A charity provides voluntary support for good causes that are beneficial to society.
Charities belong to non-profit social organizations as they accept donations from generous donors from which they finance their humanitarian or social causes instead of operating for profit.
Advantages of charities
1. Social benefits. Charities provide financial support for the benefit of the society by helping to raise substantial funds for worthy causes including the support of children, protection of endangered species of animals or the needs of disadvantages groups of people such as the elderly.
2. TAX exemptions. As a non-profit social organization, charities in most of the countries are exempted from paying any Corporate TAX and other business TAXes such as stamp duty, capital gains TAX or inheritance TAXes on gifts made in a will.
3. TAX incentives for donors. Private charity donors can enjoy Income TAX allowances on the funds that are being donated. Businesses can offset against TAXes any charitable donations which they make.
4. Public recognition and trust. Charities are often registered with the authorities as a limited company to protect the interest of employees and managers who then have limited liability. Because of its legal status, the general public and corporate donors are more confident in donating money to the charity than to random individuals.
Disadvantages of charities
1. Charity frauds. There have been many cases of charity employees who defrauded donors’ money for a personal gain. Therefore, in order to protect the interest of the charity and its donors, all financial activities must be recorded and reported to a governing body.
2. Bureaucracy. As mentioned, charities must be registered with the authorities before they can start operating. In a large charity, a lot of administration work is necessary to deal with legal correspondence and handling charity funds.
3. Disincentive effects. Because charities do not run for profit, the lack of motivation can cause problems as most of the workers are volunteers who do not wish to, or are not able to, offer their services for extended periods of time for free.
4. Limited sources of finance. Most charities only rely on one source of finance which is donations of funds from generous donors. With the huge number of other competitive charities and limited funds from donors, they have to constantly compete for donations which can be daunting in the short-term and discouraging in the long-term.
