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LEGAL STRUCTURES AND CHARITABLE STATUS
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LEGAL STRUCTURES AND CHARITABLE STATUS
NO PROGRESS ON SCOTTISH ASSOCIATION WITH LEGAL PERSONALITY
Updated 9/1/17. This information updates s.2.2 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The UK government consulted until 2 July 2012 on a Scottish Law Commission proposal to reform the law on Scottish unincorporated associations, giving them legal personality and limited liability within a new Scottish association with legal personality (SALP). This proposal was not included in the Queen's speech in May 2012, but it was announced after the speech that the UK government intended to bring forward a bill in a future session of parliament, when parliamentary time allowed.
In its submission on 20 October 2014 to the Smith Commission on further devolution of powers to the Scottish parliament, the Scottish Law Commission suggested that the creation of such associations could be devolved to the Scottish parliament, rather than continuing to be reserved to the UK parliament. However, the Smith Commission did not include this in the heads of agreement on devolution it published by the Smith Commission in November 2014, so the change would need agreement by the UK parliament.
A Google search in early January 2017 showed no evidence that anything has happened, so the SALP proposal presumably disappeared with the general election in May 2015.
The SALP legislation as proposed would have applied only in Scotland, but the Law Commission for England and Wales said in 2008 that it would monitor the work of the Scottish Law Commission on this issue, with a view to considering whether it should in due course make similar recommendations in relation to England and Wales.
Legal background. Normally, only individuals and incorporated bodies (such as companies, charitable incorporated organisations and local authorities and other public sector bodies) have legal personality (legal person-hood). Unincorporated organisations such as associations and trusts do not normally have legal personality.
An organisation with legal personality is considered to be a legal person, and within the bounds of common sense can do anything a human person can do. It can, in its own right, enter into contracts, rent or own property, take legal action and be sued. Organisations without legal personality, on the other hand, have to appoint individuals or incorporated bodies as holding or custodian trustees to hold property on their behalf, and any contracts or legal agreements will be treated as having been entered into by individuals (usually the members of the governing body) acting on behalf of the organisation. Legal action by the organisation must be taken by individuals acting on its behalf, and legal action against the organisation will be brought against individuals.
Incorporation nearly always gives limited liability to members of the organisation and its governing body. Because an incorporated organisation enters into contracts in its own right, it is liable for its own debts and financial commitments. If it does not or cannot meet its financial obligations, the people to whom it owes money (its creditors) take legal action against the organisation; if someone is injured, they will sue the organisation. Very occasionally they may be able to take action against the members of its governing body, but not against the members of the organisation.
If an incorporated organisation cannot meet its financial obligations, it goes into insolvent liquidation, and its assets are sold and distributed among its creditors. The organisation is insolvent, but the members of the organisation and in almost all cases the members of its governing body are protected from any personal liability for its debts.
The consultation in 2012. The consultation posed a number of key questions, including:
The consultation document, which included the draft Unincorporated Associations and Partnerships (Scotland) Bill, and the government's response in 2012 can be accessed on the Gov.uk website via tinyurl.com/7v4vusb.
whether there is a risk of SALPs creating a disincentive to incorporate or an incentive for currently incorporated organisations to disincorporate, and if so whether there should be a limit on the maximum size of a SALP;
whether SALPs of a certain size should be required to register, and if so what the registration body would be;
whether it is necessary or desirable to restrict the automatic reversion of rights and liabilities when an association loses SALP status without dissolving.
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CONSULTATION ON COMPANY CONVERSION TO CIO
Updated 9/1/17. This information updates s.3.2 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
From 1 April to 10 June 2016, the Cabinet Office carried out its long-delayed consultation on the process and timetable for charitable companies and community interest companies to convert to charitable incorporated organisations. The Office for Civil Society, which is responsible for drawing up charity legislation in consultation with the Charity Commission, was at the time located in the Cabinet Office, but since the government restructuring after the Brexit referendum, it has moved to the Department for Culture, Media and Sport.
Because the company-to-CIO process is a conversion from one incorporated structure to another, it does not involve a transfer of assets, as has to happen when an existing unincorporated charity becomes a charitable company or CIO.
The consultation documents and draft regulations are on the Gov.uk website via tinyurl.com/zm3dogt or www.charitycommission.gov.uk. As of 7 January 2017, the results of the consultation and revised draft regulations had not been published.
The proposed timetable (p.6 of the consultation document) was for conversion to become available on 1 October 2016 for charitable companies with an annual income greater than £500,000, working down to charitable companies with an annual income less than £25,000 on 1 July 2017. Conversion of community interest companies would follow.
I and many other consultation respondents argued that the timetable should start with small charities, not the larger ones. Very small charitable companies are most likely to be overburdened by Companies Act requirements (for example, the requirement from 6 April 2016 to maintain a register of people with significant control). As the consultation document itself says in para.24, "smaller charities are believed to be the part of the sector which is most likely to wish to transfer to the CIO structure," so the argument is that conversion should be offered first to them.
The underlying legislation for conversion of charitable companies and community interest companies to CIO status was originally in the Charities Act 2006, and is now in ss.228-234 in the Charities Act 2011. This provides for conversion of charitable companies, community interest companies and registered societies (community benefit societies, formerly industrial and provident societies).
The consultation did not cover conversion by community benefit societies. Although s.229 of the Charities Act provides for this, it also prevents the conversion of charities which are exempt from registering with the Charity Commission. CBSs are still exempt, so will not be able to become CIOs until there is a new Charities Act under which CBSs cease to be exempt charities.
Although the CIO structure has many advantages over the charitable company structure, it is not necessarily the best option for every charity that wants the protection of incorporation. For general information about setting up a CIO and for issues when considering whether to convert from company to CIO, see Charitable incorporated organisations and CIO: Yes or no?, below.
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CHARITABLE INCORPORATED ORGANISATIONS
Updated 9/1/17. This information updates s.3.2 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
After years of delay, the charitable incorporated organisation (CIO, Welsh SEC) structure, giving charities in England and Wales the advantages of incorporation without having to register with both Companies House and the Charity Commission, finally came into operation in January 2013. From then until the end of December 2016 nearly 9,500 CIOs had been registered.
Legislation, guidance and information
The statutory framework for CIOs was in the Charities Act 2006 but has now been consolidated in part 11 (ss.204-250) of the Charities Act 2011, at www.legislation.gov.uk/ukpga/2011/25/part/11.
The detail is in the Charitable Incorporated Organisations (General) Regulations 2012, at www.legislation.gov.uk/uksi/2012/3012/contents/made;
the Charitable Incorporated Organisations (Insolvency and Dissolution) Regulations 2012, at www.legislation.gov.uk/uksi/2012/3013/contents/made;
and the Charitable Incorporated Organisations (Consequential Amendments) Order, at www.legislation.gov.uk/uksi/2012/3014/contents/made.
From 1 April to 10 June 2016 the government consulted on further regulations for the conversion of charitable companies and community interest companies to CIOs [see Consultation on company conversion to CIO, above}.
Charity Commission information about setting up a CIO is in CC22a, Charity types: How to choose a structure, at tinyurl.com/jlsk6eh. This then links to other webpages.
For detailed information about CIOs, the most comprehensive source is Key guides: Charitable incorporated organisations by Gareth G Morgan (£19.95 plus p&p from www.sandy-a.co.uk/bookserv.htm, the Directory of Social Change, bookshops or online booksellers). This covers all aspects of CIOs and Scottish CIOs.
Setting up a CIO: New charities and existing unincorporated charities
For a new organisation, setting up a CIO involves drawing up a CIO constitution, getting it approved by the organisation's members, and registering with the Charity Commission.
An existing unincorporated charity becomes a CIO by setting it up in the same way, but because the CIO is a complete new organisation, all of the assets, rights and liabilities of the unincorporated charity must be transferred to the new CIO.
In most cases the unincorporated charity is then dissolved in accordance with the provisions in its governing document (constitution, trust deed etc), and the trustees of the unincorporated charity apply to the Commission to have the unincorporated charity removed from the register of charities and added to the register of mergers. There are, however, situations where it may be necessary or advisable to retain the unincorporated charity alongside the CIO, and advice should be taken about this.
Converting from charitable company or other incorporated structure to CIO
The government is consulting from 1 April to 10 June 2016 on the process for charitable companies limited by guarantee and community interest companies to convert to CIOs. This is a conversion from one incorporated structure to another, so does involve a transfer of assets.
Charitable community benefit societies (CBSs) are currently exempt charities and cannot register with the Charity Commission, so they will not be able to convert to CIO status until their exempt status is removed. There is no indication yet of when this might happen. A CBS that wants to become a CIO sooner rather than later may want to consider converting first to a charitable company, then to a CIO when conversion from charitable company to CIO becomes available in late 2016 and 2017. But it's a convoluted way of going about it.
Some commentators have said that regardless of whether the change is done by transfer or conversion, some lenders whose loans are secured on a company's or community benefit society's assets might not allow the organisation to become a CIO, because of the lack of a publicly available register of charges. For more about this see Borrowing, below.
The Charities Act 2011 requires all CIOs to have both members and trustees. But the foundation model constitution allows for a CIO in which the members and trustees are the same people, and the association model is for a CIO where there is, or is expected to be, a body of members wider than the trustees. The basic provisions are the same in both constitutions but there are significant differences, so it is essential to ensure a proper decision is made about whether the CIO will be an association CIO or foundation CIO, and to use the right constitution.
After the constitution is adopted and the CIO is registered it is possible to amend a foundation model constitution to allow for a wider membership, if this becomes appropriate in future. It is also possible to amend an association model constitution to cease having a membership wider than the trustees, but this would have to be approved by the members, who may not be willing to cease being members.
The Commission's association and foundation model constitutions are at tinyurl.com/o2qrhvy. The notes at the beginning of the draft constitutions explain with admirable clarity what a CIO is, how to use the model constitutions, and the process for becoming a CIO.
The Charities Act 2011 and CIO general regulations set out certain provisions that must be in all CIO constitutions, and other provisions that have to be included if they are to apply to that particular CIO. In addition to these, the Commission has included other provisions which reflect good practice or the law.
An organisation registering as a CIO without taking specialist advice should use one of the models. This will speed the registration process, and will ensure the constitution includes all legally required information.
However, every clause in the model should be checked to be sure it is appropriate for your organisation. In addition, if you are setting up a CIO to replace an existing charity, the model clauses should be checked against the provisions in the existing governing document. Where there are substantive differences these should be considered, and decisions should be made about whether the current provisions should be carried over into the CIO, and if not, how to do it in a way that does not lead to endless correspondence with the Charity Commission during the registration process. This is why it is sensible to take advice from a council for voluntary service, other infrastructure support organisation, solicitor or specialist advisor who specialises in setting up charities, rather than trying to set up a CIO on a do it yourself basis.
Some umbrella bodies for specific types of organisation have agreed approved CIO constitutions with the Charity Commission. These have been adapted to be appropriate for that type of organisation. A list of national organisations which can provide approved governing documents is on the Commission's website at tinyurl.com/ofjy9p3, but the website does not indicate whether the the organisation has an approved model for CIOs. If a relevant umbrella organisation is listed, it will be worth contacting them to see if they have agreed, or are in process of discussing, an approved CIO constitution. [This also applies when setting up a charitable association, trust or company not just a CIO.]
The Charities Act 2011 s.206(5) requires a CIO's constitution to be in the form specified by the Charity Commission (i.e. one of the model constitutions or an approved constitution), or as near to that form as the circumstances admit. Some flexibility is built into the models, but trying to tailor the models to the specific needs or wishes of an individual organisation is likely to cause delays in the registration process. The Commission has said it is flexible in interpreting "as near to that form as the circumstances admit", but it can never be anticipated what this may mean in practice. Again, taking advice while drawing up the draft constitution is likely to reduce time and hassle during the registration process.
Whether doing a DIY registration using a model constitution, using an approved constitution from an umbrella body, or taking specialist advice to create a bespoke adaptation of the Commission's model, all variations from the model or approved constitution should ideally be clearly indicated. This is because the Commission, as part of the registration process, has to ensure no changes have been made that would invalidate the constitution or make it unworkable. The more changes that are made especially if they are made without specialist advice the longer the registration is likely to take.
Unfortunately the CIO model constitutions, like the Commission's model governing documents for charitable associations, trusts and companies, are available only as PDFs that cannot be edited online, so they have to be printed out and adapted manually. For the CIO models it is now possible to fill in blanks online (name, objects etc) but other details cannot be added, amended or deleted online. The Commission has been saying for years that it is looking into formats that can be completed more easily than the current PDFs, and hopefully will eventually come up with something better than just being able to fill in a few blanks.
