Charity Law & Education Solicitors in Reading, Henley-on-Thames & Wokingham

We aim to respond to enquiries the same or next day where possible (subject to weekends, holidays and bank holidays).

A charity is an organisation that is established for charitable purposes only and for the public benefit. Any charity will have a governing document, which will set out the objects of the charity. The objects should capture the purpose of the charity, which must i) fall within the purposes listed in the Charities Act and ii) be for the public benefit.

To satisfy i), the purpose must fall within one or more of the 13 purposes listed in the Act. These range from the prevention or relief of poverty to the advancement of animal welfare. Any purpose must not be illegal in England and Wales, politically motivated or vague i.e. a purpose must be so certain that it could be enforced by a court.

There are two aspects to the ‘public benefit’ test: any detriment that results from a charity’s purpose must not outweigh its benefit; and the purpose itself must benefit the public (or a sufficient section of it) and not give rise to more than an incidental personal benefit.

Provided your organisation has a charitable purpose and operates for the benefit of the public, it is likely that it could be a charity. In any particular instance, we can advise you on this.

A charitable organisation may have any of the following structures:

• A trust;
• An unincorporated association;
• A charitable company (limited by guarantee); or
• A charitable incorporated organisation (CIO).

The most suitable structure for any charity will depend upon the circumstances in each case and will be reflected in its governing document, and the type of membership classes it has.

*In brief, an association CIO will have a wide membership, with different individuals as directors and members. In contrast, foundation CIOs will have narrow membership, with all members being directors.

Often, an unincorporated association or a trust may look to convert to a CIO. There are several reasons for this, including the need to protect the trustees from any personal liability, and to enable the organisation to apply for specifically designated funding (amongst other benefits). For these reasons and others, a charity may change its structure during its lifetime.

The role of the trustee is to ensure that any charity carries out its intended purpose(s). In doing so, it is the collective responsibility of the trustees to plan and review how the charity should pursue its objectives. Risk, budget and income generation often determine the challenges faced by any charity and therefore trustees must prioritise these areas of concern appropriately when deciding on any organisational strategy. Notwithstanding this, care must be taken to ensure that everything done by the charity is lawful and in line with its governing document. This includes arranging for reports and accounts to be maintained and audited where appropriate and filing these documents with the Commission periodically, and the keeping of minutes of any discussions the trustees have and decisions that they make.

There is some helpful Commission guidance that details the obligations of trustees in full via the gov.uk website.

• Breach of trust: A fundamental failure to carry out activities in line with the organisation’s purpose could result in a breach of trust by a trustee.
• Insolvency: It is essential that trustees remain solvent and ensure that the charity’s funds and assets are used as is prescribed by its purposes.
• Criminal liability: Several criminal penalties are also applicable to trustees, including those relating to dishonesty and public accountability on behalf of the charity.
• General misconduct
  

Notwithstanding the above, generally the Courts are reluctant to hold trustees (as unremunerated volunteers) liable for a charity’s losses or for breaches unless they are serious or trustees are badly negligent. It is also possible for an organisation to provide insurance cover for its trustees for some instances of liability with a trustee indemnity policy.

When a trustee is causing difficulty, it is imperative that they are reminded of their duty to act in the charity’s best interests. Accordingly, all trustees should be prioritising the charity's interests over their own if there is any conflict between the two. It may also be worth considering providing sufficient training to all trustees so that they are aware of their obligations.

Notwithstanding this, if a trustee is raising legitimate concerns, it is the responsibility of the other trustees to investigate these properly.

However, if the trustee is still causing issues despite their concern being reviewed and, in the reasonable opinion of the trustees, resolved, and having also been reminded of their duties, the governing document of the charity should be consulted.

For example, in the constitutions of CIOs it is not unusual for the members of a charity to have the power to remove a trustee from office. Usually this would involve proposing a resolution at a general meeting and for this resolution to be passed by a prescribed number of members. Note, however, that the trustee in question may have the right to give representations to the members of the CIO.

If there is no such power in the charity’s governing document, the charity can participate in mediation proceedings with the trustee in question. Mediation can help to solve issues in an amicable manner which may help to maintain positive relationships within the charity.

If mediation is unsuccessful, a more formal dispute resolution procedure may need to take place. This can often prove to be time-consuming and costly.

If you are facing difficulties with handling your trustees, please contact our Charities & Education or Dispute Resolution team, who would happy to help.

Whether a charity can enter into a contract in its own name depends on its organisational structure.

