Charities

It is important that you meet with a legal professional to discuss your motivations and objects in creating a charity. The first step will be to decide on the type of charitable structure you wish to adopt. There are several charitable structures available and so analysing your model and objects will lead to choosing the type of structure that works best for your charity.

The charities objects are what will be the guiding force for the charity and therefore it is crucial that these are carefully drafted to ensure the charity can achieve its aims and the Charity Commission approves the charity, should registration be required.

You will also need to consider who you with to approach to be the charities first trustees. As above, considering the objectives of the charity carefully will ensure you make an informed decision and result in forming a board of trustees whom each bring a variety of different skills which compliment the charity going forward.

All charities are governed by several Charity Acts. There is also a published Charity Governance Code which all charities should consider following to achieve ‘best practice’ in several areas.

A charity may be subject to the Trustees Act and a charity which is also a company will be subject to the Companies Act.

The main advantage of a CIO structure is benefit of separate legal personality and limited liability for the trustees.

As a trustee of a charitable trust, you are exposed to the liabilities of the trust as a whole, show anything be done that affects the chartable assets. However, if you converted to a CIO your liability would be limited to a specific amount of the CIO’s assets, or nothing at all.

Further, a CIO practical as it has separate legal personality. This means the trustees do not have to enter into contracts or hold the charity property in their personal capacity, but on behalf of the CIO as you would do with a company. This also has the advantage that if a trustee retires, the contracts and title to property does not need to be amended to change the trustee that has retired for a new one. This benefits the Charity as well, and not only the trustees, as it results in less administration and in turn reduces costs.

Finally, a CIO requires immediate registration with the Charity Commission (which is not the case of all Charitable Trust. Therefore, a CIO will always have a registered charitable number. It is a structure that was created by the Charity Commission, so they tend to prefer this legal structure.

Charities do not usually have to pay tax including corporation tax, capital gains tax or income tax. However, it is essential that they continue to use the funds for charitable purposes and act for the public benefit, otherwise they could leave themselves exposed.

It is important to seek legal advice to ensure your charities activities fall within the available tax reliefs and have good accountants to help you with the completing and submitting of accounts.

Social Enterprises are not a type of charity, they are private businesses. There is a common misconception that they are charities due to the type of work they do and how they operate.

For example, Social Enterprises often focus on the public and working towards a goal to improve their community and in that respect, is not dissimilar to charities working to further the public benefit. Further, Social Enterprises will usually generate income from funding from donations or grants in the same way as charities.

The main difference is the fact that a Charitable Company is dual regulated by Companies House and the Charity Commission. This means their reporting and accounting requirements are far more onerous.

The CIO model is a cheaper structure to create as a CIO is regulated solely by the Charity Commission and therefore does not have to pay for administrative costs for example, registration or filing information amongst others (unlike Companies House).

The types of policies that your charity should implement will vary depending on the work you do. However, key policies include a conflict-of-interest policy, risk management policy, safeguarding policy and GDPR policy.

If your charity is a grant-making charity it is imperative that the charity has a clear grant-making policy to empower the trustees to award grants fairly and maintain standards and consistency in their grant-making.

There are additional restrictions imposed on charities wishing to sell, lease, charge or otherwise dispose of their land.  The wording is wide and would cover, for example, entering into easements.  The Charities Act 2011 sets out the legal framework with which a charity needs to comply.  In many cases, the charity will need to obtain a report from a surveyor (or, in the case of a charge, an accountant) advising that the agreed terms are the best that can reasonably be obtained for the charity. The requirements for the grant of a lease vary depending on whether or not the term of the lease exceeds 7 years.

In addition, the document effecting the transfer or other disposal (and any related agreement) needs to contain specific wording set out in the Act.

We can advise charities on the legal steps that they need to follow on sales and other disposals of land.

Under English law, there is no statutory mechanism to “merge” two charities. The term “merger” is descriptive and is almost always implemented by the transfer of the business and assets/liabilities of one charity to the other or by a “vesting declaration” vesting assets in another charity. The charity that has transferred or vested its assets/liabilities is then wound up. Alternatively, a new charitable entity can be incorporated and two existing charities both transfer their business and assets to the new entity.

Matters to consider as part of the process include checking the articles of association of both Companies to ensure objects and purposes align and allow the transfer, checking what consents are required (eg. lenders, trustees, Charity Commission), if contracts need to be novated, if there are employee/TUPE processes to comply with and if there are any restricted assets or property that require additional consents or processes to transfer for example, permanent endowment or designated land.

For many claims against third parties (e.g. claims over land, legacies, employment, debts and negligence) the ordinary procedures in relation to court proceedings will apply. A charity should follow any applicable pre-action protocol and view litigation as a last resort. However in cases which engage the Court’s supervisory jurisdiction with respect to charities and/or trusts with a charitable purpose. In essence these are often disputes over the governance and administration of the charity (for example disputes arising out of the constitution of the charity, the purpose of the charity, the acts of trustees and their appointment or removal). In such cases s.115 of the Charities Act 2011 requires the prior consent of the Charity Commission or the leave of the court if that consent is refused, before a claim will be entertained.

Litigation can often carry a personal costs risk for trustees of unincorporated charities and it is vitally important for a trustee to take legal advice on whether the terms of the charitable trust provide them with an indemnity for that risk and that the assets of the charity are sufficient to meet any adverse costs. In some cases it will be appropriate for trustees to apply to the Court for a “Beddoe” order which gives a degree of protection from personal liability for the costs of litigation brought on behalf of a charity. A different regime of “authorised costs orders” applies in cases in the Charity Tribunal against decisions of the Charity Commission.

The Charity Commission has published guidance on the conduct of litigation by charities. Our lawyers are experts in charity and trust litigation can advise trustees on their legal duties and powers and liaise with the Charity Commission as required.