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Set out below are some of the merits and
disadvantages of various legal structures which you may choose.
Company limited by shares:
Advantages
- Ability to raise capital by a share issue.
- Profit shedding by way of gift aid or deeds of covenant and
dividend.
- Does not have to be wholly owned by parent charity (risk
mitigation ).
- Carry back of ACT to set off tax liability in earlier years.
- Limited liability (except for wrongful trading).
- Continuity.
Disadvantages
- Needs to be in charity's objects to invest.
- Risk of the investment to the charity must be acceptable.
- Profit shedding by way of dividend can leave a taxable residual
because of the different rates of ACT and reclaimable dividend
credits.
- Cannot register as a charity itself
- Costs.
- Greater administration.
Company limited by
guarantee:
Advantages
- Profit shedding by way of gift aid or deeds of covenant.
- Charity does not have to be sole member.
- Limited liability (except for wrongful trading).
- More usual structure if company is also going to be a charity.
- Can register as a charity if it is to trade in the primary
objects.
- Continuity.
Disadvantages
- Costs.
- Greater administration.
Incorporated and a charity
Advantages
Access to fundraising.
Can make arms length charges to recharges church for facilities
provided.
Possibility of vat exempt status on care provision (restricts
ability to profit shed as surplus has to be used for same activity).
Disadvantages
- Another tier of legislation to comply with.
- Restricts trading to that within the primary object ( a
non-charitable trading company would have more scope).
- Loans from the parent charity for financing must be at a
commercial rate of interest and secured. Objects have to allow for
profit shedding if appropriate.
VAT
It is possible for the trading company to be registered for VAT and
the parent charity not registered (providing its activities are distinct
from those of the parent charity and anti-avoidance legislation does not
come in to play.). This can sometimes simplify the position of the
charity.
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