Lawyers' fears over new legal form

A barrister says that proposed new regulations will permit trustees of new charitable incorporated organisations to set a lower duty of care for themselves than is expected of charitable company trustees.

Bowles (left):
Bowles (left):

Vicki Bowles of charity law specialists Stone King Sewell, told Third Sector that charitable company trustees were required to exercise "reasonable care and skill".

Trustees of CIOs, she said, could either adhere to this standard as well, or opt for a lesser standard whereby they must avoid acting deliberately or negligently in ways that would harm the charity.

She said: "Exercising reasonable care and skill is not too high a duty when you are dealing with charitable funds."

Bowles also questioned why the draft regulations governing the new legal form published by the Office of the Third Sector did not give members of CIOs the power to remove trustees. They will be able to remove trustees only if the constitution contains a specific provision, which has not been included in model constitutions drawn up by the OTS.

CIOs are being created to offer an alternative charitable corporate structure to a company limited by guarantee. They offer trustees limited personal liability and will be regulated only by the Charity Commission and not by both the commission and Companies House, as in the case of charitable companies.

In conjunction with the Office of the Third Sector, the commission opened a consultation on the legal form this month. A briefing paper published by Stone King Sewell last week said 12 of the firm's charity clients were considering adopting the new form. But the paper warned "there may be little advantage to charities that are already companies limited by guarantee converting to a CIO".

Apart from not having to deal with Companies House, other advantages of the CIO form over the existing corporate structure, according to the OTS, include simpler reporting requirements, greater constitutional flexibility and more straightforward merger arrangements.

Ros Harwood, a partner and head of charities at law firm Dickinson Dees, said the draft regulations had belied common expectations that they would draw heavily on company law. But she was worried that CIOs would be permitted to have sole individual trustees. "This means you could have one person running the show," she said.

Tim Waldron, head of the charity and community team at law firm Coffin Mew, said he feared many of his clients had "consultation fatigue" and would not respond to this one.

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