OTHER CHAPTERS
I. THE ORGANISATION
Ch.1: Setting up an organisation
Ch.2: Unincorporated organisations
Ch.4: Charitable status, charity law & regulation
Ch.5: The organisation's objects
Ch.6: The organisation's name
Ch.7: The governing document
Ch.8: Registering as a charity
Ch.9: Branches, subsidiaries & group structures
Ch.10: Changing legal form
Ch.11: Collaborative working, partnerships and mergers
II. GOVERNANCE
Ch.12: Members of the organisation
Ch.13: Members of the governing body
Ch.14: Officers, committees & sub-committees
Ch.15: Duties & powers of the governing body
Ch.16: Restrictions on payments & benefits
Ch.17: The registered office & other premises
Ch.18: Communication & paperwork
Ch.19: Meetings, resolutions & decision making
Ch.20: Assets & agency
Ch.21: Contracts & contract law
Ch.22: Risk & liability
Ch.23: Insurance
Ch.24: Financial difficulties & winding up
III. EMPLOYEES, WORKERS, VOLUNTEERS & OTHER STAFF
Ch.25: Employees & other workers
Ch.26: Rights, duties & the contract of employment
Ch.27: Model contract of employment
Ch.28: Equal opportunities in employment
Ch.29: Taking on new employees
Ch.30: Pay & pensions
Ch.31: Working time, time off & leave
Ch.32: Rights of parents & carers
Ch.33: Disciplinary matters, grievances & whistleblowing
Ch.34: Termination of employment
Ch.35: Redundancy
Ch.36: Employer-employee relations
Ch.37: Employment claims & settlement
Ch.38: Self employed & other contractors
Ch.39: Volunteers
IV. SERVICES & ACTIVITIES
Ch.40: Health & safety
Ch.41: Safeguarding children & vulnerable adults
Ch.42: Equal opportunities: goods, services & facilities
Ch.43: Data protection & use of information
Ch.44: Intellectual property
Ch.45: Publications, publicity & the internet
Ch.46: Campaigning & political activities
Ch.47: Public events, entertainment & licensing
V. FUNDING & FUNDRAISING
Ch.48: Funding & fundraising: General rules
Ch.49: Fundraising activities
Ch.50: Tax-effective giving
Ch.51: Trading & social enterprise
Ch.52: Contracts & service agreements
VI. FINANCE
Ch.53: Financial procedures & security
Ch.54: Annual accounts, reports & returns
Ch.55: Auditors & independent examiners
Ch.56: Corporation tax, income tax & capital gains tax
Ch.57: Value added tax
Ch.58: Investment & reserves
Ch.59: Borrowing
VII. PROPERTY
Ch.60: Land ownership & tenure
Ch.61: Acquiring & disposing of property
Ch.62: Business leases
Ch.63: Property management & the environment
VIII. BACKGROUND TO THE LAW
Ch.64: How the law works
Ch.65: Dispute resolution & litigation
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UPDATED INFORMATION FOR CHAPTER 3:
THE RUSSELL-COOKE
VOLUNTARY SECTOR LEGAL HANDBOOK
This page contains information that has appeared on Sandy Adirondack's legal update website for voluntary organisations at www.sandy-a.co.uk/legal.htm. For current updates, including potential changes that are in the pipeline, see the legal update website.
These websites for each chapter update
the 3rd edition of The Russell-Cooke Voluntary Sector Legal Handbook by James Sinclair Taylor and the Charity Team at Russell-Cooke Solicitors, edited by Sandy Adirondack (Directory of Social Change, 2009). The websites are not intended as a comprehensive update and should not be treated as such.
To order a copy of The Russell-Cooke Voluntary Sector Legal Handbook, print out the order form at www.sandy-a.co.uk/bookserv.htm or send an email order by clicking
. It costs £60 for voluntary organisations or £90 for others, plus 10% p&p.
To avoid spamming, an email address is not given on screen. If you can't see the word 'here' or have trouble sending an email by clicking on it, the address is bookservice at sandy-a.co.uk, with the spaces and 'at' replaced by the @ symbol.
The information here covers the law applicable to England and Wales. It may not apply in Northern Ireland and/or Scotland. These news items are not a full or definitive statement of the law and are not intended as a substitute for professional legal advice. No responsibility for loss occasioned as a result of any person acting or refraining from acting can be taken by the author.
Chapter 3
INCORPORATED ORGANISATIONS
The items below formerly appeared on the legal update website for voluntary organisations and are archived here. The content may be out of date and links may not work. For current updates to the chapter, see the legal update website for voluntary organisations at www.sandy-a.co.uk/managing.htm.
