Charitable organization

Charitable organization

Overview
A charitable organization is a type of non-profit organization
Non-profit organization
Nonprofit organization is neither a legal nor technical definition but generally refers to an organization that uses surplus revenues to achieve its goals, rather than distributing them as profit or dividends...

 (NPO). It differs from other types of NPOs in that it centers on philanthropic
Philanthropy
Philanthropy etymologically means "the love of humanity"—love in the sense of caring for, nourishing, developing, or enhancing; humanity in the sense of "what it is to be human," or "human potential." In modern practical terms, it is "private initiatives for public good, focusing on quality of...

 goals (e.g. charitable
Charity (practice)
The practice of charity means the voluntary giving of help to those in need who are not related to the giver.- Etymology :The word "charity" entered the English language through the Old French word "charité" which was derived from the Latin "caritas".Originally in Latin the word caritas meant...

, educational, religious, or other activities serving the public interest
Public interest
The public interest refers to the "common well-being" or "general welfare." The public interest is central to policy debates, politics, democracy and the nature of government itself...

 or common good
Common good
The common good is a term that can refer to several different concepts. In the popular meaning, the common good describes a specific "good" that is shared and beneficial for all members of a given community...

).

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.
Discussion
Ask a question about 'Charitable organization'
Start a new discussion about 'Charitable organization'
Answer questions from other users
Full Discussion Forum
 
Recent Discussions
Encyclopedia
A charitable organization is a type of non-profit organization
Non-profit organization
Nonprofit organization is neither a legal nor technical definition but generally refers to an organization that uses surplus revenues to achieve its goals, rather than distributing them as profit or dividends...

 (NPO). It differs from other types of NPOs in that it centers on philanthropic
Philanthropy
Philanthropy etymologically means "the love of humanity"—love in the sense of caring for, nourishing, developing, or enhancing; humanity in the sense of "what it is to be human," or "human potential." In modern practical terms, it is "private initiatives for public good, focusing on quality of...

 goals (e.g. charitable
Charity (practice)
The practice of charity means the voluntary giving of help to those in need who are not related to the giver.- Etymology :The word "charity" entered the English language through the Old French word "charité" which was derived from the Latin "caritas".Originally in Latin the word caritas meant...

, educational, religious, or other activities serving the public interest
Public interest
The public interest refers to the "common well-being" or "general welfare." The public interest is central to policy debates, politics, democracy and the nature of government itself...

 or common good
Common good
The common good is a term that can refer to several different concepts. In the popular meaning, the common good describes a specific "good" that is shared and beneficial for all members of a given community...

).

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. The regulation, tax treatment, and the way in which charity law affects charitable organizations also varies.

Definition of charity


The definition of charity in Australia is derived through English common law, originally from the Charitable Uses Act 1601
The Charitable Uses Act 1601
The Charitable Uses Act of 1601 is an Act of the Parliament of England dealing with the definition of a charity. It was repealed by section 13 of the Mortmain and Charitable Uses Act 1888 .-External links:*...

, and then through several centuries of case law based upon it. In 2002, the Federal Government establish 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 political campaigning, which many charities saw as an unwelcome departure from the case law. The government then appointed a Board of the Taxation inquiry to consult with charities on the Bill. As a result of widespread criticism from charities, the Government decided to abandon the Bill.

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 merely sought to clarify that certain purposes were indeed charitable, whose charitable status had been subject to legal doubts. These purposes were: childcare; self-help groups; closed/contemplative religious orders.

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 Sunnykids
Sunnykids
SunnyKids is an Australian children's charitable organisation. Established in 1999 as a domestic and family violence service on the Sunshine Coast, Queensland, Australia, the service initially partnered with government and the community to build and purchase a series of properties in the region to...

 so whilst Sunnykids
Sunnykids
SunnyKids is an Australian children's charitable organisation. Established in 1999 as a domestic and family violence service on the Sunshine Coast, Queensland, Australia, the service initially partnered with government and the community to build and purchase a series of properties in the region to...