Some provisions which apply automatically under company law (such as the right of members to remove company directors/trustees) apply to CIOs only if they are explicitly included in the CIO's constitution; others which cannot apply to companies (in companies formed since 2007, a chair cannot have a casting vote at company meetings) can apply to CIOs if included in their constitution. So when drawing up a CIO's constitution it is important to think carefully about each clause, and to consider the options set out in the side notes in the Charity Commission models. Some constitutional provisions which I think are of particular interest are included in CIO: Yes or no? below.
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CIO: YES OR NO?
Updated 3/4/16. This information updates s.3.2 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
This article is intended to help you decide whether the charitable incorporated organisation (CIO) structure is right for your organisation. If you haven't already done so, read Charitable incorporated organisations, above. That background is necessary to understand some parts of this article.
A longer version of the article, with far more detail is archived at www.sandy-a.co.uk/vslh/03incorp.htm#cio-yes-or-no
This article covers deciding whether to incorporate and choosing between CIO and charitable company. The "Choosing" section includes:
Members' meetings and decision making
Merger and dissolution
VERY IMPORTANT FOR EXISTING ORGANISATIONS. If the organisation is a member of a multi-employer pension scheme (such as Pensions Trust), changing legal structure may crystallise pension exit debt. Before even thinking about changing from unincorporated to incorporated or from one incorporated structure to another, advice from the pension provider and from an independent financial or legal advisor is essential.
Crystallisation may not be an issue, especially when changing from one incorporated structure to another (e.g. company to CIO). And even when crystallisation is an issue, there may be ways around it. But if the debt is going to crystallise if the organisation changes structure, this may be a major factor in your decision. For more about this, see Pension liability on incorporation, merger or winding up.
Deciding whether to incorporate
New organisations need to decide whether to be charitable or not charitable, and whether to be unincorporated or incorporated. If the decisions are for charitable + incorporated, the options are charitable incorporated organisation (CIO), charitable company or charitable community benefit society.
Existing unincorporated charities which are thinking of becoming CIOs need to decide whether to stay unincorporated or become incorporated and if the latter, whether to become a CIO, charitable company or charitable CBS.
Incorporation makes an organisation a legal entity or "legal person". This enables the organisation to enter into contracts and other legal agreements as a body, rather than as individuals acting on behalf of an unincorporated organisation. Incorporation makes it easier to enter into contracts, leases etc and to own property, and greatly reduces the risk of members of the governing body (board, management committee etc) being held personally liable if the organisation cannot meet its financial obligations.
There is more about the choice between unincorporated and incorporated charities in the Charity Commission's CC22a Charity types: How to choose a structure, at tinyurl.com/nfrvebd.
More detailed information about the choice between unincorporated and incorporated is in chapters 1-3 of The Russell-Cooke Voluntary Sector Legal Handbook.
Choosing between CIO and charitable company
When comparing CIOs with charitable companies, the immediate response is often that CIOs must be better, because there is only one registration (with the Charity Commission, rather than with both Companies House and the Commission), only one regulator, only one body of law, only one set of accounting regulations, only one annual return. But it may not be quite so simple, and some of the statutory or practical differences between charitable companies and CIOs may, for some charities, make charitable companies a better option.
Before CIOs became available, it was expected the CIO structure would be used mostly by charities with annual income between £10,000 and £500,000. Those under £10,000 or larger but without paid staff, premises or long-term financial commitments and not undertaking risky activities are likely to be too small to need the protection (and extra paperwork and hassle) of incorporation. Unless they own property or a long lease, or have identified risks that would make incorporation sensible, it may be appropriate for them to remain unincorporated. Those over £500,000 or smaller if they are likely to need to borrow or if they have or might have a mortgage may find a charitable company more appropriate than a CIO [see borrowing, below].
In some cases it will be clear that a CIO is not necessary (at the lower income end) or advisable (at the upper end). But for many organisations it may not be clear cut, and the best decision may emerge only after weighing up a wide range of variables, many of which are set out below.
It is important not to get pushed into choosing or not choosing the CIO structure, unless it really does seem to be the best choice. At the moment a CIO, unlike other legal structures, cannot convert to any other structure. Lord Hodgson's review of the Charities Acts in 2012 recommended that CIOs should be able to convert to charitable companies, which would allow a CIO that has outgrown the structure to convert to a charitable company. But this change would require new primary legislation and cannot be relied upon to happen.
The information below should help organisations choose wisely between CIO and charitable company, and to understand some of the issues when drawing up a draft governing document (CIO constitution or company articles) and going through the registration process. Where a particular issue may be critical to the decision, I have indicated this.
For detailed comparisons of CIO with charitable company for each of the items in the list below, , with far more detail is archived at www.sandy-a.co.uk/vslh/03incorp.htm#cio-yes-or-no
1. Registration and legal compliance
1.1 Registration body
Advantage to CIO. A CIO registers only with the Charity Commission, and must comply with general charity law as well as charity law requirements specific to CIOs. A charitable company registers with both Companies House and Charity Commission, and must comply with general charity law as well as company law requirements.
It's certainly easier to have a single regulator and single body of law rather than two and company law is getting more and more complex. But charitable companies have been around for a long time and have advantages, especially for larger charities. So dual registration and regulation in themselves should not be a major reason for choosing CIO over company. Many other factors may be more significant.
Advantage to company. Even though CIOs have been in existence since January 2013, the CIO structure is still relatively new, untested, and unfamiliar to funders, banks and others. This is changing over time but in the meantime, charitable companies are well understood by banks, funders etc.
Advantage to CIO, but probably only in relation to the cost of preparing annual accounts, because CIOs can prepare simpler receipts and payments accounts until their income reaches £250,000. Plus a small advantage in relation to statutory filing costs.
Before CIOs started being registered, the Cabinet Office's estimate of the cost of preparing annual accounts and reports for a charitable company was £1,307 three times the average cost for a CIO.
1.4 Transferring assets from an existing unincorporated charity
For information about the transfer of assets from an unincorporated charity to a CIO or company, see the Charity Commission's How to transfer charity assets at tinyurl.com/pfbrtde.
Advantage to CIO. The process of transferring assets from an unincorporated charity to a CIO is more straightforward than for transferring to a charitable company.
1.5 Speed of incorporation (may be a critical issue when setting up a new charity)
Advantage to company. A company can be registered at Companies House within a week or even on the same day, and comes into existence as soon as it is registered. It can then start operating while the Charity Commission is dealing with its application for charity registration.
A CIO does not come into existence until it is registered with the Charity Commission, which could take several weeks. There could be a period of two months or more while the people involved in setting up the CIO have agreed their CIO constitution, but are in limbo and cannot yet operate.
For an organisation that needs to incorporate in a hurry, for example to enter a major contract or lease, speed of incorporation may be a crucial factor.
1.6 Speed of charity registration (may be a crucial issue when setting up a new charity)
Advantage to CIO. Once a CIO is registered with the Commission, it has both its incorporated status and its charity registration. A company, after registering with Companies House, then has to register separately with the Commission.
If getting registered with the Commission and getting a charity registration number as quickly as possible is important, and there is no particular pressure to get incorporated in a hurry, a CIO may be the better option.
1.7 Very small charities
Advantage to CIO. Very small charities, with actual (or anticipated, for new charities) annual income under £5,000, are unlikely to need the protection of incorporation, unless they own freehold land or a long lease. But if they do want the protection of incorporation, the CIO structure is easier and has less paperwork than becoming a company limited by guarantee.
Another advantage to CIO is that all CIOs, regardless of income, must be registered with the Commission, and therefore have a charity registration number, but companies cannot register with the Commission unless their actual or anticipated income is over £5,000.
1.8 Changing to another structure
Advantage to charitable company. At present a CIO cannot convert to charitable company, community interest company or community benefit society. The law may be changed to allow conversion to one of these incorporated structures, but it would require primary legislation (a new Charities Act) and there is no certainty about whether or when this will happen.
The fact that a CIO can't convert to another legal structure probably won't ever really matter. But if it does, it is likely to be because the CIO needs an overdraft or other borrowing, and discovers its potential lender won't lend to CIOs because of the lack of a public register of charges [see next paragraph].
2. Borrowing: A potential killer issue
2.1 Using assets as security for borrowing (may be a critical issue)
Advantage to company. The lack of a public register of charges may, in some circumstances, make it difficult for a CIO to borrow although it is still too soon to know how much of an issue this will be in practice.
A legal charge is a form of security on an organisation's assets that a lender or funder requires to secure repayment when the organisation is in breach of the terms of the loan or grant. Legal charges include mortgages, and overdrafts or other loans secured on assets. Some organisation issue a form of loan note known as debentures which may be secured by a legal charge on its assets.
For companies, all charges secured on assets must be included in a register of charges, with the information freely available to potential lenders (or others) at Companies House.
Clause 4(1) in both the foundation and association model constitutions states that a CIO has power to borrow money and to charge all or any part of its property as security for repayment of the money borrowed, so there is no issue about a CIO being able grant mortgages or debentures. But there is no statutory register of a CIO's charges.
Without a register there is no easy way for potential lenders to find out which of the CIO's assets already have charges on them, nor will the lender have except for charges on land or buildings which are registered at the Land Registry a way of publicly registering its charge.
The lack of a register of charges was seen by many charity law specialists as the most significant factor against CIOs, making it more difficult for a CIO to borrow using the charity's assets as security even making it difficult or impossible to take out an overdraft, if the bank requires it to be secured as a floating charge. I am not aware of any evidence this has been happening, but it is sensible for any organisation which might, now or in future, need a mortgage or any other loan secured on assets, or which has such loans already, to take specialist legal advice before choosing to become a CIO rather than becoming (or remaining) a charitable company.
2.2 Another borrowing concern
There is also concern among lenders about the statutory requirement for the Charity Commission to dissolve a CIO that appears to be inactive. See Dissolution of inactive organisation, below.
3. Constitutional issues
For more about CIO constitutions, the difference between the foundation and association models and some issues to be aware of, see CIO constitutions above.
3.1 Constitutional flexibility
Probable advantage to company, because there is more flexibility in drawing up the articles of association (company constitution) than drawing up a CIO constitution.
Advantage to CIO. A CIO has a general statutory power "to do anything which is calculated to further its object(s) or is conducive or incidental to doing so", so its constitution does not need to include a lot of specific powers, the way a company's articles of association usually do.
Even when they are in relatively plain English, the long list of powers in a company's articles can be offputting. The CIO's general power, or general power with a few specific powers, avoids this. On the other hand, a company's powers are arguably clearer because they are spelled out.
3.3 Constitutional amendments
Advantage to company, if written resolutions are ever going to be used to amend the governing document. A CIO needs consent of 100% of all the members (not just 100% of those who vote) to amend the constitution by written resolution; a company needs only 75% of the members to amend its articles. Unless the CIO has only a very small membership, it is likely to be much easier to get 75% of the members rather than 100%.
In his review of the Charities Acts in 2012, Lord Hodgson recommended that the CIO rule requiring agreement by 100% of members for a written resolution to make constitutional changes or to transfer assets should be changed to a 75% majority of members, as required under company law. This and the recommendation below on effective date of amendments would remove two of the disadvantages of CIOs as compared to companies, but as of early 2017 there is no indication that they will happen any time soon.
3.4 Effective date of amendments (may be a critical issue)
Advantage to company. Amendments to a CIO's constitution do not come into effect until registered with the Charity Commission. Company amendments come into effect immediately, apart from an amendment to the objects.
Not knowing when or even if a CIO's constitutional amendment will take effect could be significant if, for example, amendments have been made to facilitate a merger, but there is no way of knowing how long it might take for the Commission to register the changes.
In his review of the Charities Acts in 2012, Lord Hodgson recommended that legislation should be amended so that constitutional changes to CIOs take effect immediately, provided any necessary Charity Commission prior approval has been obtained, but this cannot be relied upon to happen.
3.5 Entrenched provisions
As far as I am aware, no significant difference between CIO and company.
An entrenchment provision in a governing document allows for some types of amendment to be made only if specified conditions or procedures are more restrictive than they would otherwise be. For example, a CIO or company vote to amend the governing document generally requires 75% of the votes cast, but a provision could be entrenched requiring 90% of the votes.
Advice should be taken before including entrenched provisions. When registering a CIO don't tick the box saying it includes entrenched provisions if it doesn't and don't tick that it doesn't have entrenched provisions if it does. If in doubt, seek advice.
4. Membership issues
4.2 Members' guarantee
4.1 Governance structure
Slight advantage to CIOs. Both CIOs and charitable companies must have a two-tier governance structure, with members of the organisation and members of the governing body (board, management committee or whatever it is called). Both can have constitutional provision for the members always to be the same people as the trustees (a narrow membership), or for a membership body wider than the trustees. CIOs have a slight advantage because there is a specific foundation model constitution for a narrow membership, without having to adapt company articles of association.
