Could more charities soon be able to change their constitution?

Unincorporated charities may soon be allowed to more easily change their constitution following a consultation by the Law Commission. Giselle Davies of law firm Geldards explains the proposed changes.

When charities are setting up they make choices about their structure and constitutions based on their circumstances at the time. But life doesn’t stand still. What was right for a charity in the beginning may not be appropriate some time later.  Changes can be made but the process is complicated and depending on the initial structure chosen it can be harder for some charities than for others to make those changes.

This is something that has been noted by the Law Commission, an independent body which keeps the country's law under review, during its consultation on Technical Issues in Charity Law (relevant to organisations in England and Wales) and is why it is now consulting further on new proposals to align, as far as possible, the process for all charities so that there is a level playing field when it comes to making constitutional changes.

To be incorporated or unincorporated  

Founders setting up a new charity have options about the form they choose and what their constitution says – this will be their main concern initially. Some may decide to set the charity up using an unincorporated structure (such as a trust) rather than an incorporated one.  

In such unincorporated charities the trustees are usually very involved in the day-to-day running of the charity. They will enter into contracts for the charity on a personal basis and, if the charity has insufficient resources, they will be personally liable if the charity is sued or gets into financial difficulty for whatever reason. Typically small, start-up charities will be like this.

The other option is to use an incorporated structure (such as a company, a charitable incorporated organisation (CIO) or community benefit society). The main characteristics from a charity’s point of view are that any assets are owned by the charity directly rather than by the trustees on behalf of the charity and there will generally be limited personal liability for the trustees, as the charity will enter into contracts in its own name rather than in the names of the trustees.

If it’s not broke why fix it?

A charity must be set up for charitable purposes only and these must be very clearly set out in the governing document. Occasionally, these original purposes may need to be changed – for example, where the purposes have been fulfilled or where they are simply outdated and old fashioned. If the trustees don’t want to shut the charity down, they will have to identify new purposes that are suitable and sufficiently similar to the original purposes.  

Stumbling block

The method of formally and officially changing these purposes differs depending on what kind of charity it is. If it is an incorporated charity, such as a company or CIO, it will generally have suitable powers in its governing document to make the changes (subject to obtaining consent from the Charity Commission for England and Wales).

However, as noted by the Law Commission when considering responses to its initial consultation, the process by which an unincorporated charity might change its purposes can be very restrictive. This is notably the case when applying to the Charity Commission for a scheme under section 62 of the Charities Act 2011 where particular circumstances apply.

The proposed new purposes have to be shown to be “within the spirit of the original gift”. As a result, many unincorporated charities find themselves unable to change their objects. The strong message coming from a number of those responding to the initial consultation is that it is time to amend the law in this area to level the playing field for all charities. Therefore, the Law Commission is now looking at how the process of changing a charity’s purpose and governing document can be aligned for all charities regardless of their structure. This further consultation closes on 31 October 2016. 

This article was written with the help of Bethan Walsh from Geldards.

Photo credit: Unsplash/Christian Van Bebber