 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 remaining seven Australian States and Territories it would need to register in each State or Territory individually. 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 to raise funds in all 8 Australian States and Territories.

Canada


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 qualify under this test, an organization must show that:
  • its activities and purposes provide a tangible benefit to the public
  • those people who are eligible for benefits are either the public as a whole, or a significant section of it, in that they are not a restricted group or one where members share a private connection, such as social clubs or professional associations with specific membership
  • the charity's activities must be legal and must not be contrary to public policy

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.

Definition of charitable organization


Section 1 Charities Act 2006 provides the definition in England and Wales:
For the purposes of the law of England and Wales, “charity” means an institution which—
is established for charitable purposes only, and
falls to be subject to the control of the High Court in the exercise of its jurisdiction with respect to charities.

The Charities Act 2006
Charities Act 2006
The Charities Act 2006 is an Act of the Parliament of the United Kingdom intended to alter the regulatory framework in which charities operate, partly by amending the Charities Act 1993.-Provisions:...

 provides the following list of charitable purposes.
  1. the prevention or relief of poverty
    Poverty
    Poverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...

  2. the advancement of education
    Education
    Education in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...

  3. the advancement of religion
    Religion
    Religion is a collection of cultural systems, belief systems, and worldviews that establishes symbols that relate humanity to spirituality and, sometimes, to moral values. Many religions have narratives, symbols, traditions and sacred histories that are intended to give meaning to life or to...

  4. the advancement of health or the saving of lives
  5. the advancement of citizenship or community development
  6. the advancement of the arts, culture, heritage or science
  7. the advancement of amateur sport
  8. the advancement of human rights
    Human rights
    Human rights are "commonly understood as inalienable fundamental rights to which a person is inherently entitled simply because she or he is a human being." Human rights are thus conceived as universal and egalitarian . These rights may exist as natural rights or as legal rights, in both national...

    , conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity
  9. the advancement of environmental protection or improvement
  10. the relief of those in need, by reason of youth, age, ill-health, disability, financial hardship or other disadvantage
  11. the advancement of animal welfare
  12. the promotion of the efficiency of the armed forces of the Crown or of the police, fire and rescue services or ambulance services
  13. other purposes currently recognised 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 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
    Poverty
    Poverty is the lack of a certain amount of material possessions or money. Absolute poverty or destitution is inability to afford basic human needs, which commonly includes clean and fresh water, nutrition, health care, education, clothing and shelter. About 1.7 billion people are estimated to live...

    ,
  2. the advancement of education
    Education
    Education in its broadest, general sense is the means through which the aims and habits of a group of people lives on from one generation to the next. Generally, it occurs through any experience that has a formative effect on the way one thinks, feels, or acts...

    ,
  3. the advancement of religion
    Religion
    Religion is a collection of cultural systems, belief systems, and worldviews that establishes symbols that relate humanity to spirituality and, sometimes, to moral values. Many religions have narratives, symbols, traditions and sacred histories that are intended to give meaning to life or to...

    , and
  4. other purposes considered beneficial to the community.


English charities must comply with the Charities Acts 1992 (Part III), 1993, 2006 which regulate matters such as charity reports and accounts and fundraising.

Charitable organization structure


there are a number of types of legal structure for a charity in England and Wales.
  1. Unincorporated association
  2. Trust
  3. Company limited by guarantee
  4. Another incorporation, such as by Royal Charter


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 appointment of office bearers, and the rules governing membership. The organization is not though a separate legal entity. So it cannot start legal action, it cannot borrow money, and it cannot enter into contracts in its own name. Also the officers can be personally liable if the charity is sued or has debts.

A Trust
Trust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...

 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, which comes into operation once it is signed by all the trustees. The main disadvantage of a trust is that, as with an unincorporated association, it does not have a separate legal entity and the trustees must themselves own property and enter into contracts. The trustees are also liable if the charity is sued or incurs liability.

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
Royal Charter
A royal charter is a formal document issued by a monarch as letters patent, granting a right or power to an individual or a body corporate. They were, and are still, used to establish significant organizations such as cities or universities. Charters should be distinguished from warrants and...