Advantage to CIO. A guarantee requires the members of an organisation to contribute a specified amount to the organisation's debts if it is wound up insolvent. In most CIOs, the members will not have any liability. In a company limited by guarantee there is always this liability, although it is usually only £1 or £10.
4.3 Duty of members to act in the charity's interest
Advantage depends on your point of view. CIO members have a statutory duty to act to further the CIO's purposes. Company members do not have such a duty to the company.
In all charities the trustees must, of course, always act to further the purposes of the charity. The CIO requirement for members also to act in this way may be helpful if warring membership factions ever need reminding that their duty is to the CIO's purposes as a whole, not to any narrower interest. But it is unclear whether or how this duty could be enforced in practice.
4.4 Unincorporated organisations as members
For organisations which are going to have other organisations as members, possible advantage to CIO. The CIO model constitution allows unincorporated organisations to be members of a CIO. Similar provision could be included in a company's articles of association, but it's not clear whether it would be legally valid. This is because unincorporated organisations (associations and trusts) are not "legal persons", so technically they cannot be members of an organisation, and must appoint an individual or incorporated body to become a member on their behalf. However, as far as I am aware, this has never been an issue.
4.5 Register of members (may be a critical issue)
Advantage to CIO. A CIO's register of members is not open to the public. A company's register of members must be.
This may be significant where the names of an organisation's members might be sensitive information for example where the organisation is involved in issues such as domestic violence or where all members have to have a specified condition such as being HIV+. In the past, such organisations often remained unincorporated, rather than becoming companies and having to make the members' names and an address (even if not their residential address) available on request to any member of the public. The CIO framework now allows such organisations to incorporate without having to make the register of members available to any member of the public.
4.6 Non-voting members
4.7 Disputes between members
No significant difference between CIO and charitable company. The CIO model constitutions include provision for non-voting "members". Company model articles of association don't, but it can be included.
No significant difference between CIO and charitable company. The CIO model constitutions (as well as the Charity Commission's model articles of association for a charitable company, and model constitution for a charitable association) require mediation for disputes between members before they resort to litigation.
I have no idea why the CIO association model requirement does not also apply to disputes between trustees, or between members and trustees, and would like to see it extended to include these. (This is not necessary for the foundation model, where the members are the trustees.)
The articles of charitable companies which do not use the Charity Commission's model may not include a comparable provision, but there is nothing to stop a company from including it in its articles, or from using mediation or any other form of alternative dispute resolution even if it is not included.
5. Members' meetings and decision making
5.1 AGM and other general meetings
No significant difference between CIO and charitable company. Neither has to have an AGM an annual meeting of the members unless the governing document requires it. The Charity Commission's model constitution for an association CIO and model articles for a charitable company both include it, but it does not have to be included. A foundation model CIO does not need an AGM because the members are the same as the trustees.
5.2 Requiring a general meeting to be called
Advantage depends on your point of view. CIO members have the right to require a general meeting to be called only if the constitution says they do. Company members always have this right.
If members' right to call a general meeting is included in the constitution of an association CIO with a large membership, it may be appropriate to reduce the required percentage of members from 10% to 5% so it is in line with company law and is easier for the members to require a general meeting to be called. On the other hand, the people setting up the CIO may not want to make it easier...
5.3 Right to appoint a proxy
Advantage depends on your point of view. CIO members have the right to appoint a proxy to attend, speak and vote on their behalf only if the constitution says they do. For company members this is a statutory right under company law and cannot be removed.
There are advantages and disadvantages to having proxies. If it is and always will be important for members to be able to appoint a proxy, this right will always (unless company law is changed, which is unlikely) exist in a company and cannot be removed. In a CIO there is flexibility to include this provision or not when the CIO is set up, and to amend the constitution to remove or add it later.
5.4 Postal/email voting
No significant difference. Neither CIO nor company members have the right to vote by post/email unless it is included in the governing document.
5.5 Remote participation in meetings
CIO members have the right to participate in telephone, video, internet etc meetings if the constitution allows. Company members can participate remotely in meetings provided all the members can see and hear each other, and if the articles allow the members can participate in meetings where they can each communicate with all the other participants, even if they cannot see and/or hear each other (such as conference calls).
In either a CIO or a charitable company, it can be useful to have a range of options: to make decisions at a general meeting as usual, and/or with postal or email voting beforehand with those votes being included but the members not being included in the quorum, and/or with some members participating by telephone, internet or video and counting towards the quorum. And, if workable, to have the option of making decisions by written resolution, without having a meeting at all.
5.6 Right to require a poll
Slight advantage to company. A poll is a counted vote, sometimes done by a simple head count, but usually by each person's vote being recorded on a voting slip or by signing a voting list. CIO members have this right only if it is included in the constitution. Company members always have the right.
5.7 Chair's casting vote
Advantage depends on your point of view. In a CIO the chair can have a second or casting vote at a general meeting if it is included in the constitution. In a company formed since 1 October 2007 the chair can never have this right; in a company formed before then the chair can have this right only if it was in the articles of association on 30 September 2007.
5.8 Consensus decision making (may be a critical issue)
Advantage to CIO. A CIO's constitution can allow for members to make decisions without voting. Members' decisions in a company must always be made by a vote.
The CIO option for consensus decision making is particularly appropriate for organisations such as the Religious Society of Friends (Quakers) who as a matter of principle do not make decisions by voting. Organisations which just "don't like the idea of voting" should be aware that CIO law requires any decision without voting to be agreed without any dissent.
5.9 Decision making without a meeting (written resolutions)
Slight advantage to company, if you might ever want to use written resolutions to make decisions without a general meeting. Company members always have the right to make decisions by written resolution, apart from a couple of exceptions. CIO members can do this only if the constitution allows.
In both a CIO and a company, the majority or percentage of votes specified in statute or the governing document to pass a written resolution is always that percentage of all the members eligible to vote on the resolution. This is different from voting at a general meeting, where the specified percentage is based on the percentage of votes cast at the meeting by the members present in person (and also cast, if allowed, by members present by proxy or participating electronically, or who voted by post or electronically before the meeting).
6. Trustee issues
6.1 Minimum age for trustees
No difference between CIO and charitable company. In both, the minimum age for trustees is 16, but it can be set at a higher age either by the people setting up the organisation or later by amending the constitution. If it were to be set higher than 18 advice would need to be taken about whether this contravenes age discrimination legislation.
6.2 Suitability of trustees
Advantage depends on your point of view. Clause 10 in the foundation model constitution says that when selecting individuals for appointment as trustees, the existing trustees "must have regard to the skills, knowledge and experience needed for the effective administration of the CIO". I find it interesting that this is being made a constitutional requirement.
There is no comparable requirement in the association model constitution. In an association CIO, all or most of the trustees would probably be appointed or elected by the CIO members rather than the trustees, so it would presumably be difficult to interfere with members' choice by imposing a constitutional requirement for competence. The same would apply in charitable companies, unless the articles say the only members are the trustees.
6.3 Information for new trustees
Advantage to CIO, but can be included in company articles of association.
Clause 14 in the CIO association model constitution and clause 11 in the foundation model require the trustees to make available to each new trustee, on or before their first appointment, a copy of the CIO's constitution and the most recent trustees' annual report and accounts. This is not a statutory requirement but is such good practice, and is so frequently not done, that you have to wonder why it hasn't always been included in model governing documents.
I suggest adding, between the two existing requirements, "any rules or bye-laws made under clause 26 of this constitution". The need to provide them to trustees could also be added to clause 26.
There is no comparable provision for charitable companies, but I now recommend that it is included in articles of association.
6.4 Public information about trustees (may be a critical issue)
Advantage to CIO. Like companies, CIO's have to make some information about their trustees available to the public via their statutory report, public access to their register of trustees or directors, and the Charity Commission or Companies House website. But in CIOs only trustees' names are made public via their annual report and Commission website, and where the charity's work is sensitive, the Charity Commission can give dispensation from having to make even the trustees' names public.
For companies, the Companies House online register of companies includes not only trustees' names but also an address (which does not have to be their residential address), year of birth (previously it also included day and month), and nationality. There is no provision for a director or this information not to be included on the register of companies.
CIO is the best option if the trustees believe that having their names made public could put them at risk, and they want to be able to seek Charity Commission dispensation from having to make any information at all, even trustees' names, available to the public via their register of trustees, annual report or the Commission's website.
6.5 Statutory duties of trustees
Advantage to CIO. The CIO conflict of interest duties may be stricter than for companies, but at least with a CIO, trustees only have to comply with one set of duties. Trustees/directors of charitable companies have to comply with both charity law duties and a very detailed and specific list of company law duties, and these are sometimes overlap confusingly.
6.6 Maximum term of office
In both a CIO and charitable company the maximum term, if any, depends on what is in the governing document. So when drawing up the CIO constitution or company articles, think carefully about whether to set a maximum for how long a trustee can serve.
6.7 Right to remove trustees
Advantage definitely depends on your point of view. CIO members have a right to remove trustees only if it is in the constitution. Company members always have a right, under company law, to remove directors.
6.8 Trustee meetings and decision making
No significant difference between CIO and charitable company, except perhaps that CIOs can include provision for consensus decision making.
7. Administrative issues
7.1 Annual accounts, reports and returns (may be a critical issue)
Advantage to CIO. All companies, regardless of size, must prepare accruals accounts; CIOs with annual income not more than £250,000 can prepare simpler receipts and payments accounts. Even for larger CIOs there is an advantage in being able to prepare accounts only under charity law, rather than under both company and charity law.
7.2 Electronic communications
I still have not really got my head around this but I'm told that the CIO provisions are better than those for companies.
In CIOs, unlike companies, there is no statutory right to use electronic communications (email, website, disk or whatever becomes available in future) to send official communications such as notice of meetings to their members. If a CIO wants to do so now or in future without having to get consent from each member, provision for electronic communication must be included in the constitution. The model CIO constitutions include this. As well as the constitutional provisions there are detailed provisions on communications to or by a CIO in reg.4 and schedules 2 and 3 of the CIO general regulations.
In relation to charitable companies: I think that company provisions for electronic communications are more detailed and complicated than for CIOs, but am not sure. As this is unlikely to be a factor in deciding whether to choose CIO or charitable company, I am not going to summarise them.
7.3 Principal office
No difference between CIO, which must have a principal address, and charitable company, which must have a registered address. In each case it must be a physical address, not a post office box.
7.4 General admin
Advantage to CIO. A CIO's administrative laziness, incompetence or just forgetting is not generally penalised. In companies, failure to comply with many company law administrative requirements, such as getting the annual accounts in on time or failing to allow a member of the public to see the register of members or any other statutory register, is an offence for which the company will or can be fined, and persistent failure can lead to the directors being fined and getting a criminal record.
The only administrative breach of CIO or charity law that I am aware of that could lead to fines is failure to include the CIO's name and status on specified locations, documents, communications and conveyances [see below], because the CIO rules are the same as those for companies.
Even where a breach of CIO or other charity law is not in itself an offence, the Commission or court can require the charity to comply with the law, and continued failure to do so would be in contempt of court.
7.5 Disclosure of name and status
Summary: No difference between CIO and company. The rules on include a CIO's name and status on specified locations, documents, communications and conveyances are exactly the same as the rules for companies.
8 Merger and dissolution
Advantage to CIO if merging with another CIO. Otherwise no significant difference between CIO and charitable company.
A CIO can take advantage of a simplified process to transfer assets etc if it is merging with another CIO, but not if it is merging with a non-CIO. A charitable company merging with another organisation cannot take advantage of a simplified process.
8.2 Voluntary dissolution
No significant difference between voluntary dissolution of a CIO by the Charity Commission and voluntary striking off of a company by the registrar of companies.
8.3 Options when insolvent
No difference between CIO and company. Both are subject to the same rules and procedures.
8.4 Dissolution of inactive organisation
Similar procedures for inactive CIOs to be removed from the register by the Charity Commission, and inactive companies to be removed by the Registrar of Companies. But there are some differences that could in practice be significant, and there are some particular concerns about the effect of dissolution of inactive CIOs [see next paragraph].
8.5 Effect of dissolution
Some banks which lend to charities have expressed concern about the CIO procedures, in particular in relation to dissolution by the Charity Commission (either voluntary dissolution, or the procedure for dissolution of an inactive CIO). As with borrowing secured on assets, an organisation which might need to borrow from a bank or similar lender, even if the loan would be unsecured, should take proper advice before registering as a CIO.
