What do you need to know?
If the Charities Bill becomes law, it will change the rules on amending governing documents for charities which are companies or Charitable Incorporated Organisations (CIOs).
The idea behind the proposals is to align the rules which apply to the different legal forms of charities. Currently, there are different rules for the various types of charities, with more burdensome procedures for many unincorporated charities.
For corporate charities, the existing ‘regulated alterations’ regime will continue to apply, so you will still need consent from the Charity Commission if you are making changes to the following clauses in your charity’s governing document:
- the charitable purposes (often called the ‘objects’ clause);
- the provisions affecting the property of the charity on dissolution;
- the provisions relating to trustee or member benefits.
But there will be a new statutory test which the commission will have to apply when considering whether to give consent to a request to amend the charitable purposes. The commission must have regard to:
- The purposes of the company or CIO when it was established, if and so far as they are reasonably ascertainable;
- The desirability of securing that the purposes of the company or CIO are, so far as reasonably practicable, similar to the purposes being altered; and
- The need for the company or CIO to have purposes which are suitable and effective in light of current social and economic circumstances.
Currently, the legislation does not set out what the commission should consider when deciding whether to consent to requests to amend charitable purposes. In its guidance, the commission says it checks that the new purposes are exclusively charitable, that the trustees’ decision to make the change is a rational one in the circumstances of the charity, and that the new purposes do not undermine or work against the previous objects, but this is not a statutory test.
What action should you take now?
Trustees of charitable companies or CIOs who are considering making amendments to their constitutions should consider whether they want to press ahead with this before the Bill becomes law.
Although we will have to wait and see how the commission applies the new test, on the face of it, the new test introduced by the Bill appears to be stricter, especially as the commission must have regard to the original purposes of the charity and the new purposes are potentially constrained by the consideration that they should, as far as reasonably practicable, be similar to the current purposes, so you may decide it would be more straightforward to request consent for the changes under the current legal framework.
Even if you are not amending the charity’s purposes, but you need to make other changes to your constitution which are regulated alterations, you might want to do this before the commission changes its guidance and online forms in line with the new law, particularly if your charity is familiar with the current process.
What action do you need to factor into future plans?
If you need to make regulated alterations, particularly to amend charitable purposes, once the Bill is passed, make sure you look at any new guidance from the commission. Consider how to answer questions the commission may have in line with the new test to ensure your application goes smoothly.
The Charities Bill, which came out of Lord Hodgson’s review of the Charities Act back in 2012 and the Law Commission’s report on Technical Issues in Charity Law in 2017, is intended to make life easier for charities by reducing regulation and clarifying grey areas in the law. In this new blog series, we untangle the new Bill to pull out the key points your charity will need to know, action now and plan for. Catch up with all the blogs in the series here.
This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.
All content on this page is correct as of July 1, 2021.