, 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 Privy Council
Privy council
A privy council is a body that advises the head of state of a nation, typically, but not always, in the context of a monarchic government. The word "privy" means "private" or "secret"; thus, a privy council was originally a committee of the monarch's closest advisors to give confidential advice on...

 before receiving Royal Assent. Although the nature of the charity will vary depending on the clauses enacted, generally a Royal Chartered will offer a charity the same limited liability as a company and the ability to enter into contracts.

The Charities Act 2006 introduced a new legal form of incorporation designed specifically for charities, the Charitable Incorporated Organisation
Charitable Incorporated Organisation
A Charitable Incorporated Organisation is a new form of legal entity designed for non-profit organisations in the United Kingdom.The main intended benefits of the new entity are that it has legal personality, the ability to conduct business in its own name, and limited liability so that its...

. this is not yet available for charities to use.

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
British Heart Foundation
The British Heart Foundation is a charity organisation in Britain that funds research, education, care and awareness campaigns aimed to prevent heart diseases in humans.-Foundation:...

, but this has no legal significance and does not provide any information about either the work of the charity or how it is legally structured. The structure of the organization will be one of the types of structure described above.

Charity registration


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
Charity Commission
The Charity Commission for England and Wales is the non-ministerial government department that regulates registered charities in England and Wales....

. 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.

Where 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
Charity Commission
The Charity Commission for England and Wales is the non-ministerial government department that regulates registered charities in 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 level, to £5,000 by The Charities Act 2006, smaller charities can be reliant upon HMRC recognition to evidence their charitable purpose and confirm their not-for-profit principles.

Some charities which are called exempt charities
Exempt charity
An exempt charity is an institution established in England and Wales for charitable purposes which is exempt from registration with, and oversight by, the Charity Commission....

 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 institutions. Other charities are excepted from the need to register, but are still subject to the supervision of the Charity Commission. The regulations on excepted charities have however been changed by the Charities Act 2006. Many excepted charities are religious charities.

Northern Ireland


Charities in Northern Ireland
Northern Ireland
Northern Ireland is one of the four countries of the United Kingdom. Situated in the north-east of the island of Ireland, it shares a border with the Republic of Ireland to the south and west...

 are registered with the UK HM Revenue and Customs. The Charity Commission for Northern Ireland has now been established and has received the names and details of over 7,000 organisations that have previously been granted charitable status for tax purposes. The entering of these organisations onto a new and temporary list under the heading of “Organisations that have previously been known as charities” is continuing. This list is not the new register, but will be made publicly available on the CCNI website.

Scotland


The 20,000 or so charities in Scotland
Scotland
Scotland is a country that is part of the United Kingdom. Occupying the northern third of the island of Great Britain, it shares a border with England to the south and is bounded by the North Sea to the east, the Atlantic Ocean to the north and west, and the North Channel and Irish Sea to the...

 are registered with the Office of the Scottish Charity Regulator
Office of the Scottish Charity Regulator
The Office of the Scottish Charity Regulator is a non-ministerial department of the Scottish Government, with responsibility for the regulation of charities in Scotland...

 (OSCR), which also publishes a Register of charities online. Scotland has the highest number of charities per capita in the world.

Taxation of Charities


Charitable organisations, including charitable trusts, are eligible for a complex set of reliefs and exemptions from taxation in the UK. These include reliefs and exemptions in relation to income tax, capital gains tax, inheritance tax, stamp duty land tax and value added tax.

United States


In the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

, a charitable organization is an organization that is organized and operated for purposes that are beneficial to the public interest
Public interest
The public interest refers to the "common well-being" or "general welfare." The public interest is central to policy debates, politics, democracy and the nature of government itself...

, however a distinction is made between types of charitable organizations.

