The role of Trustees and Different Constitutional
Structures
Moira Protani
Understanding the Voluntary Sector
• How charities are regulated
• Role of the Charity Commission
• Important aspects of charitable status
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What is a charity?
• Concept of charity began in medieval times with
religious orders of monks
• Relieving poverty, advancing religion and teaching
people to read and write
• A charity is an organisation established for a charitable
purpose and the public benefit
• Charities Act 2011 codifies charitable purposes
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Public Benefit
• Charities must demonstrate that they exist for the public benefit
• Controversy surrounding religious charities, independent schools and feecharging charities
• The law relating to public benefit has not changed in any material respect
• To be a charity a body must exist for the public benefit
• The legal burden of proving public benefit lies with the trustees of the
charity
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Public Benefit
• Public benefit reporting is not a formulaic exercise
• An advance strategy is required and providing public
benefit should be at the core of the strategy
Guidance on Public benefit:
http://www.charitycommission.gov.uk/detailed-guidance/charitable-purposes-andpublic-benefit/
Example trustees’ annual reports and accounts:
http://www.charitycommission.gov.uk/detailed-guidance/money-andaccounts/example-trustees-annual-reports-and-accounts/
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Know your Governing Documents
Governing Document tells you:
• What your charitable purpose is
• Who your trustees are
• Powers of the charity
• Whether you have a membership structure
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Types of Governing Document
• Company limited by a guarantee
- directors and members. May be, but are not necessarily, the same
persons
• A trust governed by a trust deed, a will, a conveyance
of property or a Charity Commission scheme
- individual trustees or a corporate trustee
• An unincorporated association governed by written
rules and made up of its members
- members elect trustees
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Other types of Governing Document
• Royal Charter bodies
• Charities governed by statute, eg. RSPCA and The
National Trust
• Industrial and provident societies, eg. housing
associations
• Charitable Incorporated Organisation (CIO)
- no settled law
- no public register of mortgages
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Who are the Trustees?
• The persons with legal responsibility for running the
charity
• In larger charities the trustees often delegate the
running of the charity to committees of trustees or
employees
• But the trustees remain legally responsible
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Trustees and their responsibilities
• The trustees may be called directors, council
members, board members, court members or a
management committee
• Specific legal duties
• Duties arise under the common law and statute
• Regulated by the Charity Commission – they are called
“charity trustees” in the legislation
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Duties of Trustees
• A long history and a lot of case law
• Trustees are usually volunteers and do not get involved in day-to-day
business
• Delegated authority to staff
• Who complies with the legal duties in your organisation?
• The job often falls to the chief executive or finance director
• The job description might say “complete all filing and compliance work!”
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Primary duties of Trustees
• Observe the terms of the governing document
• Safeguard the assets of the charity
• Avoid conflicts of interest
What does all this mean?
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Observe the terms of the Governing Document
• Trustees must further the charitable objects in the governing document
for the public benefit
• Beware of mission drift
• Trustees can get carried away in their efforts to secure a funding stream
• Ensure that the organisation has appropriate powers
• e.g. Investing in or guaranteeing debts of a trading subsidiary
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A duty to safeguard the charity’s assets
• Use legal rules and rules of good governance to ensure
that the charity is well run so that the assets and
money are not dissipated through incompetence or
fraud
• A-Z Governance Checklist
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Good Governance
• What does the governing document say about delegation of the trustees’
powers of management?
• What happens in practice?
• Two types of delegation
• Delegation of a specific task
• Delegation of wider functions (with or without a budgetary limit) to staff
• e.g. the task of hiring and firing staff
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Good Governance
• Trustees might delegate the management of bank
accounts and signing of contracts
• Observe the rules in the governing document
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Good Governance
• What is the extent of the trustees’ powers to delegate?
• Unusual to see an express power to delegate discretionary functions to
staff
• Check the governing document, get it amended if necessary following the
correct procedures
• Document carefully the extent of the functions delegated
• Include financial limits and do not leave it open-ended
• Divide the tasks
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Good Governance
• What are the powers of investment of the charity?
• Does the charity have a portfolio of investments or own commercial
buildings?
• Law and practice applicable to charity investment powers and duties
• Trustee Act 2000
• Imposes a standard of care on trustees, requires them to seek proper
advice and review investments for suitability
• Trustees should diversify their investments
• Care with investments in trading subsidiaries
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Good Governance
• Ethical investment policies
• But must have regard to trustee duty to maximise
returns
• The principles may (or may not) be compatible
• Does a particular investment conflict with a charity’s
objects or would it alienate supporters?
