Governing documents for charities are like opinions, everyone has one.
But you’d be surprised at how many charity trustees and senior professionals have never seen their governing documents, or have little idea what they say and even less idea of their importance in determining what a charity must be focused on doing and how it must do it.
Governing documents come in various forms, depending on how the charity was established and its legal structure. But whether it’s a Deed of Trust, Constitution or Memorandum & Articles, the governing document will, or should, set out some key elements that the trustees are expected to adhere to if they are not to be in breach of trust.
Principal among these is the Objects clause, setting out the purposes for which the charity was established. There are strictly defined charitable purposes and whatever your charity does, its activities must both fit within one or more of these statutory purposes and also provide a public benefit. The objects cannot be changed without the approval of the Charity Commission.
Naturally enough, this means that a charity cannot completely change its purposes from, say, advancing education to relieving poverty. But trustees are also expected to guard against mission creep and to ensure that the charity is actually delivering activities that advance the original purposes. So it’s rather important to be familiar with what these are and not simply to rely on a strategy or marketing materials, which may over time have shifted the charity’s focus from what it should be to the trustees might wish it was. More than that, if that wasn’t enough, the new Charity Governance Code, published in July 2017, stresses the importance of trustees having regard for its key objectives when determining strategy and evaluating the performance of the charity.
As important is how the charity is meant to be governed, and by whom. The governing documents should set this out clearly, but again, if no regard is had for what they say, serious consequences can follow. The trustees bear the ultimate responsibility for the running of the charity, and its assets and liabilities. If a charity is not a company, the trustees may be personally liable. And so its important to know who the trustees are. If trustee powers have been devolved or delegated to a subcommittee whose members are in effect directing and controlling the charity, then they too may be deemed charity trustees, even if they are not named as such. Properly drafted protocols can avoid this outcome, so it’s worth checking if there are any.
The governing documents should also set out how many trustees there should be, how often they should meet and how decisions are to be made.
Where trustees might be exposed to personal liability, they can be protected by having trustee indemnity insurance, but unless the governing documents expressly permit it, the charity cannot normally pay for this, as it is a personal benefit to the trustees who cannot be remunerated for their roles as trustees.
Better known is the principle that trustees cannot be employed by the charity, and can’t be paid a salary. They can however be paid expenses and may even be paid for rendering certain professional services if conditions are met. But you would need to know what your governing documents say, to understand what is possible for your charity.
It’s all too easy, when juggling the demands of running a charity with the other calls on trustees’ time, to assume that things are done in a particular way because that’s how they should be done, but a quick reference to the governing documents may prove quite an eye opener. And where the charity has moved beyond the modus operandi set perhaps decades before, the governing documents might need to be brought up to date. Either way, get them out, dust them off and give them a read.
If you want to review your governing documents and see if they are still fit for purpose and meet your charity’s needs, contact me here.