Every U.S. and foreign charity that qualifies as tax-exempt under Section 501(c)(3) of the Internal Revenue Code
Internal Revenue Code
The Internal Revenue Code is the domestic portion of Federal statutory tax law in the United States, published in various volumes of the United States Statutes at Large, and separately as Title 26 of the United States Code...

 is considered a "private foundation
Private foundation
A private foundation is a legal entity set up by an individual, a family or a group of individuals, for a purpose such as philanthropy. The Bill & Melinda Gates Foundation is the largest private foundation in the U.S. with over $38 billion in assets...

" unless it demonstrates to the IRS
Internal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...

 that it falls into another category. In a general sense, any organization that is not a private foundation (i.e. it qualifies as something else) is usually a public charity as described in Section 509(a) of the Internal Revenue Code.

In addition, a private foundation
Private foundation
A private foundation is a legal entity set up by an individual, a family or a group of individuals, for a purpose such as philanthropy. The Bill & Melinda Gates Foundation is the largest private foundation in the U.S. with over $38 billion in assets...

 usually derives its principal fund from an individual, family, corporation, or some other single source and is more often than not a grantmaker and does not solicit funds from the public. In contrast, a foundation or public charity generally receives grants from individuals, government, and private foundations and although some public charities engage in grantmaking activities, most conduct direct service or other tax-exempt activities.

This leads to another distinction: Foundations that are generally grantmakers (i.e. they use their endowment
Financial endowment
A financial endowment is a transfer of money or property donated to an institution. The total value of an institution's investments is often referred to as the institution's endowment and is typically organized as a public charity, private foundation, or trust....

 to make grants to other organizations, which in turn carry out the goals of the foundation indirectly) are usually referred to as "grantmaker" or "non-operating" foundations. These of course tend to be private foundations. Some private foundations however, (and most public charities) use their received funds to directly engage in service activities themselves and achieve their goals "personally," so-to-speak.

Examples of a non-operating private foundation would be the Rockefeller Foundation
Rockefeller Foundation
The Rockefeller Foundation is a prominent philanthropic organization and private foundation based at 420 Fifth Avenue, New York City. The preeminent institution established by the six-generation Rockefeller family, it was founded by John D. Rockefeller , along with his son John D. Rockefeller, Jr...

 and the Bill & Melinda Gates Foundation
Bill & Melinda Gates Foundation
The Bill & Melinda Gates Foundation is the largest transparently operated private foundation in the world, founded by Bill and Melinda Gates. It is "driven by the interests and passions of the Gates family"...

.

Examples of operating foundations or public charities include the Elizabeth Glaser Pediatric AIDS Foundation
Elizabeth Glaser Pediatric AIDS Foundation
The Elizabeth Glaser Pediatric AIDS Foundation is a nonprofit organization dedicated to preventing pediatric HIV infection and eliminating pediatric AIDS through research, advocacy, and prevention and treatment programs...

, American Cancer Society, Inc.
American Cancer Society
The American Cancer Society is the "nationwide community-based voluntary health organization" dedicated, in their own words, "to eliminating cancer as a major health problem by preventing cancer, saving lives, and diminishing suffering from cancer, through research, education, advocacy, and...

, and the World Wildlife Fund.

The requirements and procedures for forming charitable organizations vary from state to state, as do the registration and filing requirements for charitable organizations that conduct charitable activities or solicit charitable contributions. So effectively in practice the detailed definition of charitable organization is determined by the requirements of state law of the state in which the charitable organization operates, and the requirements for federal tax relief set by the IRS.

Federal tax relief


Federal tax law provides tax benefits to non profit organizations recognized as exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code (IRC). The benefits of 501(c)(3) status include exemption from federal income tax as well as eligibility to receive tax deductible charitable contributions. To qualify for 501(c)(3) status most organizations must apply to the Internal Revenue Service (IRS) for such status.

There are several requirements that must be met for a charitable organization to obtain 501(c)(3) status. These include the organization being organized as a corporation, trust, or unincorporated association, and the organization’s organizing document (such as the articles of incorporation, trust documents, or articles of association) must limit its purposes to being charitable, and permanently dedicate its assets to charitable purposes. The organization must refrain from undertaking a number of other activities such as participating in the political campaigns of candidates for local, state or federal office, and must ensure that its earnings do not benefit any individual. Most tax exempt organizations are required to file annual financial reports (IRS Form 990) at the state and federal level. A tax exempt organization's 990 and some other forms are required to be made available to public scrutiny.

