The emergence of diverse types of nonprofits in the UK can be attributed to the country’s robust tradition of charity and volunteering. These organizations are frequently ranked among the top charities across the globe.
The lifestyle of generosity is often said to be the legacy of industrialization. Such is evidently observed even among its citizens. More than half of adults in England are reported to volunteer at least once a month. UK Nonprofit entities are often referred to as the third sector (public and private sectors are the first two).
In this article, we will outline the types of nonprofits in the UK and the laws governing their operations.
- The impact of charities can be seen in their capacity to build bridges and bring together various people through their activities
- The workforce of the UK’s voluntary sector reported a 3% increase last year making it the fastest-growing sector over the last decade
- A large portion of UK nonprofits comprises micro and small organizations.
What are the types of nonprofits in the UK?
The four primary types of nonprofits structure in the UK include:
- Charitable Incorporated Organization (CIO)
- Charitable Company (limited by guarantee)
- Unincorporated Associations
- Charitable Trusts
The country’s nonprofit structure is largely determined by its ‘governing document.’ This is the legal document that creates the union and decides its operation.
We will expound on the four types of nonprofits and how they operate.
1. Charitable Incorporated Organisation (CIO):
The corporate structure of the CIO is particularly developed for nongovernmental organizations. For these types of nonprofits, the corporation as well as its trustees are given the opportunity of limited liability protection and a separate legal personality. This is however not subject to company law (CIOs nonetheless are registered in the index of company names at Companies House.)
The Charities Act 2011 details the legal framework for CIOs as well as subordinate legislation. This states that a CIO can be dissolved on a solvent or insolvent basis. Also, residual assets must be applied in accordance with the charity’s constitution.
2. Charitable Company (limited by guarantee) (CCLG):
These types of nonprofits structure can be compared to a company limited by shares. The company constitutes members rather than shareholders who provide support in the contribution of a nominal amount if the company is on edge. Nongovernmental organizations in England and Wales are majorly set up as charitable companies limited by guarantee (CCLGs).
It should however be noted that the CCLG members have no right to a share of profits assigned for the CCLG’s charitable purposes. In a situation where the company is on edge, the nonprofit entity’s assets must be used for related charitable purposes. This could be transferred to another nongovernmental organization.
CCLGs are required to adhere to company law, especially the Companies Acts (the Companies Act 2006 and areas of the Companies Acts 1985 and 1989 that are still operative). The Registrar of Companies referred to as Companies House also regulates the Charity Commissions.
3. Unincorporated Associations:
These are types of nonprofits established through a group agreement. This group of people come together to tackle or solve a specific need which does not involve profit-making. The trustees are liable for whatever decisions they make as these types of nonprofits are not corporate entities. Examples of unincorporated bodies include sports clubs, voluntary groups or homeowner associations.
These organizations are not required to register their associations and it also costs nothing to set them up. Every member of the group takes responsibility for whatever contractual obligations or debts that may arise.
Unincorporated associations are also not able to enter into contracts or use their name to control some investments. A corporate custodian trustee, two or more trustees or the charities’ landholding service is assigned to hold any land on behalf of the charity.
However, unincorporated associations are required to pay Corporation Tax. They must also file a Company Tax Return in the case where the association begins to make profits and starts a trade.
4. Charitable Trusts:
These are types of nonprofits operated by a small group of people who are elected. They are often referred to as trustees. These nonprofit entities do not have a wider membership. A charitable trust does not enter into contracts or have a right to own property since it’s not incorporated.
Groups who intend to set up a trust must write and sign a trust deed showing that the nonprofit organization is legally charitable. Charity trusts with over £5000 in income per year are obligated to register with the Charity Commission.
A charitable trust is preferable for nonprofit organizations that don’t require a corporate structure or wider membership. Organizations that employ just a few staff members or do not focus on any kind of business can opt for a charitable trust.
The type of structure chosen by a nonprofit entity will affect its operation in areas such as:
- Who will handle the organization and the decision on the number of members
- Whether it can apply for contracts or hire staff using the name of the nonprofit organization.
- Whether the trustees will take responsibility for the operation of the charity.
Nonprofit entities decide the structure that best suits the organization’s needs. The charity may decide if they want to have a corporate system or a wider membership.
Key Highlights of the Nonprofit Organizations in the UK
The UK Civil Society Almanac, NCVO reported that the UK has over 165,758 nonprofits. A large portion of them comprises micro and small foundations. However, the country recorded a decline in the number and proportion of small charities.
Also, in the UK, women represent two-thirds of the sector’s workforce. Social services make up the largest sub-sector with 31,560 organizations. This adds up to 19% of the voluntary sector and a £13.3bn income. Culture and recreation follow as the second largest sub-sector. This group comprises 24,565 organizations at 15% and an income of £6.5bn.
The workforce of the voluntary sector reported a 3% increase over the last year. This makes it the fastest-growing sector over the last decade. Since 2011, nonprofit organizations have grown by nearly 27% which is more than a quarter. In general, nonprofits contribute over £20 bn to the UK’s GDP.
Nonprofits are a critical component of the economy that cannot be ignored. The impact of NGOs can be seen in their capacity to build bridges and bring together various people through their activities. This has gained the sector more prominence in its service delivery to the public.
There is however a need to seek efficient ways to maximize the value of the numerous types of nonprofits. This also includes their vast contributions to society. At the same time, nonprofits must safeguard the standard that has made them respected in the nation.
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