Advantage currently to charitable company, until more is known about the implications for CIOs. This is a technical issue about what happens if an application is made for a CIO to be restored to the register of charities or a company to be restored to the register of charities. The issues are discussed at www.sandy-a.co.uk/vslh/03incorp.htm#cio-yes-or-no.
8.6 Effect of removal from register of charities
Advantage to charitable companies. A CIO ceases to exist when it is removed from the register of charities. A company continues to exist as a company, even if it is removed from the register of charities. Removal from the register of charities may have implications for a company's funding agreements and other arrangements that are dependent on charitable status. But most relationships will continue unchanged with the company. The company can continue to hire staff, occupy premises, own property, owe money and pretty much operate as it always has.
The advantages for lenders, and for anyone involved in any way with the company, are obvious.
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SCOTTISH CHARITABLE INCORPORATED ORGANISATIONS
Updated 5/1/15. This information updates s.3.2 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The Office of the Scottish Charity Regulator (OSCR) started registering new or unincorporated organisations as Scottish charitable incorporated organisations (SCIOs) on 1 April 2011. The 500th SCIO was registered in March 2013 and the 1,000th in April 2014. One third of applications for charity registration are now for SCIOs.
Charitable companies and charitable community benefit societies (industrial and provident societies) have been able to convert to become SCIOs since 1 January 2012.
New regulations about removal of a SCIO from the Scottish charity register and dissolution of the SCIO came into effect on 6 January 2014. The Scottish Charitable Incorporated Organisations (Removal from Register and Dissolution) Amendment Regulations 2013 are at www.legislation.gov.uk/ssi/2013/362/contents/made.
OSCR's information about SCIOs can be accessed via tinyurl.com/mmnypzn.
Like other charities registered in England and Wales which have premises or carry out activities in Scotland, CIOs registered in England and Wales must register with OSCR as a cross-border charity. But a SCIO can be registered only with OSCR, so even if it operates in England and Wales as well as Scotland, it cannot be registered with the Charity Commission for England and Wales.
Gareth Morgan of Kubernesis Partnership has produced a two-page briefing on the SCIO, including the interesting point that the SCIO form is not limited to charities whose work is primarily in Scotland. He suggests that UK-wide charities that are able to give an address in Scotland as their principal office and are willing to comply with Scottish charity law may want to consider registering as a SCIO. This would enable them to operate in Scotland, England and Wales without also having to register with the Charity Commission. The briefing is at www.kubernesis.co.uk/wp-content/uploads/SCIOS-GM.pdf.
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NO PROGRESS ON EUROPEAN FOUNDATION STATUTE
Updated 9/1/17. This information updates s.3.6 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The European Commission published on 12 February 2012 proposals for a statute that would allow for the creation of a European foundation, a completely new structure for public benefit entities (broadly equivalent to charities in the UK) operating in two or more EU member states. The new structure would aim to overcome difficulties arising from organisations having to register in different member states, not being sure whether their public benefit status will be recognised and what their tax status will be in the various states where they operate, and donors being unfamiliar with foreign organisations.
A European foundation would be registered in a single member state, and can exist on its own or alongside a domestic organisation. Once registered, the foundation would have full legal personality and capacity in all member states, and in each member state would be treated for tax and other purposes in the same way as a domestic public benefit entity in that state.
The Commission's proposal needs to be considered by the EU Council of Ministers and the European Parliament. To be adopted, it must have unanimous agreement of all member states, and consent of the European Parliament.
As of the end of 2016, there does not appear to have been any progress. But once the UK is out of the EU, it will not apply to charities based here anyway.
The draft statute is on the European Commission website via tinyurl.com/72bjfpt, with a press release at tinyurl.com/cyugulx and frequently asked questions at tinyurl.com/cm59ohl.
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REPORTING SERIOUS INCIDENTS TO THE CHARITY COMMISSION
Updated 9/1/17. This information updates s.4.5.8 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The Charity Commission is consulting from 20 October 2016 until 12 January 2017 on its proposed updated guidance for charities, What to do if something goes wrong: Reporting serious incidents. The final version will replace the current guidance, which was updated in December 2013.
The most commonly reported serious incidents are fraud, theft and confirmed safeguarding issues. The updated guidance covers these and other common types of incidents and explains what should be reported to the Commission, as well as to the police and other regulators. New checklists and a table of examples of what (and what not) to report to the Commission are included.
Rather than nine types of incidents in the current guidance [see below], the new guidance has six:
The main revisions are:
financial crime: fraud, theft and money laundering;
unverified or suspicious donations;
other significant financial loss;
links to terrorism and extremism;
other significant incidents, including disqualified trustees, insolvency, forced withdrawal of banking services, or actual/suspected criminal activity.
The guidance reinforces that trustees should act quickly and responsibly when problems occur, including by making a serious incident report and taking steps to avoid a similar problem occurring in the future.
making it clearer what to report, how and when, and encouraging reporting at the time the incident
occurs, or as soon as possible afterwards;
an updated section to help with multiple reporting for larger charities, or those that report incidents
on a regular basis due to the risks arising from the nature of their work;
removing the need to report some types of incident, where these are risks rather than serious
incidents, and where the relevant information about the risk is now requested in the Charity Commission annual return (in particular that the charity has no vetting procedure to ensure that trustees or charity staff are eligible to act in the position they are being appointed to, and that the charity does not have a safeguarding policy in place);
adding some new types of incidents, which the Commission has found charities are experiencing on a regular basis and/or are struggling to manage properly (including losses affecting solvency; significant fines and penalties from HMRC, the Information Commissioner's Office or other agencies; financial losses arising from litigation; losses resulting from loss of funding; and forced insolvency, winding up or withdrawal of banking services).
The draft guidance, consultation questions and details of how to respond are on the Gov.uk website via tinyurl.com/ok8nzdh.
Current guidance. The current (December 2013) guidance can be accessed on Gov.uk via tinyurl.com/lehlghs. Serious incidents as listed in this version are:
Legal background. Under Charities Act regulations, trustees of registered charities with annual income over £25,000 must sign a declaration as part of the annual return that there are no serious incidents or other matters relating to the charity over the previous financial year that they should have brought to the Commission's attention but have not. If an incident has taken place but has not been reported to the Commission, this should be done when the annual return is submitted.
any actual or suspected fraud and theft;
significant loss (defined as loss of funds or other property with a value of 20% or more of the charity's income, or £25,000, whichever is the lower) due to other causes, such as through fire, flood or storm damage, or having to abandon property, for example in a war zone;
significant sums of money or other property donated to the charity from an unknown or unverified source;
the charity (including any individual staff, trustees or volunteers) having any known or suspected monetary/finance based links to a proscribed (banned) organisation or to terrorist or other unlawful activity ["any known or suspected monetary/finance based links" has replaced "any known or alleged link"];
a person disqualified from acting as a trustee has been or is currently acting as a trustee of the charity;
the charity has no vetting procedure to ensure that a trustee or member of staff is eligible to act in the position he or she is being appointed to;
the charity does not have a policy for safeguarding its vulnerable beneficiaries (eg children and young people under 18 years of age, or adults who are vulnerable at a particular time because they are in receipt of a regulated activity) [definition of vulnerable beneficiaries has been changed in line with changes to the Safeguarding Vulnerable Groups Act that came into effect in 2012 see www.sandy-a.co.uk/activities.htm#regulated-activity];
suspicions, allegations and incidents of abuse or mistreatment of vulnerable beneficiaries;
the charity has been subject to a criminal investigation, or an investigation by another regulator or agency, or sanctions have been imposed or concerns raised by another regulator or agency such as the Health and Safety Executive, the Care Quality Commission or Ofsted.
There is no statutory obligation to report incidents to the Commission except on the annual return, or for charities with annual income under £25,000 to report them at all. But as a matter of good practice the Commission encourages all charities, regardless of size, to report immediately, without waiting for the annual return, any incident that has resulted or could result in a significant loss of funds or a significant risk to a charity’s property, work, beneficiaries or reputation. This enables the Commission to offer guidance at an early stage, if it considers it necessary to protect the charity or its beneficiaries.
If trustees fail to report a serious incident, or do not report it promptly when it occurs, the Commission could consider this to be mismanagement and could take regulatory action, particularly if additional abuse or damage has arisen following the initial incident.
The Commission emphasises that it will not disclose to the media or public the names of charities that have made serious incident reports. But if approached by the media about an incident, the Commission will confirm whether or not the charity reported the incident. If the Commission can state that the trustees acted responsibly in reporting it, this may reduce the reputational damage caused by negative media exposure.
Other resources. When an employment issue is a serious incident, an article from solicitors Bates Wells Braithwaite, looks at when dismissals or other situations involving employees may be serious incidents that should be reported.
It gives as an example a report by the Charity Commission on its investigation into the London Philharmonic Orchestra. "The charity failed to submit a serious incident report on a substantial fraud by its former finance director. The charity had taken immediate action, received professional advice, and managed reputational risks. However, the commission concluded that, while it was satisfied that the trustees had fulfilled their legal duties and responsibilities, it 'would have been good practice to inform the commission of the fraud as soon as it was discovered by making a serious incident report'."
The BWB article, which can be accessed via tinyurl.com/jp4n8g8, warns that serious incident reports can be made public, as they are subject to Freedom of Information Act requests. It advises including brief details of actions taken by the charity to deal with the incident and to prevent similar risks or incidents in future and not to include defamatory comments.
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NOTIFIABLE EVENTS IN SCOTLAND
Added 9/1/17. This information updates s.4.4.6 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
Since 1 April 2016, charities in Scotland have been required to report notifiable events to the Office of the Scottish Charity Regulator (OSCR). In introducing this requirement OSCR said it wanted to "encourage charities to deal with issues quickly and effectively, in order to prevent them from becoming a serious problem for the health of the charity and, potentially, for the wider charity sector".
Its guidance, issued in March 2016, includes a chart describing and giving examples of types of event. This is of course similar to the Charity Commission's current and proposed new lists [see above] but with some differences, including not enough charity trustees to make a legal decision. Its notifiable events are:
The OSCR guidance can be accessed via tinyurl.com/h7rmeo4. OSCR has said it will keep the guidance under review and see if there are areas that need to be strengthened.
fraud and theft;
substantial financial loss;
incidents of abuse or mistreatment of vulnerable beneficiaries;
not enough charity trustees to make a legal decision;
charity has been subject to a criminal investigation or an investigation by another regulator or agency; sanctions have been imposed, or concerns raised by another regulator or agency;
significant sums of money or other property have been donated to the charity from an unknown or unverified source;
suspicions that the charity and/or its assets are being used to fund criminal activity (including terrorism);
a charity trustee is acting while disqualified.
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ADVANCEMENT OF AMATEUR SPORT AS A CHARITABLE PURPOSE
Updated 9/1/17. This information updates s.5.2.10 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The advancement of amateur sport, defined as a charitable purpose under the Charities Act 2011, covers sports or games which promote health by involving physical or mental skill or exertion, and which are undertaken on an amateur basis. It also includes the promotion of community participation in healthy recreation.
The Charity Commission consulted from 28 February to 31 May 2011 on the advancement of amateur sport as a charitable aim, with questions such as whether sports or games should be defined as having a body of rules or codes of playing; how the physical or mental health benefits of games involving mental skill or exertion can be demonstrated; and the boundaries between amateur and professional sport. The consultation can be accessed on the old Charity Commission website via tinyurl.com/knlhkr6. As of 31 December 2016, no follow-up had been published nor had the Commission's 2003 report, Charitable status and sport (RR11), been revised.
While launching its consultation on amateur sport the Commission also announced that earlier in February 2011, Hitchin Bridge Club had become the first charity ever registered with the aim of advancing amateur sport by promoting the game of bridge.
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CHARITY COMMISSION PUBLIC BENEFIT GUIDANCE
Updated 5/1/15. This information updates s.5.3 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
All charities in England and Wales must have purposes which are exclusively charitable for the public benefit, and must carry out these purposes for the public benefit when running the charity. The Charity Commission's suite of guidance documents on public benefit, comprising statutory guidance, overviews and background, can be accessed on the Gov.uk website via tinyurl.com/lhjok9o.
The Commission's initial detailed guidance on public benefit was published in 2008, and was revised in 2011 following a successful challenge in the charity tribunal on behalf of independent schools. Following consultation from June to September 2012, new statutory guidance was issued on 16 September 2013, in three documents which trustees have an obligation to have regard to.
Although the guidance is issued under the Charities Act 2011 and trustees must take it into account when setting up a charity, operating the charity and reporting on it in their annual report, there is no statutory definition of public benefit for charities in England and Wales (unlike in Scotland and Northern Ireland). The legal definition is based on common law (case law) rather than statute, so is subject to change as the result of any decision in the charity tribunals. The Commission's guidance is not a fixed statement of statute law; it only explains and reflects common law.
