Becoming a registered charity

By Ella Davy Green, December 6, 2016
Organisation

Getting Wikilogic registered as either a charity and / or company is the next step in developing our plans and moving forward with the project. Coming to a decision about the best route to take demanded researching all possible avenues and mapping out and comparing these possibilities. Our leading aim was to find a model which would allow us to begin raising funds to develop Wikilogic, but of course there were also multiple other factors that informed our final decision to register as a Charitable Incorporated Organisation.

Initial research highlighted that there were many different avenues we could go down as an organisation with charitable ethos, each of which had potential pros and cons. There were two main options; to become an officially registered charity, or to become a company with charitable ethos, such as a community interest company or Social Enterprise.

The community interest company route was appealing for several reasons. Firstly, CIC’s have a corporate structure and limited liability, meaning that the company is a self contained legal entity able to enter into financial contracts etc. This means our directors would not be personally liable for the company’s finances and any possible debts. CIC’s have two regulating bodies – Companies House and a CIC regulating board. As company registration takes a very short period of time (approx 24 hours), this would allow us to be up and running very quickly and start submitting funding proposals as soon as possible. Moreover, the governance structure of a CIC is far more flexible than those of the charity model’s. For example, company directors are allowed to be payed for their services, meaning that those already involved with the company would be in a position to be paid for work as Wikilogic evolved and recevied funding. However, whilst the CIC option was good for these reasons, it looked like the CIC option might limit our opportunities for attracting investment. Numerous avenues of funding demand charitable status in order to be considered and having as many possible options for attracting funding is key. Whilst there are avenues of funding which support CIC’s such as loans or funding or social investment from bodies such as the ‘The Big Potential’, these seemed to be geared more towards giving companies the capital to help them become financially self sustaining in the near future. Although Douglas has many ideas for how Wikilogic might begin to accrue its own funding in the future, we are currently a long way off from this.

Having decided we wanted charitable status, the next step was to decide what kind of charity structure would be most suitable for Wikilogic. There are broadly three categories of charity available: A Charitable Unincorporated Organisation, A Charitable Company (which we would choose to be limited by guarantee as opposed to shares), or a Charitable Incorporated Organisation. Whilst all of these options would give Wikilogic charitable status there are some significant differences between these different models – which I will explain briefly.

A Charitable Unincorporated Organisation is essentially what The Wikilogic Foundation can currently be considered as our earnings are under £5000, meaning we do not have to be registered with the Charity Commission. The problem with this model is that the charity does not possess its own legal personality, and there is also no limited liability – meaning that whilst charity managers can be paid, they would also be accountable should there be any financial loss. This would make employing people for future services far more complex and possibly make attracting larger amounts of funding more difficult, as there is not the security of the charity commission or company’s house as a regulating body to assure potential investors. Also, as soon as we start earning over £5000 in grants or crowdfunding campaigns, we would have to undertake a conversion process to become a CIO or Charitable Company anyway.

Having got this far it seemed like the best two options for Wikilogic were either becoming a Charitable Company or a Charitable Incorporated Organisation. Up until around 2011, when the new Charitable Incorporated Organisation model was created, becoming a Charitable Company would have likely been Wikilogic’s default choice. There are some distinct similarities between these two types of charity which would make them suitable for Wikilogic. Both Charitable Companies and CIO’s have legal personality’s and limited liability. Both must have a governing body made up of Trustee’s who are responsible for making sure the charity adheres to its constitutional document / memorandum and any protocols laid out by the regulating bodies. Of course, this is a serious consideration for Wikilogic moving forward as it could potentially limit Douglas (the obvious choice for director of trustees) from being payed for any work he continues to do – even if he is best placed to do it. More on this later.

There are a few main factors which differentiate a charitable company from a CIO, and it was these which informed the decision to become a CIO. CIOs are different to charitable companies in that they do not need to be registered with company’s house and have the charity commission as their only regulating body. This is unlike charitable companies who must be registered with both.

CIO was created so as to give small-medium size charity’s access to charitable status, without the large amounts of costs, conditions and bureaucracy faced by charitable companies. For example, a charitable company has a far more complex constitution, have to pay two registration fees, and have to adhere to both company house and charity commission protocol (which entails various administrative procedures). This is far more complex and labour intensive than CIO’s who only have to make a singular annual report to the charity commission. This reduces potential costs on things like accountants and strips back the amount of work needed for the charity’s administration, making it perfect for start-ups like Wikilogic who’s resources are limited. The lack of Company House regulation is also beneficial as it means that a charity is less likely to be fined for any financial errors, unlike a charitable company who can be fined for incorrect or incomplete information.

On the most basic practical level the CIO model works the best for Wikilogic as (unlike charitable companies) CIO’s do not need to have an income of over £5000 to register, and therefore gain official charitable status. This is ideal for Wikilogic, as the charity’s projected income is currently uncertain. Of course another bonus is that registering as a CIO is free!

The only potential downsides of becoming a CIO as opposed to a charitable company is that there is slightly less security in becoming a CIO. Because Wikilogic would not be registered as both a charity and a company, in the unlikely scenario that Wikilogic should loose its charitable status, it would cease to exist. This is unlike charitable companies who retain their company status even when their charitable status is lost. However, as Wikilogic is intended first and foremost as a charity this is something which should not be the leading decision maker for us. The other possible minor downside of becoming a CIO is that there may be a slight reduction in the likelihood of CIOs getting funding in the way of loans, as banks etc may be put off by the lack of company house regulation. However, as we are not currently thinking about loans as a viable funding option this is not a big issue. Should we reach a point of development whereby loans seemed more appropriate we would likely be in a place where transitioning into a charitable company may be prudent, as well as more accessible.

Having made the decision to become a CIO we are now working through the process of considering our governance structure, finding suitable trustees and writing our founding constitution. As mentioned, this involves some serious consideration surrounding who the charity might later want or need to employ so as to develop the software etc, and some investigation about whether it will work for Douglas to act as both a trustee and a paid employee at a later date.