Above page content

    Site map  Cookie policy

Features

Making your governing document work for you

By Michelle and Andy Price, PWW Solicitors

building blocks

by
PWW Solicitors

in Features

08.07.2020

Charity governing documents come in many different forms depending on the structure of the charity. The most common are trust deeds, articles of association (‘articles’) and charitable incorporated organisation (‘CIO’) constitutions. The governing document is the charity’s most important document, informing the charity’s purpose, its powers, and decision making. 

You might think that a well-drafted governing document would remain a relative constant in the life of a charity, but that will not always be the case. Trustees must be aware that society is continually changing – and a successful charity will need to adapt to meet the needs of its beneficiaries or improve its own internal effectiveness. If a change to the charity is necessary, it is likely that the starting point is to review and amend its governing document.

Once a change has been identified, the process of implementing the change varies depending on the type of change being made and the structure of the charity. The case studies below illustrative examples of governing documents which stopped being effective and how they were changed.

Ex-Offenders Charity – CIO

This CIO works in Manchester helping young offenders readjust to life outside of prison or other detention facilities. It provides support and training for young offenders to gain vocational skills and employment following their release and works with families to reduce reoffending.   

Having heard about its success a grant-making Foundation wishes to support the CIO extend its programmes to other cities in the north of England with a generous five-year grant. The trustees are thrilled and start discussions with the Foundation.

  • Having reviewed the constitution the trustees note that the objects of the CIO prevent it from working outside of Manchester. The CIO’s objects are: “…to promote the personal development, education and training of young people who have been released from prison or youth custody from institutions, living in the Manchester area”
  • Another trustee is concerned that the objects of the CIO does not support working with family members.​

Comment

  • Trustees should keep their objects under review and consider their relevance annually (in line with recommended best practice in the Charity Governance Code). In this case, it is especially important because the CIO works in an environment where funding and Government policy is likely to affect the charity’s activities.
  • The objects govern what the charity is set out to achieve. It cannot pursue any other purpose. As currently drafted the objects effectively prevent the CIO from working outside of the Manchester area.
  • Whether or not the CIO can support families is less clear cut. You could argue that the concept of ‘personal development’ in this context includes the support and nurture of a family. Where there is doubt, it is preferably to make changes.​

Solution

  • Makes changes to the CIO’s object’s clause​

How

  • There is a statutory power, and usually an express power in the CIO constitution, for members to make changes. Changing the objects of a CIO is called a regulated alteration and the consent of the Charity Commission is required. This means that the proposed members’ resolution, with the new objects clause, is sent to the Charity Commission for approval in advance.

Local zoo charity – Company limited by guarantee

This charity is the charitable arm of a local zoo, it assists in conservation projects in the zoo and worldwide.

  • One of the trustees is concerned that the charity’s articles refer to the Companies Act 1985 and Charities Act 1993 and recognises that these have both been superseded by the Companies Act 2006 and Charities Act 2011.
  • Another trustee finds the process of calling an annual general meeting (AGM) every year onerous and unnecessary. The trustee thinks the process of a third of the trustees retiring at the AGM is superficial, since the reality is that they remain in office until they retire.​

Comment:

  • Outdated statutory references are generally nothing to be concerned about. Where possible they are read as being a reference to the equivalent provision in the new legislation. For example, a reference to s.36 in the Charities Act 1993 refers to s.117 Charities Act 2011. However, it is good practice to update them, so the articles can be clearly understood by the trustees.
  • Charitable companies are often set up as having a membership body separate from the trustees, whereas in most charitable companies the trustees and members are the same people. Provisions relating to holding an AGM and trustees retiring by rotation at the AGM are features of articles that have a separate membership. These provisions can be administrative burdens. Under the Companies Act 2006 there is no requirement for a company to hold an AGM and, in this case, it would be easier for the trustees to be appointed for set terms with provisions about reappointment.

Solution

  • We suggest the charity adopts new articles for a charitable company. The articles will contain the correct statutory references; will dispense with the need to hold an AGM and contain provisions to appoint trustees for fixed terms.​

How

  • There is a statutory power for members of a charitable company to amend the company’s articles. As with a CIO, changes to the charity objects or clauses relating to trustee benefit and dissolution are called ‘regulated alterations’ and require the permission of the Charity Commission. Adopting new articles might inadvertently be regarded as a regulated alternation if the wording of the articles in relation to those clauses is different to the current wording.

Grant-making charitable trust

This grant-making charity supports a variety of charitable purposes, including performing arts and housing for disabled people. The charity was established in a Will with a formal declaration of trust made by the personal representatives/trustees soon after death in 1988.

  • One of the trustees has difficulty travelling and cannot attend most trustee meetings but wishes to retain their position having been a close friend of the deceased.
  • The trust instrument for decision making allows only face-to-face meetings.

Comment

  • The trust instrument predates the common usage of email and other electronic forms of communications, like video conferencing.
  • If the trust instrument does not permit decision making in any other form then such meetings are the only way a valid decision of the trustees can be made.

Solution

  • Enter into a deed of amendment to change the trust provisions and include the ability to pass written resolutions and conduct meetings using electronic means. This will give the immobile trustee more options to remain a trustee and participate.
  • Since the creation of CIOs, trust deeds are out of favour. They can be cumbersome (i.e. the deed of amendment will sit alongside the original deed) and does not offer the trustees protection.  A more radical solution for the trustees to consider is ‘converting’ the trust charity into a CIO.

How

  • Using express powers of amendment in the trust deed or s.280 of the Charities Act 2011, which applies to charitable trusts who wish to change administrative provisions of their governing document. The trustees pass a resolution under s.280 and send the deed of amendment to the Charity Commission to update the register.

 

Written by Michele Price and Andy Price, Church and Charities team at Pothecary Witham Weld Solicitors. They specialise in charity governance and compliance issues and are recognised for providing friendly, practical and effective advice to a wide range of charity clients.

Get in touch

Find out more

Our focus on clients has endured since the foundation of Charles Stanley in 1792 and has helped make us one of the UK's leading wealth management firms. Your interests give shape to everything we do.

Please call us to talk about your circumstances or complete the enquiry form.

020 3797 1783

Make an enquiry

If you have some questions we'd be happy to help.

Get in touch

Coronavirus (COVID-19)

Our latest information

Stay updated

Subscribe to our weekly email newsletter.

Subscribe here

Local Office

Your local office

Your local Charles Stanley office can help advise you on a wide range of investment management services.

Select an office

Share

Newsletter banner signup