PB1: Public benefit: The public benefit requirement, explains what is required when setting up a charity or amending objects, to show that an organisation has purposes for the public benefit and is therefore a charity. PB2 and PB3 refer to PB1, so all trustees should read it even if they are not setting up or amending objects.
PB2: Public benefit: Running a charity, explains what trustees' duties are in carrying out those purposes for the public benefit. This guidance differentiates between the benefit aspect and the public aspect. To satisfy the benefit aspect, a purpose must be beneficial, and any detriment or harm that results from the purpose must not outweigh the benefit. To satisfy the public aspect, the purpose must benefit the public in general, or a sufficient section of the public, and must not give rise to more than incidental public benefit.
PB2 makes clear that it is for trustees not the Commission or the courts to decide how to meet the public benefit requirement. There are specific sections for charities which restrict benefits to a narrower range of beneficiaries though a membership scheme, restrict physical access to their facilities, or charge for their services or facilities. It is made clear that trustees of charities which charge fees for services or facilities that the poor cannot afford must make provision for the poor to benefit. It is up to them how they do this, but they must act reasonably and make more than minimal provision.
PB3: Public benefit: Reporting, covers how trustees should report, in their annual report, on the public benefit provided by the charity.
The meaning of public benefit will therefore continue to evolve through decisions made by the courts, primarily when the Commission refuses registration because an organisation does not, in its view, meet the public benefit requirement, and the organisation then challenges the decision in the charity tribunal. As the law develops, the Commission will keep its guidance under review.
As well as the three statutory guidance documents, the Commission's public benefit website also includes:
Bates Wells & Braithwaite and Mills & Reeves solicitors have useful summaries at tinyurl.com/nnrxzhq and tinyurl.com/nv3kb3b.
Public benefit: An overview, Legal analysis: Public benefit Public benefit guidance: Table of changes and responses to the consultation on the draft guidance, all published with the statutory guidance on 16 September 2013;
Examples of personal benefit (10 May 2013);
Public benefit: Rules for charities (14 February 2014);
Charities: Supplementary public benefit guidance, issued in December 2011 following the Independent Schools Council's successful challenge in the charity tribunal. The 2011 guidance is under review and no longer forms part of the Commission's guidance, but is being kept on the website until replacement guidance is published.
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CHARITY COMMISSION FOR NORTHERN IRELAND PUBLIC BENEFIT GUIDANCE
Updated 5/1/15. This information updates s.5.3.8 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The Charity Commission for Northern Ireland published its guidance on the public benefit requirement in December 2013, alongside a public benefit glossary. As in England and Wales, trustees of Northern Ireland charities must consider the guidance when starting a charity, registering it with the CCNI, running it, and reporting annually on its activities.
The guidance and glossary can be accessed via tinyurl.com/kzncmed.
FAQs about the public benefit requirement in Northern Ireland are at tinyurl.com/k4ypzw2.
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REGISTRATION OF EXEMPT CHARITIES
Exempt charities with principal regulators
Updated 8/12/14. This information updates s.8.1.2 in <The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The Charity Commission's guidance for exempt charities (CC23), updated most recently on 1 September 2013, is on the Gov.uk website at tinyurl.com/np5cfrr.
In his review of the Charities Acts in 2012, Lord Hodgson recommended in relation to exempt charities that the Office for Civil Society and the Charity Commission should begin discussions with the Homes and Communities Agency about the feasibility of it becoming the principal regulator of charitable social housing providers in England; the term "principal regulator" should be changed to "co-regulator"; and charitable industrial and provident societies (now referred to as community benefit societies or registered societies) should be required to either register with the Charity Commission or resign their charitable status.
Lord Hodgson acknowledged that the process of registering charitable community benefit societies would be burdensome for the Charity Commission, but suggested that this could be done alongside registering CIOs that are converting from company status.
Lord Hodgson's report and recommendations and the government's interim response are on the Gov.uk website at tinyurl.com/c2azftb. The government's final response, in September 2013, is at tinyurl.com/n5zl7ex.
Exempt charities are recognised as charitable either by statute or by HM Revenue & Customs, but are prevented, under the Charities Act, from registering with the Charity Commission. Until recently, there has been no provision for monitoring their ongoing compliance with charity law, but principal regulators are now being appointed who will have this responsibility. Exempt charities with a principal regulator are not within the Commission's jurisdiction, but the Commission has power to investigate them if the principal regulator requests this.
From 1 September 2013, the Department for Business, Innovation and Skills and the Welsh Assembly Government became principal regulators in, respectively, England and Wales for further education colleges that are exempt charities, and their connected charities.
This follows the appointment from 1 August 2011 of principal regulators for foundation, foundation special and voluntary schools, academies including free schools, and sixth form colleges in England (the secretary of state for education) and comparable bodies in Wales (Welsh Assembly Government), and the appointment from 1 June 2010 of principal regulators for most universities in England (the Higher Education Funding Council for England), museums and galleries (the secretary of state for culture, media and sport), and Kew Gardens (the secretary of state for the environment, food and rural affairs).
In September 2013, in its response to Lord Hodgson's proposals, the government said it had no plans to change "principal regulator" to "co-regulator", as this would need primary legislation.
Exempt charities with no principal regulator
Where there is no principal regulator, previously exempt charities will become excepted charities. These excepted charities will come under the jurisdiction of the Charity Commission, and if their annual income is over £100,000 will be required to register with the Commission. The registration threshold is expected to be reviewed as part of the reviews of charity law (see Reviews of charity legislation) and may be reduced.
Provisions for charities which cease to be exempt are at www.legislation.gov.uk/uksi/2010/503/contents/made.
Colleges of the universities of Oxford, Cambridge and Durham, higher education institutions in Wales, the Museum of London, some students' unions, and institutions administered by the Church Commissioners became excepted charities on 1 June 2010.
The main group which is still exempt is charitable industrial and provident societies in England and Wales, except those that are registered social housing providers [see section below]. Charitable IPSs are now referred to as charitable community benefit societies or charitable registered societies. Unless a principal regulator can be found, they will become excepted charities and have to register with the Commission if their income is over the threshold.
In relation to Lord Hodgson's recommendation that charitable industrial and provident societies should be required either to register with the Commission or resign their charitable status, the government said in its response that it would consider both the option of appointing a principal regulator, and the alternative of requiring larger IPSs to register with the Commission. It added that relinquishing charitable status is not an option, because the society would have to relinquish all assets to they could be used for similar charitable purposes.
One issue with implications for the charitable status is community benefit/registered societies is that all such societies issue shares to their members. Most societies with charitable objects are prohibited by their rules (governing document) from paying interest or dividends on those shares, but a small number of societies with charitable objects have power to pay interest or dividends on shares they issue.
In the past, the Charity Commission's view was that these societies should not be registered by the Commission when they cease to be exempt charities, and the society would thus cease to be charitable.
However, on 5 January 2012, after consultation with HM Revenue & Customs (which has been responsible for determining whether organisations which are exempt from registering with the Commission are charitable for tax purposes) and the Financial Services Authority (at the time, the registrar of industrial and provident societies), the Commission issued guidance that under some limited circumstances societies with power to pay interest on share capital could be charitable and would have to register with the Commission when they become exempt from registration. Power to pay dividends will continue to mean the society will not be registered by the Charity Commission.
The Commission's guidance about this was at tinyurl.com/7bqh6ot, but it seems to have disappeared during the migration to the Gov.uk website, and is not included in CC23, its general guidance for exempt charities.
Charitable community benefit/registered societies should check their rules and if there is no power to pay interest or dividends on issued shares, no action needs to be taken. If payment of interest or dividends is allowed, the society should take advice from a specialist advisor about how to proceed. This will depend on whether the allowed payments are or are not within what will be allowed for charitable societies.
If the payments are not within what will be allowed but the society does not make the payments now and will not want to in future, the society may want to remove the provision from the rules or amend it to bring it within what is allowed for charitable societies.
If the society makes payments now that would be unacceptable for charitable societies and wants to continue doing so (or does not make them now but wants to be able to do so in future), it will have to accept that when the registration rules come in it will cease to be charitable, which could have tax implications.
Registered social housing providers
The Office for Civil Society reported at a conference in May 2014 that it had asked the Homes and Communities Agency to become principal regulator for approximately 600 community benefit societies (industrial and provident societies) in England that are registered social housing providers (housing associations) and are recognised as charitable by HM Revenue & Customs. This request had been anticipated.
The government had already, by mid 2013, started similar discussions with the Welsh government in respect of equivalent charities in Wales. As of 4 December 2014, no date has been set for either the HCA or Welsh government to become principal regulators for these community benefit societies.
If they agree to take on this role, the HCA and Welsh government will join other principal regulators in having responsibility for overseeing the charity law compliance of charitable social housing providers which are exempt from registering with the Charity Commission.
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REGISTRATION OF EXCEPTED CHARITIES
Updated 8/12/14. This information updates s.8.1.3 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
Charity Commission guidance for excepted and exempt charities, updated most recently on 11 June 2014, can be accessed on the gov.uk website via tinyurl.com/mbfzsjl.
Since 31 January 2009, many charities which were previously excepted from registration have been required to register with the Commission if their annual gross income is over £100,000. These changes primarily affected armed forces charities, Scouts and Guides, registered places of worship and some church charities.
Those up to and including £100,000 are not at present required to register but are under the jurisdiction of the Commission. As part of his review of the Charities Acts in 2012, Lord Hodgson recommended that the threshold be reduced to £50,000 and then £25,000 over a period of three years, which would start in 2016 at the earliest.
In its final response to Lord Hodgson's proposals in September 2013, the government said that it is "inclined to take the view that now is not the right time to require smaller excepted charities to register with the Charity Commission". Its main concern was that registration would impose an unnecessary regulatory burden on several thousand small charities, but said it would set out specific proposals in due course.
Specified churches remain excepted from registration even if their income is over £100,000. This exception was due to end on 31 March 2014 but was extended until 31 March 2021. The Charities (Exception from Registration)(Amendment) Regulations 2014 are at www.legislation.gov.uk/uksi/2014/242/made.
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CHARITY REGISTRATION IN NORTHERN IRELAND
Updated 20/8/13. This information updates ss.4.4.6, 5.3.8 & 8.4 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
THIS ARTICLE NEEDS TO BE UPDATED, WHICH WILL BE DONE AS SOON AS POSSIBLE.
The Charity Commission for Northern Ireland (CCNI) remains on course to start registering charities in autumn 2013, with a phased process. The Charities (2008 Act) Commencement No.4 Order (Northern Ireland) 2013 brought into effect, on 24 June 2013, many provisions of the Charities Act (Northern Ireland) 2008 giving powers to the CCNI and placing requirements on registered charities.
The 2008 act created for the first time a statutory framework for charities in Northern Ireland and established the CCNI and a charity tribunal, But implementation was delayed by uncertainty about the legal interpretation of the public benefit provision in s.3 of the 2008 act, exacerbated by differing views about whether all charities should be required to demonstrate public benefit or whether some types of charities should be presumed to be for the public benefit, without having to demonstrate it as part of the registration process.
Finally the Charities Act (Northern Ireland) 2013, which received royal assent on 18 January 2013, amended the 2008 act to make clear that all charities in NI are required to demonstrate how they benefit the public. But it will be up to the CCNI to determine whether or not a charity is set up for the benefit of the public, rather than having, as the 2008 act provided, a prescribed test enshrined in legislation.
From 19 August 2013, the Charities Act 2008 (Transitional Provision) Order (Northern Ireland) 2013 replaces the 2011 order with the same name. The 2013 order makes clear that organisations which as of 19 August 2013 are registered as charitable for tax purposes with HM Revenue & Customs are to be treated as charities until a decision is made about whether they are to be registered with CCNI. CCNI has referred to these charities as "deemed charities". The distinction is necessary because there may be some situations where HMRC has granted charitable status for tax purposes, but CCNI, when it comes to register the organisation, decides that its purposes do not fall within the 2008 act or are not for the benefit of the public so it cannot be registered.
In early October 2013 the CCNI started a public consultation on its interim reporting proposals for registered charities, followed by a consultation in 2014 on the format, structure and content of the full accounting and reporting requirements. During the interim period, registered charities will be required to provide their accounts and reports and complete an annual return covering their activities, governance and finances, but the accounts and reports can be in the format they currently use.
The CCNI's website includes information about cy près schemes, which allow property or funds to be used for charitable purposes other than those for which it was originally intended.
The cy près webpage also includes information about the Charity (Failed Appeals and Disclaimers) Regulations (Northern Ireland) 2013, under which the CCNI can make a scheme where an appeal for a specific purpose does not raise enough funds for the purpose (for example, for a specific project or piece of equipment), or raises too much. The regulations came into effect on 1 July 2013 and can be accessed via tinyurl.com/nqp99oz.