CHARITABLE INCORPORATED ORGANISATION
Updated 13/11/10. This information updates s.3.2 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The Charities Act includes in schedule 7 details of the new legal structure of charitable incorporated organisation (Welsh equivalent=SEC). This was expected to become available in summer 2008 but the draft regulations and model constitutions were only published in September 2008, followed by a consultation which raised many concerns. Following the consultation the structure was expected to become available in late 2009, and then in April 2010, and then June 2010, but this was delayed by the election.
The Office for Civil Society is working on draft regulations and the Charity Commission on draft constitutions, but implementation depends on parliamentary time and is unlikely to be before spring 2011. It is likely that implementation will be phased, with new registrations first, then conversions from existing charitable companies and other incorporated structures.
Many of the concerns raised in the 2008-09 consultation have been dealt with, but in some cases the government's response remains controversial.
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The minimum age for trustees will be 16 (as in charitable companies) rather than 18 (as in charitable trusts and associations). The consultation responses were evenly divided between those who wanted it to be 16 and those who wanted 18 or higher.
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CIO trustees will not be able to replace the fixed duty of care in the Charities Act with a lower duty of care, as had been proposed.
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A CIO trustee will be automatically prohibited from participating in any decision from which he or she may benefit personally, unless authorised by the Charity Commission or where a conflict of interest is extremely unlikely. This is already an issue in charities where many, most or even all of the trustees are users of the charity's services, and will need to be considered carefully in CIOs where there will be a statutory prohibition on them taking part in many decisions.
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The register of trustees will not need to contain trustees' home addresses; as with company directors since 1 October 2009, trustees can give a service address. The public will have access only to trustees' name, former name and service address, and even these details will not need to be provided where the Charity Commission has given consent for details of trustees not to be included in charity annual reports.
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In a "foundation CIO", where the trustees and members are the same people, there will be a combined register which makes clear that they are both members and trustees. In an "association CIO", where there is a body of members wider than the trustees, there will be a separate register of members. There will be no general public right of access to the register of members, but trustees and members will be able to access it to carry out their duties.
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Rather than it being a criminal offence, as had been proposed, not to comply with some administrative requirements (like updating the registers of members and trustees within 14 days), the Charity Commission will have power to require compliance.
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Rules on information about charges over property (mortgages) and debentures (a form of borrowing), and access to the information, will be similar to the rules for companies.
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Some resolutions, for example to amend the constitution or wind up, will be subject to special procedural requirements such as a longer notice period than for ordinary resolutions.
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A CIO will be able to include in its constitution restrictions on the power to amend the constitution, for example a longer notice period or a higher percentage of the vote than is required under statute.
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Written resolutions will require agreement by 100% of the members entitled to vote, even though company written resolutions now require only a simple majority or 75% depending on the type of resolution. The 100% required for CIO written resolutions is in the Charities Act and can only be changed by a new Act.
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Unlike company members, CIO members will not have a statutory right to require a general meeting to be called, demand a poll (a counted vote), vote by proxy and remove trustees. If these members' rights are to exist, they must be included in the constitution.
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The original draft model constitutions did not allow for unincorporated organisations (trusts and associations) to be members of a CIO. This would have made the CIO unsuitable for umbrella organisations, federations and other organisations whose members are themselves organisations which might be unincorporated. The OTS and Charity Commission have said they do not intend to prevent unincorporated organisations from being members of a CIO, and that provision for this can be included in a CIO's constitution.
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Disqualification rules similar to those for company directors will prevent unfit trustees of an insolvent CIO from becoming trustees of another charity.
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Unlike charitable companies which must produce their annual accounts on an accruals basis, CIOs with annual income under £250,000 will — like unincorporated charities — be able to prepare their accounts on a receipts and payments basis.
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The consultation included complex provisions to ensure continuity of accounting when a charitable company converts to a CIO. Many respondents felt these could act as a disincentive to conversion. The Office for Civil Society considers it important to ensure continuity but is reconsidering the best way to do this.
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In addition to any delegation powers in the CIO's constitution, trustees will have statutory default delegation powers, as set out in the CIO regulations,
Background to the CIO
The Charity Commission's briefing on CIOs, updated to March 2009, is at tinyurl.com/yfrcy69.
The whole point of the CIO was to create a structure with charitable status that has the advantages of legal personality and limited liability, without the burdens of company law and the confusions of dual registration with — and dual accountability to — the Charity Commission and Companies House. However, the reform of company law may mean that the charitable company structure ends up being easier to operate than the CIO structure. The standard advice remains that an unincorporated charity that needs the advantages of incorporation should look at becoming a charitable company now, rather than waiting for the CIO to become available. And even when the CIO becomes available, it is unlikely to be appropriate for every incorporated charity.
