In the realm of social impact and community expansion, two terms often pop up: Charity and franchise. These organisations represent distinct approaches to addressing societal issues.
Whether you wish to set up a charity or a franchise, the first step should be seeking legal guidance. Solicitors specialising in charity law would help you every step of the way, including setting up philanthropic foundations or managing volunteers. Let’s start by understanding the legal and operational differences between charities and franchises and how entrepreneurs can choose the right structure.
Franchise vs Charity: What Are the Differences?
Purpose and Profit
The key difference between a charity and a franchise is its purpose. Charities exist solely for charitable purposes and public benefit. This could mean relieving poverty, advancing education or health, supporting animals, and protecting the environment. All profits or donations must be reinvested into the cause and cannot be distributed to individuals.
On the other hand, a franchise exists to generate profits. It is a business model in which an individual (called the franchisor) licenses rights, branding, and operating systems to an independent operator (known as the franchisee) for a predetermined fee. The profits are distributed to the franchisor and the franchisee.
Funding and Revenue
Charities run on donations, grants, and fundraising. One-off donations are made by individuals. Moreover, charities can apply for funding from government agencies, local councils, and philanthropic trusts.
Franchises generate revenue through trading products or services. For instance, a Subway franchise would generate revenue by operating and selling products directly to customers.
Legal Structure
In the UK, charities are regulated by the Charity Commission for England and Wales. Key structures include:
- Charitable Incorporated Organisation (CIO)
- Charitable Company (Limited by Guarantee)
- Unincorporated Association
- Charitable Trust
On the other hand, franchises in the UK are not governed by specific legislation. However, they have to abide by general contract, intellectual property, and competition laws.
Tax Treatment
Charities are generally exempt from income tax on funds used for charitable purposes. Donors can also claim deductions for contributions to qualified organisations.
Franchises, on the other hand, are subject to standard UK corporation tax and business taxes.
Can a Franchise Be Used for Charitable Purposes?
Many entrepreneurs want to fulfil charitable purposes through a franchise. Luckily, a charity can be used for social purposes in the UK through a model known as social franchising.
This approach allows non-profit organisations to replicate proven, socially beneficial models across multiple locations by licensing their brand, methodologies, and operational procedures to independent partners. The aim is to create social impact rather than solely generating profit.
The Bottom Line
Choosing between a charity and a franchise depends on your personal preferences and long-term goals. If you have specific philanthropic goals, starting a charity is a great option. But if you want to generate income and reinvest it in charitable purposes, creating a franchise would be a better fit.
Legal Disclaimer:
Please be advised this article is for informational purposes only and should not be used as a substitute for advice from a trained legal professional. Please seek the advice of a legal professional if you’re facing issues regarding setting up a charity or a franchise.
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