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As this is the season for giving, this is a good time to talk about how to establish a charitable entity. Fortune Manning have acted in the formation of numerous charitable entities which have been approved by Charities Services and have provided some advice on establishing a Charitable Entity. A charitable entity is an entity which has been established principally for charitable purposes and registered under the Charities Act 2005.
People should first determine what entity is to be established – charitable trust; incorporated society or charitable company and choose a name for the charitable entity. They then prepare the trust deed or constitution, and the primary matters to be covered in the deed or constitution are the name of the entity, the purposes/objects of the entity and the names and identities of the trustees or directors. They also need the names of the shareholders for a charitable company and the operational rules of the entity.
The proposed activities (i.e. purposes/objects) of the entity need to be expressed in such a way so as to fit within one or more of the above charitable purpose categories. A condition of registration under the Charities Act 2005 is that all entities must have an IRD number and must be incorporated as a charitable entity under the Charitable Trusts Act 1957, Companies Act 1995 or the Incorporated Societies Act 1908.
For a trust, once the trust deed is finalised, the trust can be incorporated under the Charitable Trusts Act 1957. This gives some protection for the trustees individually as registration creates a Trust Board. Members of an incorporated society have limited liability. The Incorporated Societies Act 1908 (“Act”) states that “Except when otherwise expressly provided in this Act, membership of a society shall not of itself impose on the members any liability in respect of any contract, debt, or other obligation made or incurred by the society”.
Registration under the Charities Act 2005 is voluntary however, a charitable entity that chooses not to register with Charities Services will no longer qualify for tax exempt status or be able to call itself a "registered charitable entity".