Under s.167 of the 2008 act, charities that operate in NI but are based in England and Wales, Scotland, the Republic of Ireland or other countries have to register with CCNI and submit financial returns to CCNI, but it will be a "light touch" registration rather than full registration, and they will be included on a "parallel register" which will not require them to show that they are legally charitable under NI law. These "s.167 charities" will not be registered until all NI-based charities are registered and regulations are in place setting out the s.167 accounting and reporting requirements.
Overall, the NI legislation is similar to the 1993 and 2006 Charities Acts (now the 2011 act) for England and Wales. Some significant differences are:
Promoting the efficiency of the armed forces is not a charitable purpose, as it is in England and Wales.
As in Scotland all charities will be required to register, with no exemptions or exceptions as there are in England and Wales (s.3).
"Designated religious charities" which meet certain criteria will have more organisational freedom than other charities (s.165).
The CCNI website is at www.charitycommissionni.org.uk.
"The advancement of peace and good community relations" is included in the charitable purpose that includes the advancement of human rights, conflict resolution, reconciliation etc (
NIVCA (the Northern Ireland Council for Voluntary Action) has information, including its submission to the CCNI public benefit and registration consultation, on its website at www.nicva.org/news/charity-law-reform.
The Charities (2008 Act) Commencement No.4 Order (Northern Ireland) 2013 is at www.legislation.gov.uk/nisr/2013/145/made.
The 2008 and 2013 acts are at www.legislation.gov.uk/nia/2008/12/contents and www.legislation.gov.uk/nia/2013/3/contents/enacted.
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GOVERNANCE, MEMBERSHIP AND TRUSTEESHIP
RESOURCES FOR CHAIRPERSONS
Updated 8/2/16. This information adds to s.14.2.1 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The Association of Chairs seeks to support, challenge and stimulate chairpersons of charities and other not for profit organisations, develop knowledge and resources, offer professional development and standards, and create a voice for chairs.
Its first publication, A chair's compass, focused entirely on the chair's perspective and the particular challenges and opportunities of the role. Its second, A question of balance: A guide to the chair and chief executive relationship was published in November 2015 to help chairs explore and strengthen the relationship they have with their senior staff member.
The guide identifies what is needed at key stages in the chair-CEO relationship, explores nine key themes where the chair needs to strike the right balance, encourages chairs to be emotionally aware, offers insights from research, and provides pointers for when things go wrong.
It is intended primarily for chairs, both new and highly experienced, but will also be useful to vice chairs, trustees, senior staff and governance advisors.
Information about the Association of Chairs is at www.associationofchairs.org.uk. A question of balance and A chair's compass are available as free downloads via tinyurl.com/jj8zjek and tinyurl.com/msonnpl. Members of the association are entitled to free print copies; others can purchase print copies for £25 plus postage and packing.
For more governance resources, see Governance resources for charity trustees and Governance resources for company directors, below.
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GOVERNANCE RESOURCES FOR CHARITY TRUSTEES
Updated 9/1/17. This information adds to chapter 15 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
This is a round-up of governance-related resources issued during 2016 (or earlier, if I did not include them at the time). For earlier resources which have already been mentioned here, go to archived pages; for a publication specifically for chairpersons see above, and for resources specifically for company directors see below.
The resources listed here apply to all charities, whether incorporated or unincorporated and regardless of whether registered with the Charity Commission, other charity regulator or no regulator. Most of their content applies to non-charities as well, even some of the legal duties where they are not specific to charities.
The various publications on duties of charity trustees and on good governance for charities are all broadly similar. But there are differences between charity law in England and Wales, Scotland and Northern Ireland, so when looking at legal duties it's important to use guidance for the relevant nation.
Codes of good governance
England and Wales. A consultation on the draft Charity governance code is taking place from 7 November 2016 until 3 February 2017. Developed by a working group made up of ACEVO, the Association of Chairs, ICSA The Governance Institute, NCVO, Small Charities Coalition and Wales Council for Voluntary Action, with the Charity Commission as an observer, this new edition follows earlier codes in 2005 and 2010, called Good governance: A code for the voluntary and community sector.
The second edition, in 2010, came in three English versions full code, summary code, and a code for smaller organisations plus a Welsh version. This time, there is a single code with English and a Welsh versions, with colour coding to show which parts apply specifically to organisations with paid employees and which apply to larger, more complex organisations, basically defined as those that are required to have a an external audit. The assumption is that everything else applies, at least to some extent, to all charities, even if they are quite small.
Some of the significant proposed recommendations and changes in this edition are:
The code is based on a foundation principle which assumes all trustees are committed to their charity's purpose, understand their role and legal obligations and are committed to good governance. This is followed by seven other principles: Organisational purpose and direction; leadership; integrity; decision making, risk and control; diversity; board effectiveness; and being open and accountable.
Boards should use the code as a tool for continuous improvement, rather than simply as an way to meet minimum standards.
Boards should promote a culture of prudence with resources but also understand that being overcautious and risk averse is itself a risk.
Boards should take account of the wider voluntary sector in making sure their charity operates responsibly and ethically.
Boards should regularly review the external environment and assess whether the charity is still relevant; and should consider partnerships, merger or dissolution if others are seen to be fulfilling similar charitable purposes more effectively.
Increased expectations in relation to aspects of board composition, dynamics and behaviours are set out, with explicit good practice recommendations about board size, frequency of board performance reviews, and trustees' terms of office.
There is a new emphasis on the chair's role in promoting good governance.
Board diversity is emphasised in supporting leadership and decision-making, with a recommendation that larger charities publish an annual statement of the steps they have taken to address the board's diversity.
There is a presumption that charities should be open in their work, including a public register of trustees' interests, unless there is a good reason not to.
"Apply or explain": The code recommends that charities use their annual report to say how they apply the code, and to explain any aspects which they do differently.
For each there is short explanation of the principle; the rationale; key outcome(s); and recommended practices. The recommended practices are colour coded if they apply to organisations with paid staff or which are larger/more complex.
English and Welsh versions of the draft, and the online consultation questionnaire in English and Welsh, are at www.governancecode.org/consultation/. Replies can also be sent via email.
The current (2010) code is at www.governancecode.org.
Northern Ireland. The Developing Governance Group in Northern Ireland launched its revised Code of good governance for the voluntary and community sector on 29 January 2016. The original code was published in 2008.
The revised code can be downloaded via the Group's DIY committee guide website at www.diycommitteeguide.org. It is based on five principles: roles and responsibilities, working together, delivery of organisational purpose, exercising control, and being open and accountable.
The DIY committee guide website was completely revamped (we're now supposed to say rebooted) in April 2016. As well as the governance code, it includes a governance health check and resources such as a risk management template that are useful for small organisations anywhere, not only in Northern Ireland.
Sports governance. The Code for sports governance, launched on 31 October 2016 by UK Sport and Sport England, sets out the levels of transparency, accountability and financial integrity that will be required from April 2017 from sports organisations which seek funding from government, the National Lottery, Sport England or UK Sport.
The code has three tiers and will apply regardless of an organisation's size and sector, including national governing bodies of sport, clubs, charities and local authorities. It is described as proportionate, expecting the highest standards of good governance from organisations requesting the largest public investments.
The code can be downloaded via tinyurl.com/hu3z22v.
Charity governance, finance and resilience: 15 questions trustees should ask
The Charity Commission's excellent Big Board Talk: The economic downturn: 15 questions trustees need to ask, published in 2009, was revised in 2012 and renamed Big Board Talk: Charity trustee meetings: 15 questions you should ask, and was repurposed again in January 2016, as Charity governance, finance and resilience: 15 questions trustees should ask. Along with two podcasts and a link to a colourful one-page infographic, it is on Gov.uk via tinyurl.com/o6veu2b.
The 15 questions, each with several subsidiary questions, are grouped under strategy, financial health, governance, and making best use of resources. Not all questions are relevant for every charity, but all need to be considered in order to ascertain whether they apply.
I complained in 2015 that the document itself, on Gov.uk, does not include the introduction setting out the context for the checklist and how it can be used. This information is on the separate page which has the link to the actual document. This is still the case.
CC3 and CC3a: The essential trustee
The essential trustee What you need to know, what you need to do (CC3), revised in July 2015 is the Charity Commission's overview of trustees' duties under charity law. It is, in my view, one of the most important documents for new or potential trustees, or existing trustees who may not be aware of how their duties under charity law have changed over time (or may never have known what those duties were, and quite possibly still don't).
To make it even better, there is now a colourful two-page infographic, with a jigsaw of trustees' six key duties on the first page, and a summary of what each duty means on the second page.
CC3 in HTML and in English and Welsh as a PDF, and the infographic are on Gov.uk via tinyurl.com/ln9q9dh.
CC3a, Charity trustee: What's involved, summarises the key points in CC3 in more detail than the infographic. CC3a is on Gov.uk at tinyurl.com/oqfjwuf.
My reviews of CC3 and CC3a in August 2015 are at www.sandy-a.co.uk/vslh/15govbodyduties.htm#governanceresources-trustees.
Easy-read good trustee guide
NCVO (the National Council for Voluntary Organisations) has translated its Good trustee guide into easy-read format, to provide information about a trustee's role and best practice guidance to people with a learning disability.
By making the information in the Good trustee guide accessible, NCVO hopes to help charities, especially those working with people with learning disabilities, improve the diversity of their governance structure and increase the effectiveness of their trustee board. Increasing board diversity is a key recommendation of the new draft Charity governance code for England and Wales [see above].
The easy-read version was developed by the Advocacy Project (www.advocacyproject.org.uk) and is divided into four booklets: What is a charity; What is a charity trustee; What trustees must do; and How trustees look after the charity. The booklets are free and can be accessed via a press release at tinyurl.com/gtrbpn4, or directly at www.ncvo.org.uk/accessible-guides.
The full Good trustee guide (256pp), now in its sixth edition, provides comprehensive information about the role of trustees and guidance on developing an effective trustee board, and is ideal as a detailed introduction for new trustees or as a refresher for long-serving trustees. It costs £21 for NCVO members and £30 for non-members, with discounts for five or more copies, and can be ordered via tinyurl.com/hh5xxex.
The full guide is sponsored by Cazenove Charities. A free 15-page summary can be downloaded from their website via tinyurl.com/zme9aqz.
The Office of the Scottish Charity Regulator consulted from September to December 2015 on a draft of its revised Guidance and good practice for charity trustees, and published the new version in June 2016.
The previous version of the guidance was published in September 2010. The underlying principles of the new version have not changed, but it sets out in a more straightforward way what charity trustees must consider, in order to ensure they meet legal requirements and their charity is well run, and to avoid some of the common problems that can arise.
The new guidance is on the OSCR website via tinyurl.com/zb7lkec. An easy-read version is at tinyurl.com/hz6x4l5.
Publications from New Philanthropy Capital
Among the publications produced by think tank New Philanthropy Capital in 2016 were Above and beyond in trusteeship: What good governance looks like and What makes a good charity? NPC's guide to charity analysis.
Above and beyond, published on 8 December 2016, is by Iona Joy and Oliver Carrington and is intended to complement the Charity Commission's The essential trustee and the forthcoming Charity governance code [see above for details of both]. Drawing on trustees' practical experience, it looks at how trustees can be ambitious on behalf of their organisations and do the best for their beneficiaries, by staying focused on the purpose of governance, getting the most from their boards, and adopting the best practice and processes.
It includes a useful chart, adapted from a diagram by Compass Partnership, setting out the connected and overlapping roles of the senior team and the board. This may not apply to organisations without paid staff where trustees may be directly involved in managing and even doing the day to day work, but will be useful for other organisations, even if small.
It can be downloaded from the NPC website via tinyurl.com/jknrfzd.
What makes a good charity? is a free guide that aims to set out the key aspects of an effective charity or social enterprise. It focuses on four areas: purpose, impact practice, people, and finance and operations. For each, it sets out key questions to ask, and is not dissimilar to the Charity Commission's 15 questions trustees need to ask [see above].
Written by Ruth Gripper and Iona Joy, it was launched on 29 September 2016 and can be downloaded via tinyurl.com/jcqx2qz.
When Community Matters (the National Federation of Community Organisations) closed in spring 2016, some of its key services were transferred to Advising Communities, a trading subsidiary of the charity Advising London. Advising Communities provides legal and technical advice, information and support for "people and organisations rooted in their communities or looking after community assets". It works with charities, social enterprises, small businesses and local government organisations in England and Wales, and has specialist interpreting and translating services.
As well as a free email newsletter, it offers a low-cost subscription service which includes email advice and up to date information sheets, and also offers targeted training and consultancy packages.
