Charities Breakfast Briefing Review – Governing documents
We recently held the final part of The Good Governance Series on how governing documents can improve operational efficiency at our Hull Office on 22 May and we hope the session was useful to all who attended.
We have summarised the key issues to take away from the session:
Governing documents – type
It is important that trustees know what form of legal structure their charity operates under because this will determine the type of governing document and the relevant legal procedure to amend it.
A charity that operates as a Trust or Unincorporated Association could have, as its governing document, a Will, Conveyance, or Declaration of Trust in addition to one or more Charity Commission Schemes or amending trustees’ or members’ resolutions/minutes.
A Charitable Incorporated Organisation (“CIO”) would be governed by a constitution (either an ‘Association Model’ or a ‘Foundation Model’ depending on the charity’s membership structure).
In the same way, a charitable company would be governed by its Articles of Association which may have been amended by special resolutions of the company members.
Regulated clauses
Trustees are required to keep their charity’s governing documents under review because the governing document sets down the charity’s purposes (sometimes called ‘mission’ or ‘objects’) and also the powers of the trustees (and members if there is a separate voting membership) to operate the charity and the procedures convening meetings and decision-making and voting.
Funders, lenders and third parties working with a charity will expect the charity to have a clear, concise and up to date statement of the charity’s purposes in its governing document. If the description of the charity’s purposes or mission no longer reflects what the charity does (e.g. states an area of benefit or operation that does not include the area in which the project will be delivered, uses archaic language or part of the purposes are now obsolete) then trustees must seek the prior written consent of The Charity Commission to update these.
Obtaining consent from the Commission to even minor changes to the wording can take several months and it is better to update as soon as the trustees are aware of the issue, rather than to wait until it becomes urgent because there is no formal process to expedite applications to the Commission.
Other regulated changes, includes any changes to the charity’s winding up clause (the destination of its assets when the charity is closed) and trustee benefit provisions (any change which would result in the trustees and/or members getting a benefit not currently authorised under the governing document or charity law).
Administrative clauses
Administrative clauses can be changed without prior consent of the Charity Commission and these clauses include, but are not limited to notice and quorum for meetings and, importantly, how trustees can meet remotely.
Why keep the governing document under review?
It is the trustees’ duty to keep the governing document under review but, aside from this duty, it can help avoid mission drift if the charity’s purposes are reviewed in line with the charity’s activities. The charity’s purposes or mission statement sometimes use outdated language which trustees may also wish to change as part of their charity’s image, branding and reputation.
Another reason to keep the governing document under review is that trustees can often find themselves without power to embark on an exciting project and need to hastily make changes to the governing document to obtain this power, sometimes losing the opportunity of the project or the funding for it.
The session looked at an example of a charity that had been investigated by the Charity Commission where it had missed filing deadlines. As part of its investigations, the Charity Commission found that its governing document was outdated. Keeping the governing document up to date would have ensured a smoother process through the Charity Commission investigation process.
If anyone needs further assistance on any of the topics covered in the Good Governance Series, then please feel free to get in touch with Gerry Morrison or Harriet Wheeldon.
Gerry and Harriet look forward to hosting their next Series, “Protecting Charities – Avoiding Series Incidents” later this year.