Posted: 21/07/2022
All charities must have an identifiable body of persons who are responsible for the general control and management of the charity. These individuals will be the charity trustees and, in some cases, they will also be directors of a charitable company. All will be subject to specific duties under charity law.
Charity board directors or trustees (referred to as 'trustees' throughout this article) must carry out the purposes that the charity was set up for - the charity’s ’objects’. These will be set out in the charity’s constitution (its trust deed or articles of association) and it is the trustees' responsibility to know what they are.
Some constitutions have quite wide purposes and may contain a 'catch-all' phrase such as 'any other charitable object that the charity can legally undertake'. But many have specific objects and, if so, it is vital that trustees ensure that the work that their charity does is entirely focused on achieving those aims. If the trustees fail to do this and allow the charity to carry out activities outside its purposes they make the charity and themselves open to challenge via the courts.
In addition to being well informed about the charity’s purposes, trustees need to know the persons or group of people that the charity is aiming to help (’beneficiaries’). Again, the purpose clause in the charity’s constitution may explicitly state who the beneficiaries are but, if not, the trustees will need to identify them. Otherwise, the trustees will run the risk of providing benefits for persons whom they should not be aiding and, again, opening the charity or its trustees to scrutiny from the Charity Commission.
Trustees should also consider the powers that the charity has to achieve its purposes. Modern charities usually have a provision giving them the widest powers legally possible to achieve their purposes. However, the powers of older charities are often limited and great care must be taken to ensure that the charity does not undertake activities using a power that it does not possess.
These issues can sometimes be difficult to decide upon, especially where the powers provision is old and the language outdated. Trustees in these circumstances should seek legal advice on the correct interpretation of the relevant provision. If the trustees are very keen to do something but the charity does not have the power to do so, they will need to consider changing the constitution to include such a power. This is a time-consuming process and the trustees may need to seek regulatory and other consents first.
Another risk is to confuse the charity’s powers with its purposes. This is a common mistake and trustees should pay close attention to any proposed new activity to ensure that they are not falling into this trap. Your charity is set up to carry out its purposes as described in its objects. It can use the powers set out in its powers provision to achieve its purposes but not for anything else. In particular, a charity cannot use a power that it has on a standalone basis.
This ’mission creep‘ is a trap that is easy to fall into and trustees should be on their guard against it. A common example is that many charities have powers to invest their funds pending their use in the achievement of the charity’s purposes. The power is given to enable the charity to put those funds to good use and the trustees need to consider what sort of investments they should put the funds into and weigh up the risks of them.
If the trustees are investing the funds as a prudent means of making best use of the charity’s funds pending their expenditure on the charity’s purposes, that is a proper use of the charity’s power to invest. However, if the trustees decided that they wanted to invest simply to try to make more money from the stock market, that would not be a proper use of the charity’s power because investment for profit is not one of the charity’s purposes.
Trustees can decide whether a proposed investment is within their powers by looking at the charity’s investment policy, if it has one, and/or taking professional advice. Provided the trustees can demonstrate that they have taken this issue into account and they have a reasonable case for making the investment, the risk of challenge should be low.
Trustees also need to ensure that their charity acts within the law and legally binding regulations as well as within the terms of its constitution at all times. The bigger the charity the more difficult this obligation becomes. That is why large charities with paid employees have policies and procedures set by the trustees to ensure that they act within these constraints at all times.
These policies may include standing orders setting out how the day-to-day business of the charity is to operate and financial regulations providing the delegated authority to staff to commit the charity to contracts etc. The important point here is that, while trustees may delegate the implementation and much of the monitoring of this to the charity’s employees, the trustees remain ultimately responsible and will be held to account by the Charity Commission for any failures and could run the risk of legal liability in some cases.
Trustees have a duty to ensure that their charity is operating on a financially sound basis and should have access to the necessary reports and information from the employees to enable them to do this. They should also have risk management systems in place to help identify the potential risks that their charity might face and to develop mitigation plans to deal with them.
There are also the following six statutory duties that trustees of charitable organisations which are incorporated bodies (companies, charitable incorporated organisations, registered societies etc) must comply with:
There is a seventh duty for all trustees which is a fiduciary, not a statutory duty: to keep the charity’s information confidential during their tenure and after they have left the organisation.
In addition, trustees have a duty to safeguard their charities’ assets. This is well understood for any permanent endowments that the charity may have but it extends to all the charity’s assets and, in effect, means that trustees should be prudent and cautious when selling or disposing of them.
The Charity Commission has also listed six main duties of charitable trustees, which are similar to the statutory trustees’ duties above:
All these duties are ‘common sense’ provisions and much has been written about them including detailed analyses of what is meant by acting with ‘reasonable care and skill’. The Charity Commission has produced detailed guidance on what is meant by ‘the public benefit and how charities might demonstrate their compliance with this obligation.
Finally, the Charity Commission has produced the following decision-making guidance for trustees. When making decisions, trustees must:
Again, most of these points reflect common sense and practicality. Although becoming a charity trustee is a serious responsibility and the role is subject to considerable regulation, complying with trustees’ duties should, in general, be straightforward and help is at hand from a range of sources if questions arise.
For more information, please contact Hugo Stephens or your usual contact at Penningtons Manches Cooper.
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