# 13

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The process of setting up a registered charity entity takes time. In this post I set out some considerations that may be helpful for charity entrepreneurs. This post is written with the Charity Commission of England and Wales in mind. I don't know about the extent to which the considerations are similar for (e.g.) creating a 501(c)(3) in the US or the equivalent in other jurisdictions.

There are several considerations that I'm leaving out of this post (e.g. do you even need a charity entity at all?) -- instead I'm setting out my thinking on whether to pay a charity lawyer for help.

I'm writing this partly in case it helps others, but also because others may have some experience that could be helpful for me, as I am thinking about these issues at the moment.

There are (roughly) three levels of involvement you can have from a charity lawyer:

(0) DIY: costs maybe 1-4 person weeks
(1) Ad-hoc: costs depend on what you do, could spend c£1k or less
(2) Fully outsourced: costs c£6k-£8k ish

The DIY (Do It Yourself) model is the null case: don't use a charity lawyer at all.

As a baseline, I sketch out what you would need to do under the DIY case. This is not the full list of tasks necessary to set up a charity entity. Some (e.g. seeking out charity trustees) can't be outsourced, so I'm only focusing on the outsourceable tasks. This is not meant to be a full guidance document on those tasks (that would be a separate post); this is just meant to give a sense of what's required.

• put together a constitution (based on model documents from the internet)
• choose the appropriate wording of the objects (this is a very important task!)
• fill in a form describing what you do
• respond to queries from the Charity Commission

The ad hoc model involves doing most of the work yourself, and bringing in specific help from charity lawyers on the bits where they can add most value.

The fully outsourced model involves largely leaving the work to the lawyers, although, of course, they will still need a lot of input from you.

Above, I set out an estimated time cost of c1-4 person weeks. This assumes that the application process is ultimately successful, and thereby understates the value of using a lawyer, because using a lawyer should (if the lawyer is any good) increase the probability that the application is successful. If the application is not successful, then the true cost may be higher.

The equivalent amount of time that might be needed for a charity lawyer to do the work would be something like 3-4 days, or roughly 20-30 hours or so.

I expect that the reasons for these differences are:

• The charity lawyers can anticipate the things that the Charity Commission will worry about, leading to fewer questions, and fewer iterations in the process
• Sometimes the drafting process (when doing this without lawyers) has involved trying to get the wisdom of the crowds. While this does have the advantage that you're more likely to anticipate what the charity commission is worried about, getting feedback from lots of people is a time-consuming process, and also quickly multiplies the amount of person-hours involved
• If the Charity Commission can see that a reputable law firm has been involved, they might be more likely to subconsciously assume that the application will be high quality (this is speculation on my part, I actually can't remember whether they would even know that a charity lawyer has been involved)
• The process involves possibly several iterations submitting information to the Charity Commission, waiting several weeks between each one. This creates a time inefficiency for me because I have to remind myself of the background when I get back to the piece of work; this inefficiency is presumably less for
• The charity lawyers might not charge for all the time they need

A charity lawyer will charge at something like £200-£400 per hour (I have not got quotes from all the lawyers, so there might be rates outside of this range; this range encompasses the fact that more junior lawyers have a lower hourly rate).

I don't think I would recommend the fully outsourced model in most cases

If you are able to achieve the registration within something like 1 to 4 weeks' worth of effort, and if you assume that you work 48 weeks per year, and that handing over the task to the lawyers will cost £6k, then you think your time is worth more than £6k*48/4 = £72k pa at the more optimistic end through through to £6k*48 = £288k. (Strictly I should say your time + the time of the other people who contribute to the charity registration process).

This calculation is actually somewhat generous to the lawyers, because if you did employ lawyers, you would still need to put some time in.

Hence to justify the fully outsourced model, you need to have some combination of

• little experience/understanding of the charity registration process
• a complex/risky charity to set up
• placing a high value on your time

And especially since the first of these can be remedied with support from members of the EA community, this combination will, I think, apply rarely.

I think the ad hoc support model is (probably) likely to be appealing

Support on the most risky elements of an application may reduce the amount of effort expended materially, potentially.

I would estimate that with a well-managed process, you could reduce the amount of time that you need to spend by c 1 person-week of effort. This is highly variable, so I'll set out some scenarios.

• If the charity application you're undergoing is fairly simple, and/or you've got access to people who have done something similar before (i.e. not just set up a charity before, but set up a very similar charity before) then employing a charity lawyer may have zero or a small negative time benefit
• If the charity lawyers identify ways to make your application hit the right notes first time, then a benefit of c 1 person-week may well be correct, especially if it means that you avoid a couple of rounds of replying to questions from the Charity Commission
• If the charity lawyers make the difference between your application being successful or unsuccessful, then the process could be shortened by much more than that, as you may end up sparing yourself appeal processes and the process of starting the process of registering a charity all over again.

On these assumptions, the use of a charity lawyer becomes worthwhile as long as you value your time at more than £1,000 per week or £48,000 per annum.

Unless you believe your charity to be particularly low-impact (!) you are likely to value your time at a rate higher than this.

These improvements depend on the assumption that a charity lawyer will, indeed, know about the likely pitfalls involved in a charity registration process.

I speak as someone who has been through this process several times without the help of a charity lawyer, but I've never set up a charity with a lawyer's help, and my optimism that they may be able to help is based on a small amount of time in conversation with people.

If anyone has set up a charity with the help of a lawyer, especially in England/Wales, I would be keen to hear alternative perspectives on how like this is to help.

One last consideration is the nature of the work. When you are building a new organisation, wading through an irrational kafkaesque nightmare may be materially demotivating for you. (I speak from experience of having been involved with a number of successful and unsuccessful applications). This may be a factor in favour of outsourcing some of the work.

# 13

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Great post! I know a little bit about the US side of things from both watching orgs I've worked with go through the process, and working at a start-up that helped charities get 501(c)(3) status, so I can offer some data points from that perspective.

• The IRS estimates that the DIY method would take 100+ hours. It's also worth considering that this method is most likely to lead to mistakes, which can lead to having to re-submit the application and delays in processing time.
• US charity lawyers cost around the same, although there are companies that'll do this for you at a cheaper rate. Harbor Compliance is the most popular I've seen, and most orgs I know who've used this service pay around $3k. There are also smaller companies that will do this for even less (the company I worked for offered it for ~$750 at the time, but lots of prospects told us they'd found even cheaper options), but these companies often have fewer resources and/or lower success rates.

Worth noting that, if you don't want to deal with the 501(c)(3) process off the bat, fiscal sponsorship is also a good option. (Shameless plug, Rethink Charity is offering this service for EA projects and organizations.)

Thanks for this Sanjay! I have been told that the Charities Commission are being particularly slow at the moment, which pushed me towards seeking outside help - to aim to get it right first time.

Another option is to find some lawyers willing to help pro bono (for free). Although early, so far I have had a very positive experience with Latham & Watkins: https://www.lw.com/AboutUs/ProBono. I was connected via Charity Entrepreneurship, I don't know how easy it is to find other options.

A couple other good pro bono options (these really do work!):
http://www.a4id.org/legal-pro-bono/
http://www.trust.org/trustlaw/