What models can charities operate under?

Charity status is a broad category rather than a type of business, and as such directly comparing two charities by their financial statements may not be fair or appropriate if they operate very differently. Some common charity business models are described below:

  • Donation model: charities appeal for donations and legacies, either generally or for a specific purpose (restricted funds)
  • Endowment model: commonly used for grant-making trusts, wherein the initial funds may come from a legacy or gift from a founder. Funds will typically be invested and income spent on the charitable purposes
  • Contract model: charities delivering services of many types are run as charitable businesses, employing staff and owning or leasing property. Funding for operational costs typically comes from fees, rents, and contracts, sometimes subsidised with donations
  • Retail activities: charities undertake fundraising through retail activities including high street shops and selling donated goods through online auction websites
  • Membership organisation: registered charities providing benefit to the public rather than private benefit. Members have a shared interest in the purpose of the charity and pay subscriptions; often these charities have more expensive governance structures due to seeking to involve members

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Judith Miller

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Vivien Ma

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