For more information or to sign up for free newsletters, go to advisingcommunities.org.uk/about-us.
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GOVERNANCE RESOURCES FOR COMPANY DIRECTORS
Added 5/1/15. This information adds to chapter 15 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
A couple of governance-related resources for company directors.
Two recent briefings one only two pages and the other 11 pages on the duties and responsibilities of company directors are intended for companies limited by shares, but the vast majority of content applies equally to companies limited by guarantee. One difference is that where the word "shareholders" appears in the duties it should be replaced by "members". More significantly, in a company set up with the purpose of benefiting people other than or in addition to its members, the duty to promote the success of the company is replaced with a duty to promote the achievement of that purpose.
The two-page briefing is an article, The call of fiduciary duty, published by Bates Wells & Braithwaite solicitors in July 2014. It is at tinyurl.com/n6tcycj.
The longer briefing, The responsibilities and duties of a company director, was published in October 2014 by Burges Salmon solicitors, and can be accessed via tinyurl.com/qx8grcd.
UK corporate governance code
Although only companies listed on the stock exchange have to comply with the Financial Reporting Council's UK corporate governance code, the code's basic principles underlie and often influence changes in other codes, including voluntary sector governance codes. So it is worth being aware of them.
The corporate governance code is reviewed every two years. Changes introduced on 17 September 2014 come into effect for company financial years starting on or after 1 October 2014. Changes which could have an impact on other governance codes include a new requirement for directors to monitor the risk management and internal control systems on an ongoing basis, in addition to the current requirement to report on the effectiveness of those systems at least annually; changes in the "going concern" statement; and a new requirement for a viability statement in which the directors confirm they have carried out a robust assessment of the principal risks facing the company, and describe the risks, how they are being managed or mitigated, and whether they consider the company has a reasonable expectation of continuing in operation for a specified period, which should generally be significantly longer than 12 months.
Another change is that when a significant proportion of shareholders vote against a resolution, the company must confirm when publishing the results of the meeting how they intend to engage with shareholders about this issue.
The 2014 and 2012 versions of the code can be accessed on the Financial Reporting Council website via tinyurl.com/q5p3d64.
The FRC's press release announcing the main changes is at tinyurl.com/q6rs9py.
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GUIDANCE ON MANAGING TRUSTEE CONFLICTS OF INTEREST
Updated 5/1/15. This information adds to s.15.2 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
Following an informal Charity Commission consultation from 25 June to 20 August 2013 on an updated version of its guidance for trustees on managing conflicts of interest (CC29), the new version was published on 15 May 2014.
The legal duties of trustees in relation to conflicts of interest have not changed. But the new guidance places a new emphasis on the seriousness of the issue and the consequences that can follow from mishandling conflicts of interest. For the first time, the guidance expressly explains that potential conflicts of interest may need to be considered as an issue before a trustee is elected or appointed. There is also an increased emphasis on the responsibility of individual trustees to identify and declare any conflicts of interest.
The guidance includes a simple three-step approach to dealing with conflicts of interest (identify it, prevent or deal with it, record it), a revised working definition of conflicts of interest ("any situation in which a trustee's personal interests or loyalties could, or could be seen to, prevent them from making a decision only in the best interests of the charity"), and a number of practical examples to illustrate the principles of the guidance.
It also includes four annexes, covering the rules on trustee benefit, the specific legal frameworks for charitable companies and charitable incorporated organisations (CIOs), serious conflicts of interest, and drawing up a conflicts of interest policy.
The guidance and related documents, in English and Welsh, are on the Gov.uk website via tinyurl.com/mx6u48w.
Russell-Cooke solicitors have a useful two-page summary of the rules, published on 1 June 2014, at tinyurl.com/m46uq86.
The November 2014 issue of PricewaterhouseCooper's Charity News has a three-page article, Related parties: Are you doing enough to identify potential conflicts of interest?. It can be accessed via tinyurl.com/owtsosy (free registration required).
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GUIDANCE ON TRUSTEE DECISION MAKING
Updated 20/8/13. This information adds to s.15.6 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
Following consultation from 4 February to 30 March 2013, the Charity Commission published the final version of It's your decision: Charity trustees and decision making on 19 July 2013. This new publication explains the key principles of decision making that the courts and the Commission expect trustees to apply when they are making significant or strategic decisions about their charity (although it seems to me it should be followed for all decisions there's nothing in the principles that wouldn't apply to minor decisions as well).
While stressing that it is up to trustees to determine what is in the charity's best interests, the guidance emphasises that in making their decisions and assessing the risk related to them trustees must act within their powers, act in good faith and only in the interests of the charity, make sure they are sufficiently informed, take account of all relevant factors, ignore any irrelevant factors, manage conflicts of interest, and make decisions that are within the range of decisions a reasonable trustee body would make.
The guidance suggests what trustees should do if they cannot agree, and explains when trustees need to ask the Commission for advice and under what circumstances the Commission might get involved. It also covers practicalities such as ensuring meetings are properly conducted, recording decisions accurately, and what to do it trustees disagree.
The Commission says that when decisions do not work out as intended, the courts or Commission are unlikely to hold the trustees personally responsible to the charity if the trustees can show that they have applied and followed these principles in making their decision.
Unfortunately, Third Sector and some other publications have, in their articles about the guidance, omitted "to the charity", thus perpetuating the widely held myth that as long as trustees act reasonably they will not be held liable full stop. This is of course not the case. Even if trustees follow the best decision making procedures in the world they can still be held personally liable to third parties (landlord, employees, suppliers etc). The only general protection against liability to third parties is incorporation as a limited company, charitable incorporated organisation (CIO) or industrial and provident society, and even with incorporation, protection from personal liability is not absolute.
It's your decision is on the Charity Commission website via tinyurl.com/l6ex3hj.
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REGISTER OF PEOPLE WITH SIGNIFICANT CONTROL
Updated 9/1/17. This information adds a new section between 18.5.6 and 18.5.7 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
From 6 April 2016, companies registered in the UK including charitable companies, community interest companies, dormant companies, and UK subsidiaries of companies registered outside the UK must have a new register of people with significant control (PSC register).
The only exception is for companies listed on a UK regulated or a prescribed stock exchange, which are subject to similar disclosure requirements. Apart from these companies, all others regardless of whether they are limited by guarantee or limited by shares, and even if they have no people with significant control must have a register.
The register must include not only people (individuals) with significant control, but also relevant legal entities (RLEs) and some other legal entities. These are described below.
Limited liability partnerships (LLPs) and Societates Europaeae (SEs) registered in the UK must also keep PSC registers. The rules for LLPs and SEs are not covered in this article.
Corporate bodies that are not registered companies
The requirement to maintain a PSC register does not apply to other types of organisations with corporate status, such as charitable incorporated organisations (CIOs), community benefit societies, incorporated charities established by royal charter or statute, trust corporations, and incorporated trustee bodies.
These bodies do not need to maintain their own PSC register. In addition they are unlikely, even through they are legal entities, to fall within the definition of a relevant legal entity that might need to be included in a company's PSC register.
However, where the trustee body of an unincorporated charity (trust or association) has been incorporated under part 12 of the Charities Act 2011, the charity trustees may need to be included in a company's PSC register [see next paragraph].
The requirement to maintain a PSC register does not apply to trusts (including charitable trusts), unincorporated associations, unincorporated businesses or partnerships that are not LLPs.
But if one of these organisations has significant control over a company (for example a charitable trust having significant control over its trading company), and any individual has significant control over that trust or unincorporated organisation, those individuals will be PSCs in relation to the company and will need to be entered in its PSC register. For more about this, see condition (v) under People with significant control, below.
Well may you ask. The intention of the new rules is to make transparent a company's beneficial owners the people who ultimately benefit from owning a significant proportion of shares in a company limited by shares, or having significant control of voting rights or other significant influence or control in a company limited by guarantee or shares.
Because of this intention, a company has to keep its PSC register available for inspection free of charge by any member of the public who has a proper reason to see it, and if requested has to provide a copy of the register, for which a flat fee of £12 can be changed.
In addition, from 30 June 2016, details in the PSC register need to be filed with Companies House at least annually on a confirmation statement. Confirmation statements replace annual returns from June 2016. Once on file at Companies House, the details will be publicly available there in person or through an online company search, in the same way as other company information.
A blog on the website of Mills & Reeve solicitors (20 January 2016) says, "The whole purpose of the regime to disclose the beneficial owners of companies is simply not appropriate for charitable companies which have a completely different concept of 'ownership' to other companies. The administrative burden imposed on companies and complexity of the PSC regime, coupled with the various criminal sanctions that come with it, is, in my opinion, wholly inappropriate for the charity sector" (www.charitylegalupdate.co.uk/page/2/). I totally agree.
What is significant influence or control?
Guidance, both statutory and non-statutory, on the meaning of significant influence and control is available, along with examples, in Department for Business, Innovation and Skills (BIS) documents [see Further information, below].
In brief, control is defined in the guidance as power to direct a company's, trust's or firm's policies and activities. Significant influence "enables the person exercising it to ensure that the company, trust or firm adopts those policies or activities which are desired by the holder of the significant influence".
Control or significant influence do not need to be directed towards the financial and operating policies of the company, trust or firm, and do not have to be exercised by a person with a view to gaining economic benefits.
People with significant control
An individual is a person with significant control (PSC) if one or more of the following conditions applies:
(i) they hold, directly or indirectly, more than 25% of a company's shares;
(ii) they hold, directly or indirectly, more than 25% of the voting rights, for example if a company limited by guarantee has four or fewer members;
(iii) they have, directly or indirectly, the right to appoint or remove a majority of the board of directors;
(iv) they actually exercise or have a right to exercise significant or control; and/or
(v) they actually exercise or have a right to exercise significant influence or control over a trust or firm, and that trust or firm meets any of the above criteria and would therefore be a PSC if it were an individual. The individuals need to be entered in the PSC register, not the trust or firm.
In relation to condition (ii), it will be important to understand the provisions in the articles of association about membership and membership rights, and to ensure the register of members is up to date.
In voluntary sector companies there is often serious confusion about the difference between the company members and company directors, and/or between the company members and other individuals or organisations who might be referred to as "members", but have not been admitted to company membership as defined in the articles of association. This could include, for example, "members" who attend the youth club or lunch club, or supporters or Friends.
The need for clarity about who the proper, constitutional company members are is important not only to understand conditions i and ii for the PSC register, but also for other important purposes such as the right to vote at general meetings.
In relation to condition (iii), the articles of association or other legally binding arrangements will set out who has a right to appoint or remove directors.
In relation to condition (v), "trust" includes charitable trusts. and "firm" is defined in the Companies Act 2006 s.1173(1) and includes unincorporated associations and partnerships.
Chapter 7 in the BIS full guidance for companies explains each of these conditions in some detail and gives examples, with more information in the separate statutory guidance (still draft, but unlikely to change) on what constitutes significant influence or control. Both documents can be accessed via tinyurl.com/jb8f8pv.
In most companies, it will be obvious if there are PSCs, as in the following examples.
If a company has three or fewer individual members (individuals who, under the articles of association, have the right to attend or vote at general meetings), with equal voting rights or shares, they each have more than 25% of the rights or shares, so they would meet condition i or ii and are all be PSCs.
Regardless of the number of members or shareholders, if any individual member or shareholder owns more than 25% of the shares or has more than 25% of the voting rights, that individual meets condition i or ii and is a PSC.
If a member, founder, individual donor or other individual has a right to appoint a majority of the directors, that individual meets condition iii and is a PSC.
If an unincorporated charitable trust X is one of three or fewer members of company Y, or has the right to appoint or remove a majority of Y's directors, and some or all of the trust's trustees are individuals who have substantial influence or control over the trust, those trustees meet condition v and are PSCs in relation to company Y, and must be entered in Y's PSC register.
Who is not a PSC
The (currently draft, but unlikely to be changed) company statutory guidance on the meaning of significant influence or control says that the following are generally not considered to be PSCs:
Details are in s.4 of the draft company statutory guidance at tinyurl.com/jb8f8pv.
directors of the company;
employees acting in the course of their employment;
a person such as a lawyer, financial advisor or management consultant providing advice in a professional capacity;
people such as a supplier, customer or lender who have a commercial or financial agreement with the company;
some others check the list if in doubt.
However, someone who is not a PSC in the above roles could be a PSC in another capacity, for example if they are also a company member with more than 25% of the shares or voting rights, or if under the articles of association or some other arrangement they have a right to appoint or remove a majority of the directors.
