A charitable organization is a type of non-profit organization (NPO). It differs from other types of NPOs in that it centers on philanthropic goals as well as social well-being (e.g. charitable, educational, religious, or other activities serving the public interest or common good).
The legal definition of charitable organization (and of charity) varies according to the country and in some instances the region of the country in which the charitable organization operates.
Financial figures (e.g., tax refund, revenue from fundraising, revenue from sale of goods and services or revenue from investment) are important indicators to assess the financial sustainability of a charity, especially to charity evaluators. This information can impact a charity’s reputation with donors and societies, and thus, the charity’s financial gains.
Charitable organizations often depend partly on donations from for-profit-organizations. Such donations to charitable organizations represent a major form of corporate philanthropy.
Until the mid-18th century, charity was mainly distributed through parish relief (such as the English poor laws of 1601), churches, almshouses and bequests from the rich. Charities were also responsible for education, health, housing and even prisons. Almshouses were established throughout Europe in the Early Middle Ages to provide a place of residence for
It was in the Enlightenment era that charitable and philanthropic activity among voluntary associations and rich benefactors became a widespread cultural practice. Societies, gentleman’s clubs, and mutual associations began to flourish in England and the upper-classes increasingly adopted a philanthropic attitude toward the disadvantaged. This new social
This emerging upper-class fashion for benevolence resulted in the incorporation of the first charitable organizations. Captain Thomas Coram, appalled by the number of abandoned children living on the streets of London, set up the Foundling Hospital in 1741 to look after
Jonas Hanway, another notable philanthropist of the era established The Marine Society in 1756 as the first seafarer’s charity, in a bid to aid the recruitment of men to the navy. By 1763, the Society had recruited over 10,000 men and it was incorporated by an Act of Parliament in 1772. Hanway was also instrumental in establishing the Magdalen Hospital to rehabilitate prostitutes. These organizations were funded by subscription and run as voluntary
Charities also began to adopt campaigning roles, where they would champion a cause and lobby the government for legislative change. This included organized campaigns against the ill treatment of animals and children and the campaign that eventually succeeded in ending
This period also saw growing philosophical debate between those who championed state intervention and those who believed that private charities should provide welfare. Thomas Malthus, the political economist, criticized poor relief for paupers on economic and moral grounds and proposed leaving charity entirely to the private sector. His views were very influential and informed the Victorian laissez-faire attitude toward state intervention for the poor.
GROWTH DURING 19th CENTURY
During the 19th century, a profusion of charitable organizations were set up to alleviate the awful conditions of the working class in the slums. The Labourer’s Friend Society, chaired by Lord Shaftesbury in the United Kingdom in 1830, was set up to improve working class conditions. This included the promotion of allotment of land to labourers for “cottage husbandry” that later became the allotment movement. In 1844 it became the first Model Dwellings Company – organizations that sought to improve the housing conditions of the working classes by building new homes for them, at the same time receiving a competitive
There was strong growth in municipal charities. The Brougham Commission led on to the Municipal Corporations Act 1835 which reorganized local charities by incorporating them into one entity under supervision from the local government.
Charities at the time, including the Charity Organization Society (est. 1869) tended to discriminate between the ‘deserving poor’ who would be provided with suitable relief and the ‘underserving’ or ‘improvident poor’ who were regarded as the cause of their woes through their idleness. They also tended to be against the state provision of welfare, due to its
Philanthropy became a very fashionable activity among the expanding middle classes in Britain and America. Octavia Hill and John Ruskin were an important force behind the development of social housing and Andrew Carnegie exemplified the large scale.
It was only towards the end of the century with the advent of the New Liberalism and the innovative work of Charles Booth on documenting working class life in London that attitudes towards poverty began to change, which led to the first social liberal welfare reforms,
The definition of charity in Australia is derived through English common law, originally from the Charitable Uses Act 1601, and then through several centuries of case law based upon it. In 2002, the federal government established an inquiry into the definition of a charity.
That inquiry proposed that the government should legislate a definition of a charity, based on the principles developed through case law. This resulted in the Charities Bill 2003. The bill incorporated a number of provisions, such as limitations on charities being involved in
As a result, the government then introduced what became the Extension of Charitable Purpose Act 2004. This bill did not attempt to codify the definition of a charitable purpose; it
To publicly raise money, charities in Australia are required to register under the state jurisdiction within which they intend to raise funds and must be registered in each and any state within which they intend to publicly raise funds. For example, in Queensland charities must register with the QLD Office of Fair Trading.
