation you have, or want to have, and the

activities you (will) undertake, allow you to be a charity.

The Office of the Scottish Charity Regulator (OSCR) is the body

responsible for regulating charities and can only enter an organisation

on the Scottish Charity Register if it meets specific criteria.

Can you set up a charity?

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You must prove that your organisation;

Has only charitable purposes - its money and other assets must

be used for recognised charitable causes. ‘The advancement of the

arts, heritage, culture or science’ and ‘the advancement of education’

are the recognised charitable causes which underpin the charitable

purpose and status of most arts organisations.

Benefits the public - it must not unduly restrict access to benefits or

only benefit those associated with it.

Has passed the ‘charity test’ - it must prove its charitable purpose

and public benefit, and that its constitution and activities don’t conflict

with charitable status.

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It is against the law to describe yourself as a charity unless you are

on the Scottish Charity Register.

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Should you set up a charity?

There are many advantages and disadvantages to consider before

deciding.

Advantages

• Becoming a charitable organisation can help you establish a shared

responsibility and legacy for activities beyond your personal

involvement.

• Being regulated can assure you of public goodwill and trust which can

also help to secure donations and funding.

• Companies may be more likely to make in kind donations.

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• Some funders, (e.g. trust and foundations), may only consider charities

because of the way they were set up or to be sure their money will be

used for the purposes they wish to support.

• If you receive donations from someone who pays income tax you can

reclaim a share of the tax under the Gift Aid scheme with HMRC.

• Charities qualify for other tax benefits, some VAT exemptions and

rates relief from some local authorities.

• Charities have to be governed by trustees who ensure the effective

running of the charity. Trustees can bring valuable knowledge,

experience and contacts to your organisation.

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• There are legal restrictions on what charities can and cannot do,

e.g. cannot use assets or profits for non-charitable purposes or

become involved in any overtly political campaigns.

• You will have to invest resources in administration and

accounting to fulfil annual reporting requirements.

• You will have to invest time to find the right trustees for the

charity, and to brief them about their responsibilities, your

programme and operations so they can take well-informed

decisions.

Disadvantages

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• There are restrictions on when and what trustees can be paid by

the charity for work they do. They can only be paid reasonable out

of pocket expenses for their governance work and not be paid staff.

They can be paid for work other than governance if decisions on

paying a trustee are made by the board when that trustee in not

present and has no influence over the outcome, and in line with the

rules laid out in the charity's constitution, and at rates which are

best for the charity. The majority of the trustees must remain

unpaid. While it is legal to pay trustees in this way it is considered

by many funders to be bad practice as a charity should not be set

up in order to create an income for its trustees. 8/16

• The ultimate responsibility for the financial management and

direction of the organisation lies with the board of trustees, which

can lead to tensions with and the removal of senior staff e.g. artistic

directors.

• There are restrictions on the type of trade a charity can undertake

as all activity has to meet its stated charitable aims. So if your

organisation wants to grow or expand its earned income, you may

have to consider setting up a separate trading arm, with all the

accompanying paperwork and cost.

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• Once you have set up as a charity it is quite difficult to de-

register. And if you do, you have to give any assets the charity

has bought, such as premises, office equipment, vans and so

on, to another charity with similar objectives. In other words, you

would not be able to sell these assets to repay debts, or use

them for a more commercial venture.

• Being a charity does not guarantee more funding and most

funding application processes are highly competitive.

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OSCR advises that the first step is to decide which organisational

structure is most appropriate for you;

either a non-profit distributing organisation,

If so, what next?

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or the purpose built structure, a SCIO.

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Which you choose depends on whether;

• you are already operating as an organisation

• you require limited liability for your trustees

• you can only manage one set of annual reporting and

administration

• your organisation needs to continue to exist if it were to be

removed from the charity register in the future.

OSCR’s publication, SCIOs: A Guide includes a table which compares

the characteristics of a SCIO against a Trust, Company or Association

so you can weigh up the advantages and risks of each.

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Next, you will need to;

• Decide who will run your charity i.e. be on the board of trustees

• Prepare a constitution or governing document setting out your

organisation’s purpose and management

• Decide on a name and check it against the Scottish Charity Register

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Your trustees and constitution will all need to be in place before you can

apply to OSCR. The process of recruitment and writing the constitution

and proposed activities with them should help ensure that the

commitment, administration, resources and skills are in place to run a

charity.

OSCR produces very clear advice on becoming a charity and what else

you need to apply to them with.

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Next steps

For further information on this subject, please refer to the

following resources:

Setting Up a Company

Keeping Financial Records Guide

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Disclaimer: Cultural Enterprise Office is not responsible for any advice or information provided by any external

organisation referenced in this document.