When to call in the lawyers

Legal questions come up at almost every stage in a charity's development. Mathew Little examines the key hurdles charities must overcome

Charity lawyers illustration by Oliver Weiss
Charity lawyers illustration by Oliver Weiss

Defining your charitable objects

Trustees must know what their charity is planning to do and why. They must also choose a recognised charitable purpose and be ready to explain how this purpose will be achieved and how it will benefit the public. "It is desirable to be specific, but also to take account of the possibility that the charity may grow and diversify its activities," says Francesca Quint, a charity law barrister with Radcliffe Chambers.

The Charity Commission has example objects on its website that give an indication of the type of wording it will accept, but those intending to found a charity should go to a specialist firm to check they are complying with charity law. Once established, a charity does not have to fulfil all its objects all the time; it can prioritise particular areas of activity. But according to Thea Longley, a solicitor with Bates Wells & Braithwaite, trustees should regularly review their activities in case of 'mission drift'. "Using funds for activities outside the objects, even if they are charitable in nature, is a breach of trust, and trustees could be held personally liable," she says.

Deciding whether to pay trustees

In general, charity law permits the payment of a trustee only for services provided in addition to their trustee role. Some large charities do pay trustees simply for being trustees, but they have to get special permission from the Charity Commission to do so. Payments to trustees permitted by law include remuneration for services, such as accountancy or secretarial services, expenses incurred in being a trustee, interest on loans and rental payments on premises owned by trustees.

A charity must check its constitution does not prohibit payment of trustees. If it does, it may consider applying for a special dispensation from the Charity Commission. If a charity does decide to pay a trustee, it must ensure the payment is "reasonable in the circumstances" and in the best interests of the charity, according to Lawrie Simanowitz, a partner with Bates Wells & Braithwaite. There must also be a written agreement setting out the amount to be paid, and only a minority of board members can be paid to provide services. Getting legal and financial advice from solicitors and accountants familiar with the Charities Act 2006 is recommended.

Running campaigns

The starting point should be the Charity Commission's guidance document CC9, which sets out the rules on charities and campaigning. Before launching a campaign, trustees must first establish whether it is political or non-political. Charities are able to devote all their resources to non-political campaigning that involves changing public attitudes. But political campaigning, which means trying to change the policy of the Government or public bodies, must not be the "sole and continuing activity" of the charity, although it can be for a period of time. Charities are not allowed to support or donate to political parties, although they can support a particular policy if it would help the charity achieve its purpose. "If you are campaigning to change the law, you have to be careful not to overstep the mark and align yourself so closely to a political party that people can't see the difference," says Samina Afzal, head of legal at the NSPCC. She recommends seeking advice from a specialist charity law firm.

But Mark Harvey, director of legal services at the charity formed by the merger of Help the Aged and Age Concern, says charities can manage campaigns without such help by following CC9 closely.

Merging with another charity

The Charities Act 2006 contained measures to encourage mergers and the Charity Commission has written guidance for charities that want to merge. The first consideration should be how closely the two charities are aligned in terms of their objects and activities. Both organisations' objects should be checked at an early stage. If they are very different, a merger is not impossible, but the process will be more complicated. Permission from the Charity Commission is required for a merger to take place, and in some cases, a scheme - a document drawn up by the Charity Commission to alter a charity's governing document - will be needed.

Quint says legal and financial advice are essential once the decision to merge has been taken. Due diligence by lawyers to consider issues relating to existing contracts, insurance, buildings and employment will be required. "A firm of solicitors containing specialists in a range of fields, including charity law, would be desirable," she says.

Dealing with corporate sponsors

The key consideration will be the agreement between the charity and its corporate sponsor. The contract should include how long the relationship will last, conditions for early termination, the charity's branding guidelines, an ethical policy and details of reimbursement if the company is in breach of the agreement.

"Some charities will ask potential sponsors to complete an enquiry form, which reviews the corporate's annual report to identify practices that may contradict their ethical policies," says Rosamund McCarthy, a partner at Bates Wells & Braithwaite.

Afzal says charities should have agreements drafted for them by lawyers. Such an agreement should include details of how the charity will be entitled to end the relationship if the corporate sponsor does something to harm its reputation. "You need to review the agreement regularly, not just once every five years," she says.

For cause-related marketing agreements, charities must ensure that products display a statement saying how much they will receive from sales.

Closing down a charity

Before closing down a charity, the alternatives should be fully considered as well as the consequences for property, staff and service users. If there are surplus funds once liabilities have been met, trustees will have to find another, similar charity or charities to receive the funds. "Ultimately, trustees have responsibility until they discharge that responsibility," says Harvey.

Advice from a firm of solicitors is recommended: there will be questions relating to charity law - the interpretation of the governing document, for example - and to other legal matters such as employment contracts. There may be dissolution provision in the charity's governing documents, but a scheme may be required. If an incorporated charity is insolvent or near insolvency, an insolvency practitioner will be required. If the charity is unincorporated, the trustees will be at risk of personal liability and may choose to pay for their own, separate legal advice.

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