If the charity is a CIO or a charitable company, it will have a separate legal personality. This means that it can enter into contracts and own assets (such as real estate or intellectual property) in its own name. Any contracts or deeds that the charity enters into will need to be correctly executed in accordance with the charity’s governing document.

Please note that trustees and members of incorporated charities will not, generally speaking, incur any personal liability in relation to such contracts, other than in instances of misconduct (or if a contrary provision exists in the charity’s governing document).

However, if your charity is unincorporated, the charity itself cannot enter into contracts or hold assets in its own name. Instead, the trustees must hold the property in their own names on trust on behalf of the charity.

Unlike with incorporated charities, unincorporated charities do not have separate legal personality. This means that there is a risk that the trustees and members may incur personal liability when holding property or entering into contracts on behalf of the charity in their own names, although it is possible to take out insurance in respect of some of the risks. 

If this is a concern for your charity or its trustees, please feel free to contact our Charities team, who will be able to discuss your options with you.

A charity merger will usually result in legally separate charities coming together to form one charity and to share a central governing document. In such a merger, the charities that are merging transfer their assets and liabilities to one charity (either to one of the merging charities, or to a newly formed charity) which becomes the new merged charity.

The procedure to merge involves several steps. Before the process can begin, however, there are key factors that need to be considered.

Firstly, the trustees of each charity must consider whether they have the power to merge. Generally speaking, a charity can only merge if it is merging with another charity that has the same (or substantially similar) purposes. It is important to read through your charity’s governing document to ensure that it gives you the power to merge and/or transfer assets.

If the charities do have the power to merge, both charities must undertake a due diligence exercise to ensure they are compatible, and to check that the merger is in their best interests. This exercise should include investigating the culture of each respective organisation, their policies, and their finances.

Provided the charities have successfully carried out the above steps, there are, broadly speaking, three methods by which they can merge.

Using trusteeship

1. Technically not a ‘merger’, as two charities will remain.
2. Simply put, one charity becomes the sole trustee of the other.
3. This structure is helpful in instances of common control exist between the charities, but they want to retain separate operations, or where the charity becoming the sole trustee wants to ensure that its assets remain protected from any liabilities that the second charity may have.

Using a pre-existing charity

1. Each charity will need to check whether Charity Commission consent is required to proceed with the merger (as is required in certain circumstances);
2. The transferring charity or charities transfer their assets and liabilities to the receiving charity (certain specific arrangements will need to be made if the assets being transferred are permanent endowment); and
3. After the assets and liabilities of the transferring charity have transferred, the transferring charity can then be closed. The receiving charity then becomes the newly merged charity.
4. This merger should be reflected on the register of merged charities, to enable the newly merged charity to benefit from legacies made to the dissolved charity. This will also make potential and existing donors aware of the merger.

Using a new charity to effect the merger

1. A new charity is set-up to be the receiving charity for both (or all) of the merging charities. As such, the usual Charity Commission procedure will need to be followed;
2. Charity Commission consent may again be required to allow each charity to proceed with the merger;
3. Each pre-existing charity is then a transferring charity, and transfers their assets and liabilities to the newly established charity; and
4. Once the asset transfers have completed, the transferring charities close and dissolve.
5. Again, the merger (and dissolution of both transferring charities) should be reflected in the register of merged charities.

If you are intending to close your charity voluntarily (i.e. if you have decided not to raise further funds or if you have merged with another charity), the first thing to consider is whether this is in the best interests of your charity.

If you are convinced that closing your charity is in its best interests, there are other important aspects to bear in mind. These include the dissolution provisions of the charity’s governing document and what will happen to those individuals employed by your charity.

The exact closure procedure will depend on the type of charity which you operate. However, all charities should take the following general steps:

1. The charity must first pay or settle any debts. The charity should also ensure that it has sufficient funds to cover the cost of closing (i.e. in respect of professional fees for any advice required).
2. You should review the charity’s dissolution clause in your charity’s governing document. This clause will set out how you must use the charity’s general funds and assets when closing. This will usually state that you can transfer assets or general funds to a charity with similar charitable objects to your own charity or in any other way that the trustees decide will further the charity’s purposes.
3. Follow any specific provisions in your charity’s constitution which outlines how it should close. For example, if you operate as a CIO, it is usually the case that a resolution of the members is required to close the charity.
4. Check whether you have any designated land, permanent endowment or special trusts. If so, you must be careful with how you transfer such property as you cannot close your charity without handling such property properly first.
5. Once you have completed the above steps, you must inform the Charity Commission (and Companies House too, if you are a charitable company) that the charity has closed.

If you are looking to close your charity, please contact our Charities team, who would be delighted to assist you.