An example of a registered charity in Queensland, Australia is Sunny kids so whilst Sunny kids can publicly raise funds for charitable purposes, and whilst such donations are tax deductible in every Australian state and territory – the funds themselves may only be raised in QLD as this is the only state within which the charity is registered to raise funds. In order for the charity to raise funds in the
Needless to say, many Australian charities are calling on federal, state, and territory governments to unify legislation to allow registration in a single state or territory to allow
Charities in Canada must be registered with the Charities Directorate of the Canada Revenue Agency. According to the Canada Revenue Agency:
A registered charity is an organization established and operated for charitable purposes, and must devote its resources to charitable activities. The charity must be resident in Canada, and cannot use its income to benefit its members. A charity also has to meet a public benefit test.
To register as a charity, the organization has to be either incorporated or governed by a legal document called a trust or a constitution. This document has to explain the organization’s purposes and structure.
Charity law within the UK varies between (i) England and Wales, (ii) Scotland and (iii) Northern Ireland, but the fundamental principles are the same. Most organisations that are charities are required to registered with the appropriate regulator for their jurisdiction, but significant exceptions apply so that many organisations are bona fide charities but do not appear on a public register. The registers are maintained by the Charity Commission for England and Wales and for Scotland by the Office of the Scottish Charity Regulator. The
1. the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity
2. the advancement of environmental protection or improvement
3. the relief of those in need, by reason of youth, age, ill-health, disability, financial hardship or other disadvantage
4. the advancement of animal welfare
5. the promotion of the efficiency of the armed forces of the Crown or of the police, fire and rescue services or ambulance services
6. other purposes currently recognized as charitable and any new charitable purposes which are similar to another charitable purpose.
A charity must also provide a public benefit.
Before the Charities Act 2006, which introduced the definition now contained in the 2011 Act, the definition of charity arose from a list of charitable purposes in the Charitable Uses Act 1601 (also known as the Statute of Elizabeth), which had been interpreted and expanded into a considerable body of case law. In Commissioners for Special Purposes of Income Tax v. Pemsel (1891), Lord McNaughten identified four categories of charity which could be extracted from the Charitable Uses Act and which were the accepted definition of charity prior to the Charities Act 2006.
1. the relief of poverty,
2. the advancement of education,
3. the advancement of religion, and
4. other purposes considered beneficial to the community.
Charities in England and Wales – such as Age UK, the Royal Society for the Protection of Birds [RSPB]  and the Royal Society for the Protection of Animals [RSPCA] (www.rspca.org.uk) – must comply with the 2011 Act regulating matters such as charity reports and accounts and fundraising.
CHARITABLE ORGANIZATION STRUCTURE
The unincorporated association is the most common form of organization within the voluntary sector in England and Wales. An unincorporated association is essentially a contractual arrangement between individuals who have agreed to come together to form an organization for a particular purpose. An unincorporated association will normally have as its governing document, a constitution or set of rules, which will deal with such matters as the
A trust is essentially a relationship between three parties, the donor of some assets, the trustees who hold the assets and the beneficiaries (those people who are eligible to benefit from the charity). When the trust has charitable purposes, and is a charity, the trust is known as a charitable trust. The governing document is the trust deed or declaration of trust.
A company limited by guarantee is a private limited company where the liability of members is limited. A guarantee company does not have a share capital, but instead has members who are guarantors instead of shareholders. In the event of the company being wound up, the members agree to pay a nominal sum which can be as little as £1.
A company limited by guarantee is a useful structure for a charity where it is desirable for the trustees to have the protection of limited liability. Also, the charity has legal personality, and so can enter into contracts, such as employment contracts in its own name.
A small number of charities are incorporated by royal charter, a document which creates a corporation with legal personality (or, in some instances, transforms a charity incorporated as a company into a charity incorporated by royal charter). The charter must be approved by the
The Charities Act 2006 legislated for a new legal form of incorporation designed specifically for charities, the Charitable Incorporated Organization, with powers similar to a company.
The word Foundation is not generally used in England and Wales. Occasionally, a charity will use the word Foundation as part of its name e.g. British Heart Foundation, but this has no legal significance and does not provide any information about either the work of the charity.
Charitable organizations that have an income of more than £5,000, and for whom the law of England and Wales applies, must register with the Charity Commission for England and Wales, unless they are an “exempt” or “excepted” charity. For companies, the law of England and Wales will normally apply if the company itself is registered in England and Wales.
In other cases, if the governing document does not make it clear, the law which applies will be the country with which the organization is most connected.
When an organization’s income does not exceed £5,000, it is not able to register as a charity with the Charity Commission for England and Wales. It can, however, register as a charity with HM Revenue and Customs for tax purposes only. With the rise in mandatory registration
Some charities which are called exempt charities are not required to register with the Charity Commission and are not subject to any of the Charity Commission’s supervisory powers. These charities include most universities and national museums and some other educational