In a charitable company, where the company directors are nearly always also the charity trustees, the directors/trustees are unlikely to be PSCs in that capacity. But even if they do not meet the company law definition of "person with significant control" and even if others do meet that definition in relation to the company the reality is that under charity law, the directors/trustees are in control of the charity. Their duty as charity trustees is always to act independently and in the best interests of the charity, even if others have, or seek to exercise, significant influence.
Relevant legal entities (RLEs)
The fact that it's called a register of people with significant control gives the impression that only individuals who meet the definition of a PSC have to be included. However, relevant legal entities (RLEs) may also need to be included. An organisation is an RLE if:
Whether an RLE is registrable and has to be included on the company's PSC register depends on its relationship with the company. For most charitable and other voluntary sector companies, it will be straightforward, as in the following examples.
it is a legal entity (a body corporate); and
it would meet the definition of a PSC if it were an individual, and
it is required to maintain its own PSC register, or is a company exempt from maintaining one, or has to comply with comparable disclosure requirements relating to listed share companies.
But where there is a complex structure of multiple companies, it can be difficult to work out which company or companies might meet the PSC criteria and are therefore RLEs. And even when that is worked out, only one of them will be registrable in relation to any particular company in the structure. If the situation for your company is not straightforward, see s.2.2 in the BIS full guidance (PSC guidance for companies, LLPs, and SEs, via tinyurl.com/jb8f8pv) and take specialist advice if necessary.
Where a charitable company is the sole member of its trading company, or is one of a maximum of three members with equal shares, it would meet condition (i) if it were an individual (owning more than 25% of the shares). Or if it has the right to appoint or remove the majority of the trading company's directors, it would meet condition (iii). The charitable company is a registrable RLE and must be entered in the trading company's PSC register.
If company A owns more than 25% of company B's shares, controls more than 25% of the votes or has the right to appoint or remove the majority of B's directors, company A is a registrable RLE and must be entered in B's PSC register.
Other registrable persons
A local or national government or government department which would be a PSC if it were an individual is defined as an other registrable person, and must be entered in the company's PSC.
"Other registrable persons" are barely mentioned in the BIS guidance but are defined in s.7.4.10 of the full guidance for companies (PSC guidance for companies, LLPs, and SEs, via tinyurl.com/jb8f8pv).
An example is a charitable or other company where a local authority has the right to appoint or remove a majority of the directors or has final control over a company's business plan.
The company's officers (directors and company secretary, if there is one) have a statutory duty to ensure that people with significant control and registrable entities are identified, and their details are confirmed if necessary and entered in the company's PSC register. If there are no PSCs or registrable entities, the register must note this [see If there are no PSCs, below].
Details of an individual who is a PSC can be treated as confirmed if:
It is not necessary to confirm the entries for registrable entities unless the company does not have some information or is not certain of its accuracy. Annex 3 in the full guidance for companies (PSC guidance for companies, LLPs, and SEs, via tinyurl.com/jb8f8pv) has examples of a "section 790D notice" and "section 790E notice" to ask an individual or registrable entity to confirm their details. (The numbers relate to their section in the Companies Act 2006.)
the individual has supplied the information to the company;
the information was provided to the company with the knowledge of the individual;
the company already holds information and has asked the individual to confirm it is correct, and they replied that it was so; or
the company holds previously confirmed information and has no reason to believe it has changed.
These example letters can sound quite fearsome, especially if someone receives it out of the blue. It is not necessary to the example wording, but certain legal information must be included. So it may be best to use the example letter but include, especially when it is being sent to individuals, an introduction explaining what it is, why it is being sent and why it is in formal legal language.
Failure to respond to a s.790D or s.790E notice within one month is a criminal offence.
No part of an entry in the PSC register can be blank. If information is not available or has not yet been confirmed or provided, an explanatory statement as set out in annex 2 of the Companies House guidance for companies must be included instead [see link above]. The statement(s) must be in this exact wording. When the information is provided or confirmed the date the statement ceases to apply must be noted in the register.
When the company becomes aware that a PSC's or registrable entity's details have changed, they must be updated on the PSC register as soon as the company as soon as the PSC or registrable entity has notified the company, or the company has asked for and received confirmation of the change. If the company becomes aware that the details might have changed, it must contact the PSC or registrable entity.
The register must show the date the change occurred or took effect not the date it was notified to the company, confirmed (if necessary) or entered in the register.
From 30 June 2016, any change in the details must be notified to Companies House when the company's next confirmation statement (which replaces the annual return) is submitted. If the company chooses to have its register held at Companies House [see below], details must be notified at once, without waiting until the next confirmation statement is due.
Where the register must/may be kept
Until 30 June 2016, the PSC register had to be kept with the company's other registers (members, directors and secretaries, charges) at its registered office or at a single alternative inspection location (SAIL) that has been notified to Companies House.
To perhaps make life easier, from 30 June 2016 a company can opt out of holding its own PSC register at its registered office or SAIL, and have it held instead at the central register at Companies House. Information about the procedure for this is in chapter 6 in the Companies House full PSC guidance for companies (PSC guidance for companies, LLPs, and SEs, via tinyurl.com/jb8f8pv).
Individuals with significant control (PSCs)
For each individual who is a PSC, the register must include the following details. The information can be entered on the register only if it has, if necessary, been confirmed by the individual [see above].
Registrable relevant legal entities (RLEs)
Where a relevant legal entity must be entered in the PSC register, its entry must include the following information. These details must be accurate, but they do not have to be confirmed with the entity unless the company has reason to believe they may be inaccurate or may have changed.
Date of birth.
Country, state or part of the UK where the PSC usually lives.
Service address. This is an address where legal documents can be served. It cannot be a post office box but can be any physical address, such as the company's address or the individual's work address if the individual does not want their residential address to be available to the public.
Usual residential address. This must not be disclosed when making the register available for inspection or providing copies of the PSC register. If the residential address has already been included in the register because it is also the service address, it does not need to be given again.
The date the individual became a PSC in relation to the company. This will be 6 April 2016, if the individual met the condition(s) for being a PSC on the day the law came into effect.
Which of the five conditions for being a PSC are met, with quantification of their interest where relevant. If a PSC meets one or more of conditions (i) to (iii), it is not necessary to identify whether they also meet condition iv or v. In this section, only official wording, as set out in annex 2 in the Companies House full guidance for companies (PSC guidance for companies, LLPs, and SEs, via tinyurl.com/jb8f8pv), can be used.
Whether an application has been made for the individual's information to be protected from public disclosure/ This is only available if the person may be at risk of violence or intimidation as a result of being on the register; details are in s.5.3 and annex 1 in the Companies House guidance for companies [see bullet point above].
If an RLE is entered in a company's PSC register, it is not necessary to look further up the chain and include the people with significant control over that RLE. The RLE will, by definition, have its own PSC, so anyone who wants to track the chain of significant control or beneficial ownership farther up can do so by looking at PSC registers all the way up the chain.
Name of the legal entity.
Address of its registered or principal office.
Legal form of the RLE and the law by which it is governed.
Company number, if applicable.
Date it became a registrable RLE in relation to the company. This will be 6 April 2016, if the entity met the condition(s) for being an RLE on the day the law came into effect.
Which of the five conditions for being a PSC it meets, with quantification of its interest where relevant. If a PSC meets one or more of conditions (i) to (iii), it is not necessary to identify whether they also meet condition (iv) or (v). In this section, only official wording, as set out in annex 2 in the Companies House full guidance for companies (PSC guidance for companies, LLPs, and SEs, via tinyurl.com/jb8f8pv), can be used.
Other registrable person
Where an other registrable person such as a local authority, local authority department, or national government or department must be entered in the PSC, its entry must include the following. These details must be accurate but do not need to be confirmed with the entity, unless the company has reason to believe they are not accurate or have changed.
Name of the entity.
Address of its principal office.
Legal form of the entity and the law by which it is governed.
Date it became a registrable RLE in relation to the company. This is 6 April 2016, if the entity met the condition(s) for being a registrable person on the day the law came into effect.
Which of the five conditions for being a PSC it meets, with quantification of its interest where relevant. In this section, only official wording, as set out in annex 2 in the Companies House full guidance for companies (PSC guidance for companies, LLPs, and SEs, via tinyurl.com/jb8f8pv), can be used.
Duties of PSCs and RLEs
People with significant control and registrable relevant legal entities who are entered on a company's PSC register have a duty to notify the company when they cease to meet the criteria for being a PSC or RLE. Similarly, an individual or company which is aware it now meets one of the conditions should notify the company.
When someone stops being a PSC or RLE
When a company becomes aware that someone has stopped being a PSC, registrable RLE or other registrable entity, the date they ceased being a PSC or registrable entity must be recorded in the company’s PSC register as soon as reasonably practicable. From 30 June 2016 Companies House must be notified in the next confirmation statement, or immediately if the register is held at Companies House.
A company must keep full details of its PSCs and registrable entities on its PSC register for at least 10 years from when they stopped being a PSC or registrable entity. Companies House will keep the information about them indefinitely.
If there are no PSCs, or you're not sure yet
The company must take reasonable steps to find out whether it has any PSCs, relevant legal entities or other registrable entities. "Reasonable steps" are explained in s.2.3 in the full company guidance, PSC guidance for companies, LLPs, and SEs, via tinyurl.com/jb8f8pv).
If reasonable steps have not yet been taken or are in process, the register must include one or more of the following statements, with the exact wording:
If the company is satisfied it has no PSCs or registrable legal entities which is likely to be the case for most voluntary sector companies limited by guarantee there must nevertheless be a register and it must contain a statement with the exact wording "The company knows or has reasonable cause to believe that there is no registrable person or registrable relevant legal entity in relation to the company."
"The company has not yet completed taking reasonable steps to find out if there is anyone who is a registrable person or a registrable relevant legal entity in relation to the company."
"The company knows or has reasonable cause to believe that there is a registrable person in relation to the company but it has not identified the registrable person."
"The company has identified a registrable person in relation to the company but all of the required particulars of that person have not been confirmed."
Where there are no PSCs or RLEs, the company has a statutory duty to keep the situation under review, in case it changes. For example, a company with a small number of members may not have any PSCs as long as it has four or more members but if the number drops below four, the remaining members will all be PSCs under condition ii.
Companies and people with significant control (including relevant legal entitles) have a raft of statutory duties. Failure to comply, or complying but recklessly making a false statement are offences, punishable by a fine or up to two years imprisonment.
Companies have a duty to maintain a PSC register; take reasonable steps to investigate and obtain information needed for the register and keep it up to date; keep the register available for inspection and allow it to be inspected for a proper purpose and copies to be made; and ensure no information (such as residential addresses) is made available for inspection or copying if it is not supposed to be.
Individuals with significant influence or control and registrable relevant legal entities have a duty to respond to notices from the company requesting information, notify the company that they are or might be a PSC/RLE if they believe they might be but are not in the company's PSC register and have not received a notice from the company asking for information; and to keep their information up to date.
Companies House provides summary and detailed guidance, all available on Gov.uk via tinyurl.com/jb8f8pv:
Essential reading: PSC register summary guidance (5 pages; full title Summary guide for companies: Register of people with significant control). Contains a broad overview, with links to the relevant sections in the full PSC guidance. Probably an adequate starting point for the majority of charitable and other voluntary sector companies, but not for their trading companies or for company groups.
PSC guidance for companies, LLPs and SEs (87 pages; full title Register of people with significant control: Guidance for companies, limited liability companies and Societates Europaeae). For those who need more detailed information.
Guidance for people with significant control (48 pages; full title Register of people with significant control: Guidance for people with significant control). Considerable overlap with the guidance for companies, but from the perspective of individuals who are or might be PSCs, and relevant legal entities (RLEs). Covers what they need to know and do.
Company statutory guidance for the PSC register (14 pages; full title Draft statutory guidance on the meaning of significant influence or control). Detailed explanations and examples. Currently in draft form but highly unlikely to change.
Of the briefings I have seen from legal firms, my preference is Bond Dickinson's, at tinyurl.com/jr7rjvb. Although much of this 19-page PDF relates to share companies or limited liability partnerships, it covers more ground, and in a clearer format, than the others I have seen.
The primary legislation is in a new part 21A and schedules 1A and 1B to the Companies Act 2006, inserted by ss.81-82 and sch.3 of the Small Business, Employment and Enterprise Act 2015. As of 3 April 2016 the Companies Act at www.legislation.gov.uk/ukpga/2006/46/contents has not been updated, but the full next is in the SBEEA at www.legislation.gov.uk/ukpga/2015/26/schedule/3.
The Register of People with Significant Control Regulations 2016 are at www.legislation.gov.uk/uksi/2016/339/contents/made.
Minor amendments to the Companies Act 2006 part 21A were made by the Companies Act 2006 (Amendment of Part 21A) Regulations 2016 at www.legislation.gov.uk/uksi/2016/136/made.
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