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The role of Trustees and Different Constitutional Structures Moira Protani The role of Trustees and Different Constitutional Structures Moira Protani

Understanding the Voluntary Sector • How charities are regulated • Role of the Charity Understanding the Voluntary Sector • How charities are regulated • Role of the Charity Commission • Important aspects of charitable status 2

What is a charity? • Concept of charity began in medieval times with religious 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 3

Public Benefit • Charities must demonstrate that they exist for the public benefit • 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 4

Public Benefit • Public benefit reporting is not a formulaic exercise • An advance 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/ 5

Know your Governing Documents Governing Document tells you: • What your charitable purpose is 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 6

Types of Governing Document • Company limited by a guarantee - directors and members. 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 7

Other types of Governing Document • Royal Charter bodies • Charities governed by statute, 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 8

Who are the Trustees? • The persons with legal responsibility for running the charity 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 9

Trustees and their responsibilities • The trustees may be called directors, council members, board 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 10

Duties of Trustees • A long history and a lot of case law • 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!” 11

Primary duties of Trustees • Observe the terms of the governing document • Safeguard 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? 12

Observe the terms of the Governing Document • Trustees must further the charitable objects 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 13

A duty to safeguard the charity’s assets • Use legal rules and rules of 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 14

Good Governance • What does the governing document say about delegation of the trustees’ 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 15

Good Governance • Trustees might delegate the management of bank accounts and signing of Good Governance • Trustees might delegate the management of bank accounts and signing of contracts • Observe the rules in the governing document 16

Good Governance • What is the extent of the trustees’ powers to delegate? • 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 17

Good Governance • What are the powers of investment of the charity? • Does 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 18

Good Governance • Ethical investment policies • But must have regard to trustee duty 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? 19

Good Governance • Powers to delegate investment management – Trustee Act 2000 • Duty Good Governance • Powers to delegate investment management – Trustee Act 2000 • Duty of care in agreeing terms • Written agreement and policy statement 20

Good Governance • Specific statutory restriction • Part 7 Charities Act 2011 • Prior 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-property/acquiringland-cc 33/ 21

Good Governance • Observe the rules in the governing document for appointment and retirement 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 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 22

Trustee Appointments • Co-option by the trustees • Founder • Members • Ex-officio • 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 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 buildings or services – the self-dealing rule • Exceptions to the self-dealing rule 24

Exceptions to the Self-Dealing Rule • If permitted by the governing document – a 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 25

Avoid conflicts of interest • Second exception to self-dealing rule • Where the Charity 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 26

Avoiding conflicts of interest • Section 185 - not a blanket authority • Subject 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 27

Avoiding conflicts of interest Conditions • must be providing a service • cannot be 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 28

Avoiding conflicts of interest • remuneration must be reasonable • before signing the agreement 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 29

Avoiding conflicts of interest • There must be no express prohibition on remunerating a 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 30

Avoiding conflicts of interest • The trustees have a duty of care • The 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 31

Role of the Charity Commission • A charity established in England Wales must usually Role of the Charity Commission • A charity established in England 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? 32

Role of the Charity Commission • Objectives • Functions • Duties 33 Role of the Charity Commission • Objectives • Functions • Duties 33

Role of the Charity Commission Objectives • Increase public trust and confidence in charities 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 34

Role of the Charity Commission Functions • Determine whether institutions are or are not 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 35

Role of the Charity Commission Duties • Act in a way which is compatible 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 36

Role of the Charity Commission • The powers of the Charity Commission are extensive 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 37