Charitable organization

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American Cancer Society offices in Washington, D.C.

A charitable organization is a type of non-profit organization (NPO). It differs from other types of NPOs in that it centers on non-profit and 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. The regulation, tax treatment, and the way in which charity law affects charitable organizations also varies.

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.[1]


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 poor, old and distressed people - the first recorded almshouse was founded in York by King Athelstan in the 10th century.[2]

Enlightenment charity[edit]

The Foundling Hospital. The building has been demolished.






Growth during 19th century[edit]



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 perceived demoralizing effect. Although minimal state involvement was the dominant philosophy of the period, there was still significant government involvement in he shape of statutory regulation and even limited funding.[9]


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, including old Age pensions.[11] and free school meals.[12] During the 20th century, charitable organizations such as Oxfam (est. 1947) greatly expanded, becoming large multinational Non governmental organizations with very large budgets.


Definition of charity[edit]

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 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.[13]

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.[14] 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 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.


Main article: Canadian Charity Law

Charities in Canada must be registered with the Charities Directorate[15] of the Canada Revenue Agency. According to the Canada Revenue Agency:[16]


  • its activities and purposes provide a tangible benefit to the public

United Kingdom[edit]

In the United Kingdom the key mark of charitable status is to be a "Registered Charity"; other organizations should not describe themselves as charities, unless they are below the size limit. The registers are maintained by the Charity Commission for England and Wales and for Scotland by the Office of the Scottish Charity Regulator. The Charity Commission for Northern Ireland will maintain a register in due course (see below). Organizations applying must meet the specific legal requirements summarized below, and have filing requirements with their regulator, and are subject to inspection or other forms of review.

England and Wales[edit]

Definition of charitable organisation[edit]

Section 1 Charities Act 2006 provides the definition in England and Wales:

(a) is established for charitable purposes only, and

The Charities Act 2006 provides the following list of charitable purposes.[17]

  1. the prevention or relief of poverty
  2. the advancement of education
  3. the advancement of religion
  4. the advancement of health or the saving of lives
  5. the advancement of citizenship or community development
  7. the advancement of amateur sport
  9. the advancement of environmental protection or improvement
  11. the advancement of animal welfare

A charity must also provide a public benefit.[18]

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,
  2. the advancement of education,
  3. the advancement of religion, 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[edit]

As of 2011 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
  5. Charitable Incorporated Organization

The unincorporated association is the most common form of organization within the voluntary sector in England and Wales.[19] 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.[20]

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, 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.[21]

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 Privy Council 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 legislated for a new legal form of incorporation designed specifically for charities, the Charitable Incorporated Organization, with powers similar to a company but without the need to register as a company. Becoming a C.I.O. was only made possible in 2013, with staggered introduction dates, with the charities with highest turnover eligible first.

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 or how it is legally structured. The structure of the organization will be one of the types of structure described above.

Charity registration[edit]

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. 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.[22]

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. 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 H.M.R.C. recognition to evidence their charitable purpose and confirm their not-for-profit principles.[23]

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 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.[24]

Northern Ireland[edit]

Charities in Northern Ireland are registered with the UK HM Revenue and Customs. The Charity Commission for Northern Ireland was established in 2009[25] 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.


The 20,000 or so charities in Scotland are registered with the Office of the Scottish Charity Regulator (OSCR), which also publishes a Register of charities online.

Taxation of charities[edit]

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. These tax exemptions have led to criticisms that private schools are able to use charitable status as a tax avoidance technique rather than because they offer a genuine charitable good.[26]


There is no legal framework for the registration of charities in Ireland. The Office of the Revenue Commissioners, Charities Section maintains a database of organisations [27] to which they have granted charitable tax exemption. In granting tax exemption Charities Section give the body a CHY reference number. The full list of bodies granted exemption is published on the Revenue Commissioners website.

The Irish Nonprofits Database was created by Irish Nonprofits Knowledge Exchange (INKEx) to act as a repository for regulatory and voluntarily disclosed information about Irish public benefit nonprofits. The organisation is currently looking for government funding to continue to provide the service.

United States[edit]

In the United States, a charitable organization is an organization that is organized and operated for purposes that are beneficial to the public interest,[28] 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 is considered a "private foundation" unless it demonstrates to the IRS 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.[29]

In addition, a private foundation 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 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 and the Bill & Melinda Gates Foundation.

Examples of operating foundations or public charities include the Elizabeth Glaser Pediatric AIDS Foundation, American Cancer Society, Inc., Make a Wish Foundation, 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, solicit charitable contributions, or hire professional fundraisers.[30][31] 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.

Resources exist to provide information, even rankings, of US charities.[32]


Federal tax relief[edit]

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.[35]

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.[28] 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.


  • Relief of the poor, the distressed, or the underprivileged,
  • Advancement of religion,
  • Advancement of education or science,
  • Erection or maintenance of public buildings, monuments, or works,
  • Lessening the burdens of government,
  • Lessening of neighborhood tensions,
  • Elimination of prejudice and discrimination,
  • Defense of human and civil rights secured by law, and
  • Combating community deterioration and juvenile delinquency.


The IRS, except in rare circumstances, refers to all organizations qualifying for exemption under 501(c)(3) as charities.[36]

List of relevant organizations[edit]

Charity regulating bodies[edit]

See also[edit]


  1. ^ "Tilcsik, A. & Marquis, C. 2013. "Punctuated Generosity: How Mega-events and Natural Disasters Affect Corporate Philanthropy in U.S. Communities." ''Administrative Science Quarterly'', 58(1): 111-148". Retrieved 2014-01-06. 
  3. ^ "Associational Charities". 
  5. ^ "Captain Coram and the Foundling Hospital". 
  9. ^ "The Charity Organisation Society". 
  11. ^ Charles Booth (1840-1916) - a biography (Charles Booth Online Archive)
  17. ^ "Charities Act 2006". The National Archives. Retrieved 2011-11-06. 
  19. ^ "Seniors Network - Unincorporated Association". Retrieved 2008-08-24. [dead link]
  20. ^ "NCVO - Legal structures for voluntary organizations". Retrieved 2008-08-24. [dead link]
  21. ^ "Guarantee Company - Not for Profit Companies - Charities". Retrieved 2008-08-24. [dead link]
  22. ^ "Registering as a Charity". Retrieved 2008-08-21. 
  23. ^ Applying to H.M.R.C. for recognition as a charity for tax purposes
  24. ^ "Charity Act 2006". Retrieved 2008-08-21. 
  25. ^ "Our status". The Charity Commission for Northern Ireland. 2010. Retrieved 9 June 2012. 
  28. ^ a b "IRS document P557". Retrieved 2008-08-27. 
  35. ^ "IRS document P4220". Retrieved 2008-08-27. 
  36. ^ Governing Nonprofit Organizations, Marion R. Fremont-Smith, Harvard University Press, 2004.