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Changing charitable purposes and amending governing documents
The Law Commission published its report on Technical Issues in Charity Law in September 2017 following a public consultation which revealed that many charities struggle with a range of technical issues in the law leading to unnecessary expense and preventing charities from dedicating their full resources to the public good. On 22 March 2021, the Government published its long-awaited response to the Law Commission’s recommendations and accepted most of the recommendations.
The Law Commission’s report went into detail about the current framework for amending a charity’s purposes and its governing document and made recommendations with a view to simplifying the processes and aligning them across the different types of charity. The Government has accepted the Law Commission’s recommendations on these subjects in their entirety. Let’s have a look at the detail.
The status quo: …is complex and the procedure by which a charity’s governing document can be amended depends on its legal structure.
The articles of association of a charitable company and the constitution of a CIO can generally be amended by a resolution of its members at a general meeting (subject to any restrictive conditions in the relevant governing document or in legislation which may need to be satisfied before they can be amended e.g. obtaining the consent of a particular person or the Charity Commission). Amendments to articles of association generally take effect once the resolution has been passed but, in the case of a CIO, any amendment to a governing document only takes effect once it is registered by the Charity Commission. Another inconsistency is that the description of changes to a charitable company’s objects which would constitute a 'regulated alteration' in the Charities Act 2011 is not the same as the description for CIOs.
By contrast, the trust deeds of charitable trusts and the constitutions of unincorporated associations can be amended in one of four ways: by using an express provision in the trust deed/constitution, the statutory power to change a small unincorporated charity’s purposes under section 275 Charities Act 2011, the statutory power to amend administrative provisions in an unincorporated charity’s governing document under section 280 Charities Act 2011 or by obtaining a Charity Commission Scheme. Such schemes will either be 'cy-près schemes' which have the effect of altering the purposes of a charity and involves funds being applied for charitable purposes which are similar to the original purposes or 'administrative schemes' which have the effect of altering any other provisions of a charity’s governing document.
There is uncertainty in the sector as to whether the scheme-making power above also applies in the case of companies and other corporate charities.
The changes: The most significant change is that, in place of sections 275 and 280 Charities Act 2011, unincorporated charities will be given a new comprehensive statutory power to amend any provision in their governing documents, subject to a requirement that the Charity Commission approves the following amendments:
- amendments that would be 'regulated alterations' (e.g. changes to charitable objects, dissolution provisions or trustee benefit provisions);
- any amendment to a restriction that renders property permanent endowment;
- any amendment that – had it been made under an express power of amendment – would have required the consent of a person (other than a trustee or member), unless that person consents to the amendment or has died or (if a corporation or other body) is no longer in existence;
- any amendment that would affect any right directly conferred by the governing document on (i) a named person, or (ii) the holder of an office or position specified in the governing document (other than that of a trustee or member), unless that person consents to the amendment or has died or (if a corporation or other body) is no longer in existence; and
- any amendment which would confer power on the charity trustees to make an amendment falling within paragraphs (a) to (d) above.
Other changes will include:
- An amendment to the Charities Act 2011 so that a resolution by the members of a CIO to amend its constitution will take effect on the date the resolution is passed or on a later date specified in the resolution (rather than the date the amendments are registered with the Charity Commission). This will be the case unless:
- the amendment makes a regulated alteration in which case the amendment will be ineffective unless the prior consent of the Charity Commission has been obtained; and
- the amendment changes the CIO’s purposes in which case the amendment will not take effect until it has been registered by the Charity Commission.
- The description of changes to a charitable companies’ objects as a 'regulated alteration' in section 198(2)(a) Charities Act 2011 will be amended to reflect the description for CIOs in section 226(2)(a) Charities Act 2011.
- The Charities Act 2011 will be amended to provide that the court and the Charity Commission will have the power to make schemes in respect of corporate charities.
The outcome: Given that charities are generally volunteer-led organisations these changes will hopefully introduce clearer, simpler and more consistent procedures for amending charitable purposes and governing documents, whilst ensuring there are still appropriate safeguards in place to prevent amendments being made which would see organisations ceasing to be charitable or charitable funds being misused.
For more information
If you have any questions or would like assistance in amending your charity’s governing document do contact your usual contact in our charities team or Catherine Gibbons.
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