Can founders treat charities like a business?
Some founders of charities do not realize the charity’s regulations, and they start to think about the profit they can make from that charity. That results in mismanagement of the charity and ends up making profits. I have seen the founders of a charity want to pay themselves a bonus at the end of the year. Therefore, I had to point out that a charitable organization cannot pay dividends to the founders.
They are unaware of the consequences of their actions, such as removing their charity from the Charity Commission register. I worked at a Law center that closed down because of small issues at the Law Centre. Another charity I worked for took a significant financial benefit from the charity; the founder was always concerned about the money.
Some people try to set up a charity without even realizing and accepting their responsibilities when running a charity. They do not know about providing trustees reports because they do not monitor the charity’s management.
Therefore, some people must make them aware that no one can own a charity and its assets held in trust by a trustee board. Trustees are legally responsible for ensuring that charities run well to deliver their charitable purposes for the public benefit as set out in their constitution.
I worked for many charities in the accounts section. There was a charity that taught English to students who could not afford any money to pay to get private help. That charity carried out all their allocated duties with no issues for a long time, but in the end, some internal policies changed the whole setup, but they did well.
Therefore, I am writing this to explain how the founder should run a charity:
Find a cause to start a charity that impacts people to help with their problems.
Please write down your charitable purpose, and then think about who will run it and where you want to set it up.
- Decide the structure of your charity.
- Choose your governance document: What is a governing document?
- It is a set of rules for the way you run your charity.
- Can founders treat charities like a business?
The rules include
- The purposes and powers of your charity,
- How many trustees will you have,
- How they are appointed or elected,
- How to give notice of meetings, and how to call an AGM (annual general meeting)
- How to wind up the charity?
- How to call a general meeting (e.g., AGM), and
- The process of the wind-up (close) the charity.
- The founder of a charity cannot treat charity as a private business.
- A charity cannot concentrate too much on making profits.
- Allowed to make a surplus, but only allowed to use it for a charitable purpose.
- Trustees do not get payments apart from traveling expenses.
- The founder of a charity becomes the CEO, also a part of the staff who get paid.
- The charity variously raises money to use it for improving the communities.
- Charities need robust controls to make that no single individual is making unauthorized payments and implementing these controls.
- From the start, charities should demonstrate explicit financial models to funders and beneficiaries.
- A great mission can attract great people to work with financial rewards.
- An excellent, active board of trustees helps the charity monitor its management.
I have given some actions you must consider when setting up a charity and not overlooking the above. There is a possibility of closing down the charity and banning the founder from getting involved in charities in the future.