The types of charitable organization that are considered by the IRS to be organized for the public benefit include those that are organized for:
  1. Relief of the poor, the distressed, or the underprivileged,
  2. Advancement of religion,
  3. Advancement of education or science,
  4. Erection or maintenance of public buildings, monuments, or works,
  5. Lessening the burdens of government,
  6. Lessening of neighborhood tensions,
  7. Elimination of prejudice and discrimination,
  8. Defense of human and civil rights secured by law, and
  9. Combating community deterioration and juvenile delinquency.


A number of other organizations, including those organized for religious, scientific, literary and educational purposes, as well as those for testing for public safety and for fostering national or international amateur sports competition, and for the prevention of cruelty to children or animals, may also qualify for exempt status.

The IRS, except in rare circumstances, refers to all organizations qualifying for exemption under 501(c)(3) as charities.

Charity regulating bodies

  • Australian Taxation Office
    Australian Taxation Office
    The Australian Taxation Office is an Australian Government statutory agency and the principal revenue collection body for the Australian Government. The ATO has responsibility for administering the Australian federal taxation system and superannuation legislation...

  • Canada Revenue Agency
    Canada Revenue Agency
    The Canada Revenue Agency is a federal agency that administers tax laws for the Government of Canada and for most provinces and territories, international trade legislation, and various social and economic benefit and incentive programs delivered through the tax system...

  • Inland Revenue Department (Hong Kong)
    Inland Revenue Department (Hong Kong)
    The Inland Revenue Department of Hong Kong Government is one of Hong Kong government departments which is responsible for the administration of the following Hong Kong ordinances on taxes and duties and the related rules and regulations:Betting Duty Ordinance Cap.108Business Registration...

  • Public Trustee (Ontario)
  • Charity Commission for England and Wales
  • Office of the Scottish Charity Regulator
    Office of the Scottish Charity Regulator
    The Office of the Scottish Charity Regulator is a non-ministerial department of the Scottish Government, with responsibility for the regulation of charities in Scotland...

  • Charity Commission for Northern Ireland
  • United States Internal Revenue Service
    Internal Revenue Service
    The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...

  • SHATAC-Pakistan

See also

  • Charitable trust
    Charitable trust
    A charitable trust is an irrevocable trust established for charitable purposes, and is a more specific term than "charitable organization".-United States:...

  • Cy pres doctrine
    Cy pres doctrine
    The cy-près doctrine is a legal doctrine that first arose in courts of equity. The term can be translated as "as near as possible" or "as near as may be." The doctrine originated in the law of charitable trusts, but has been applied in the context of class action settlements in the United...

  • Foundation
    Foundation (charity)
    A foundation is a legal categorization of nonprofit organizations that will typically either donate funds and support to other organizations, or provide the source of funding for its own charitable purposes....

  • Governance
    Small Charity Governance
    Small Charity Governance is concerned with the control and direction of charitable organisations established for the public benefit in the United Kingdom. The majority of charities in England and Wales have an income under £10,000, and only about 20,000 charities have any staff at all...

  • Grants
  • Non-profit organization
    Non-profit organization
    Nonprofit organization is neither a legal nor technical definition but generally refers to an organization that uses surplus revenues to achieve its goals, rather than distributing them as profit or dividends...

  • Philanthropy
    Philanthropy
    Philanthropy etymologically means "the love of humanity"—love in the sense of caring for, nourishing, developing, or enhancing; humanity in the sense of "what it is to be human," or "human potential." In modern practical terms, it is "private initiatives for public good, focusing on quality of...

  • Social enterprise
    Social enterprise
    A social enterprise is an organization that applies business strategies to achieving philanthropic goals. Social enterprises can be structured as a for-profit or non-profit....

  • List of charities accused of ties to terrorism