One of the vehicles through which charities may choose to operate is a trust governed by a Trust Deed. These trusts are not incorporated and so the individual trustees carry personal liability for breach of contract, trust, duty of care, for failing to safeguard the charity’s property and so on. For this and other reasons (e.g. an opportunity to win contracts with bodies that wish to enter into agreements with incorporated charities), charitable trusts tend to look at other available options, such as establishing a charitable company or a charitable incorporated organisation (CIO).
Charities are tightly regulated by the Charity Commission and the main instrument for that purpose is the quite bulky Charity Act 2011 with hundreds of complex sections imposing duties on charities. Charity finances are an especially intricate area and, unsurprisingly, some requirements are occasionally overlooked. With the Charity Commission “getting tougher on itself and tougher on those charities that fail to comply with the law”, according to its Chief Executive, it is more important than ever for charities to be very much on the ball.
Some charities decide to ‘move to’ a charitable company or CIO to limit the trustees’ liability, however a number of question marks arise when it comes to dealing with trustees’ powers, statutory obligations, transfer of assets and the fate of the trust. In many cases Trust Deeds lack detail and can be silent on certain trustees’ powers, transfer of assets or what happens when trustees wish to dissolve the trust. All of this has the potential to throw a spanner in the works.
In relation to assets, the Charities Act 2011 provides a very robust mechanism, but one which requires a lot of time and effort in untangling the intricacies of asset transfer. Charities lawyers can advise charities on regulatory compliance and the implications of such transfers (or any other dealing relating to charities). But a word of warning: even having successfully overcome this hurdle, charities should not rush into winding up the trust. The reason for this is to ‘catch’ any legacies that may be left to the charitable trust in somebody’s will.
In summary, charities should be very well prepared for incorporation, restructuring or transfer of assets. Careful consideration should be given prior to putting any action into motion – this will reduce delays and keep the charity running.