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Good Governance
• Powers to delegate investment management – Trustee
Act 2000
• Duty of care in agreeing terms
• Written agreement and policy statement
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Good Governance
• Specific statutory restriction
• Part 7 Charities Act 2011
• Prior to disposal of land (lease or freehold)
– Instruct a surveyor to advise on terms (unless lease for under
7 years)
– Are they the best terms that can reasonably be achieved for
the charity
– Trustees to consider written surveyor’s report
– Disposals to connected parties (eg. a trustee) require prior
consent of the Charity Commission
Guidance on acquiring land:
http://www.charitycommission.gov.uk/detailed-guidance/land-and-property/acquiringland-cc33/
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Good Governance
• Observe the rules in the governing document for appointment and
retirement of trustees
• If not, the charity may be incorrectly constituted
• A contract made by an improperly appointed trustee could render that
person personally liable on the contract, but not be entitled to an
indemnity from the charity’s funds
• Properly appointed trustees are entitled to an indemnity
• Consult with members and go through election procedures if necessary
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Trustee Appointments
• Co-option by the trustees
• Founder
• Members
• Ex-officio
• Third party nomination rights
Avoiding conflicts of interest
• Basic legal rule – a trustee should act in a voluntary
capacity
• Trustees cannot be paid as employees or contract with
charity to buy or sell goods, land and buildings or
services – the self-dealing rule
• Exceptions to the self-dealing rule
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Exceptions to the Self-Dealing Rule
• If permitted by the governing document
–a trustee empowered to lend money in
return for payment of interest at a
reasonable rate
–Power to pay a trustee for the provision of
professional services
–Exercise caution, carefully minute the
decision of the trustees and ensure that it
falls within the power in the governing
document
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Avoid conflicts of interest
• Second exception to self-dealing rule
• Where the Charity Commission has authorised it
• Third exception – power in section 185 of the Charities
Act 2011 to remunerate trustees for the provision of
services
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Avoiding conflicts of interest
• Section 185 - not a blanket authority
• Subject to a number of pre-conditions and restrictions
• Of no use if there is an express prohibition in the governing document on
trustee remuneration
• Only a minority of trustees can benefit
• Trustees must first be satisfied the charity’s best interest will be served
• Agreement in writing and other conditions
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Avoiding conflicts of interest
Conditions
• must be providing a service
• cannot be an employee
• agreement in writing setting out the amount (or
maximum amount) that may be paid
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Avoiding conflicts of interest
• remuneration must be reasonable
• before signing the agreement trustees must be
satisfied that it is in the best interests of the charity
for the services to be provided at the agreed level of
remuneration
• only a minority of the trustees (or connected persons)
at any one time can benefit from this power
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Avoiding conflicts of interest
• There must be no express prohibition on remunerating
a trustee or connected person in the governing
document
• The trustees must have regard to the Charity
Commission’s guidance on remunerating trustees
before entering into agreement to remunerate a
trustee
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Avoiding conflicts of interest
• The trustees have a duty of care
• The trustee to be remunerated must take no part in
the decision
• If a trustee is remunerated in breach of this power he
can be ordered by the Charity Commission to
reimburse any benefits received
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Role of the Charity Commission
• A charity established in England and Wales must
usually register if annual income > £5,000
• Exception for exempt charities – e.g. housing
associations regulated by the Tenant Services Authority
• What happens when you are registered?
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Role of the Charity Commission
• Objectives
• Functions
• Duties
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Role of the Charity Commission
Objectives
• Increase public trust and confidence in charities
• Promote awareness and understanding of the public benefit required
• Promote compliance by trustees with their legal obligations in exercising
control and management of the administration of charities
• Promote the effective use of charitable resources
• Enhance the accountability of charities to donors, beneficiaries and the
general public
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Role of the Charity Commission
Functions
• Determine whether institutions are or are not charities
• Encourage and facilitate better administration of charities
• Identify and investigate misconduct or mismanagement and take remedial
or protective action
• Determine whether public collections certificates should be issued
• Obtain, evaluate and disseminate information concerning the
performance of the Commission’s functions
• Give information or advice to a minister of the Crown on the Commission’s
functions
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Role of the Charity Commission
Duties
• Act in a way which is compatible with its objectives and the
encouragement of charitable giving and voluntary work
• Use resources in the most efficient, effective and economic way
• Principles of best regulatory practice (proportionate, accountable,
consistent, transparent and targeted at cases where action is needed)
• Desirability of facilitating innovation by charities
• Principles of good corporate governance
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Role of the Charity Commission
• The powers of the Charity Commission are extensive
• Enabling a charity to alter its governing document, e.g. to change its
objects
• Enabling a charity to remove a prohibition on remuneration of its trustees
• Giving consent (Section 105) where trustees do not have power to do
something
• Monitoring a charity’s report and accounts for evidence of compliance
with the public benefit test
• Open an inquiry into a charity, powers to suspend and remove trustees,
appoint new trustees, appoint a receiver
Now on to the case study
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