Secondary legislation and draft constitutions are being drawn up, which will flesh out the legal framework for CIOs (see above). In the meantime, schedule 7 of the Charities Act 2006 Act, some of the main provisions of which are summarised below, forms the skeleton. The schedule inserts new ss.69A-69Q and a new schedule 5B into the Charities Act 1993.
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New s.69A
CIOs must have a constitution, a principal office in England or Wales, and one or more members. Members may be either not liable to contribute to the assets of the CIO if it is wound up, or liable to contribute up to a maximum amount each.
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s.69B
The constitution must include name, purposes, whether the principal office is in England or Wales, liability of members, eligibility and procedure for membership, eligibility and procedure for trustees, use of the CIO's property on dissolution, and such other matters as will be specified in regulations. The constitution must be in the form set out in the regulations, or as near to that form as possible. Concerns were raised during the consultation that this would be too restrictive, but the Commission will provide a range of options in the model constitutions.
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s.69C
The CIO's name must appear on specified documents, and if the name does not include "charitable incorporated organisation", "CIO" or the Welsh equivalent, the fact that it is a CIO must also appear.
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s.69D
It is an offence, punishable by a fine, to issue or sign, or authorise to be issued or signed, a document that does not have the CIO's name and status when it should do. A person who signs or authorises a document to be signed without the necessary information can be personally liable for the cheque, order etc if it is not honoured by the CIO.
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s.69G
Charitable industrial and provident societies (now called charitable community benefit societies) and charitable companies can apply to be converted to a CIO, but not if they are exempt charities or if they have a share capital and some of the shares are not fully paid up. (At the moment all charitable community benefit societies are exempt charities, but when schedule 5 of the Charities Act 2006 comes into effect in 2010, many of them will cease to be exempt — see registration of exempt charities.) The existing company or community benefit society must pass a resolution in a specified form and provide specified documents to the Charity Commission. Where the converting organisation is a company limited by guarantee, the amount of the guarantee (the amount the company members must contribute if the company is wound up) must be included in the CIO constitution. But if the guarantee amount is £10 or less, the guarantee is extinguished when the company converts to a CIO, and there is no need to include a guarantee in the CIO constitution.
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ss.69K-69L
Set out the procedure for two or more CIOs to amalgamate into one new CIO (but there appears to be no provision for a charitable company or community benefit society to merge with a CIO, or for two companies or IPSs to become a CIO by merger).
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s.69M
Sets out the procedure for a CIO to transfer all of its property, rights and liabilities to another CIO.
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New schedule 5B to the 1993 Act
Sets out provisions some of which will form the basis for the model CIO constitution. These include powers, duties of members and trustees, personal benefit and payments, internal procedures, and constitutional amendment.
It was originally proposed that the CIO would be available in a two-tier format (members and trustees) suitable for a membership organisation, and a single-tier foundation CIO format where a membership is not required. The Act allows only for a two-tier structure, but new s.69B(6) makes clear that the members and trustees can be the same people. This is the same as in charitable companies. There will be two model constitutions: one for a single tier foundation model, and another for the two tier model (called the association CIO).
One of the interesting differences between a CIO and a charitable company is that the directors of a charitable company, as charity trustees, must act in the interests of the company/charity when they are acting as directors/trustees, but when they are acting as company members (i.e. in decisions at general meetings) there is no explicit duty to act in the interests of the company/charity. Under para.9(a) in the new schedule 5B, the duty to act in the interests of the charity will apply to CIO members as well as trustees.
Meanwhile, a discussion (not a full consultation) took place until 26 November 2010 on draft regulations for the Scottish CIO. Details are at www.scotland.gov.uk/Topics/People/15300/charities/SCIOs. The SCIO is expected to become available in mid 2011.
COMPANIES ACT 2006
Updated 13/1/11. This information supplements s.3.3 and updates various sections in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The Companies Act 2006 was implemented in seven tranches from January 2007 to October 2009. Information about the changes and lists of all the new Companies Act forms, are at www.companieshouse.gov.uk.
Provisions which have come into effect since mid-2009 are listed below. Unless indicated otherwise, the changes apply in the same way to charitable companies and community interest companies as to ordinary companies limited by guarantee.
Memorandum and articles
Company constitution
Model articles
Company name and status
Company and business names
Company directors and secretary
Directors' addresses
Conflict of interest duties of directors
Natural directors
Resolutions and company meetings
Members' right to require a general meeting
Accounts: in effect for financial years starting on or after 1 April 2008
Audit or independent examination of charitable companies
Accounts: in effect for financial years starting on or after 6 April 2008
Directors' duties when signing accounts
New rules on circulating accounts to company members
Filing period for accounts changed from 10 months to 9 months
Accounts: in effect for financial years ending on or after 1 April 2009
New threshold for charitable companies submitting accounts and reports to Charity Commission (Charities Act)
New thresholds for independent examination or audit of charitable companies (Charities Act)
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