Charity vs CIC vs CLG
Charities, Community Interest Companies, and non-profit Companies Limited By Guarantee are distinct legal entities serving public or community-oriented goals, each with unique scopes, structures and operational methods.
Charities
A charity is a non-profit organisation dedicated solely to charitable purposes, governed by charity law and typically registered with the Charity Commission. It relies on donations, grants, and fundraising often led by volunteers or paid staff to sustain its activities such as poverty relief, education advancement or promoting harmony among various groups.
Pros:
Tax benefits. Charities enjoy tax exemptions on income and certain types of property, which can help maximise funds directed towards their mission.
Public trust. Being registered as a charity often enhances public trust and credibility, facilitating fundraising efforts and partnerships. Because of this, there are often many more funds available to apply for.
Eligibility for grants. Many grant-making bodies prioritise charities when distributing funds, providing access to a wide range of financial support.
Flexibility. Charities have flexibility in their governance structures and operations, enabling them to adapt to changing needs and circumstances.
Cons:
Regulatory Requirements. Charities are subject to strict regulatory oversight, including reporting obligations and compliance with charity laws, which can entail administrative burdens.
Public Scrutiny. Charities are often under public scrutiny, facing pressure to demonstrate impact and accountability, which can be challenging.
Community Interest Companies
In contrast, a Community Interest Company (CIC) operates as a social enterprise, aiming to benefit the community while maintaining a business structure. CICs generate income through trading, reinvesting profits to fulfil social objectives. They are obligated to demonstrate their commitment to community service and are regulated by the CIC authority. Unlike charities, CICs may distribute profits to shareholders, provided these funds are used to further the company's social mission.
Pros:
Social mission focus. CICs are explicitly committed to achieving social objectives, allowing them to attract stakeholders aligned with their mission.
Asset lock. CICs are required to have an asset lock, ensuring that assets are used for community benefit rather than private gain, which enhances transparency and trust.
Limited liability. CIC directors have limited liability, protecting them from personal financial risks associated with the organisation's activities.
Business Flexibility. CICs have more freedom to generate income through trading activities while maintaining their social mission.
Cons:
Limited Funding Options. CICs may face challenges in accessing certain sources of funding, as some grant-making bodies prioritise registered charities.
Perception Challenges. Despite their social mission, some stakeholders may view CICs as less altruistic than traditional charities, impacting fundraising and partnerships.
Non-Profit Companies Limited By Guarantee
Non-profit Companies Limited by Guarantee (CLGs) are less prevalent legal entities compared to charities and CICs, typically formed by individuals or organisations with shared community interests. CLGs function similarly to charities in serving the public good but are not governed by charity law or CIC regulation. Instead, they adhere to company law, registering as a company limited by guarantee. CLGs engage in activities such as community development, environmental conservation, or cultural initiatives.
Pros:
Democratic governance. CLGs often have democratic governance structures, allowing members to have a say in decision-making processes and fostering community engagement.
Limited liability. Directors of CLGs enjoy limited liability, protecting their personal assets in case of legal liabilities.
Cons:
Regulatory complexity. CLGs must comply with various regulatory requirements, including reporting obligations and governance standards, which can be complex and time-consuming.
Funding challenges. Like CICs, CLGs may encounter difficulties in accessing certain funding streams, as charitable status is often preferred by grant makers.
While charities, CICs, and CLGs each offer distinct benefits and drawbacks, understanding their distinctions are essential for aligning your goals with legal frameworks. If you need help understanding which type of legal structure you should be as well as their unique advantages, feel free to contact us.
Take a look at our other posts:
The difference between project, core and capital funding
Can You Have Too Much Funding?
Automatic Rejection
How Much Funding Can You Request in an Application?
What are impact reports and why are they important?