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Office of the Third Sector

Office of the Third Sector

Charities Act 2006What trustees need to know

Charities Act.indd 1 9/5/07 3:31:40 pm

� Charities Act 2006 – What trustees need to know


Charities Act 2006 – What trustees need to know �

ContentsA. Foreword 4

B. Guide to the booklet 6B1. Whythisbooklet? 7B�. Scopeofthebooklet 7B�. Whohaswrittenthebooklet? 7B4. Usingthebooklet 7

C. Summary for trustees of smaller charities 8C1. Introduction 9C�. Effectiveadministration 9C�. Developmentandgrowth 9C4. Buildingpublicconfidence 9C5. Greyareas 9C6. Whenthingsgowrong 9

D. The big changes for your charity 10D1. Whatisacharity?Charitablepurposesand 11

publicbenefitD�. Registration 1�D�. Audit,accountsandannualreturns 1�D4. TheCharitableIncorporatedOrganisation(CIO)– 15

anewstructureforcharities

E. Less red tape 18E1. Changingyourpurposes 19E�.Alteringyourgoverningdocument 19

F. What has changed for the individual trustee? 22F1. Istheroleoftrusteestillavoluntaryone? ��F�.Trusteeliabilities ��

G. What can the Commission do for you? 26G1.Resolvingproblemsandbetteradministration �7G�.Protectingcharities �8G�. Widerpowersinconductingstatutoryinvestigations �9

H. Specific circumstances 30H1.Exceptedandexemptcharities:what’schanged? �1H�.Smallcharitiesandthetransferofproperty ��H�.Registerofmergers ��H4.Spendingfromendowmentfunds ��H5.Mortgagingcharitypropertyforaloanorgrant �4H6.Fundraising �5H7.TheCharityTribunal �7

I. About the Commission 40I1. TheCommission’srole 41I�. TheCommission’sstatusandstructure 4�

J. Glossary 44

Appendix Sources of further useful information 48


4 Charities Act 2006 – What trustees need to know

A. ForewordWelcome to our essential guide, which summarises what trustees need to know about the new Charities Act 2006.


Charities Act 2006 – What trustees need to know 5

CharitiesthemselveshavebeencentralpartnersinshapingtheCharitiesAct�006–frominitialsuggestions,tothereviewin2001,tothefinalstagesofparliamentarydebate.Theresultisasetofchangesthataimstomakelifesimplerfortrustees,modernisesthedefinitionofcharity,andprovidesnewsafeguardstoupholdpublictrustinthecharitablesector.First,theActaimstoprovidetrusteeswithmoreflexibilityandlessbureaucracy–particularlysmallercharities.Itoffersnew,easierwaysforcharitiestomakechangestotheirpurposes,structuresandadministration.Therearenewprovisionsfortransferringassets,windingup,changingobjectsandmerging.Before,charitiesthatwantedthebenefitsofincorporationhadtofacetwosetsofregulation,asbothacharityandacompany.Now,thereisanewlegalstructurespecificallyforcharities–theCharitableIncorporatedOrganisation(CIO).Second,theActmodernisesthedefinitionof‘charitablepurposes’,bringingituptodatetoreflecthowcharityhasevolvedanddevelopedovermanyyears.AllpurposesthatwererecognisedascharitablebeforetheActarecoveredbythenewdefinition.TheActensuresthatthetestof‘publicbenefit’remainsacornerstoneofcharity,underliningtherequirementthatallcharitiesmustbeforthebenefitofthepublic.Italsoaddressestheneedtomakethepublicawareofthewaysinwhichcharitiesdeliverpublicbenefit,andchargestheCharityCommissionwithmakingsurethishappens.Third,theActprotectspublictrust.Confidenceincharityisvital,anditissomethingwecannottakeforgranted.TheActstrengthensthecharitysector’saccountabilityandtransparency.Itwillbringaround1�,000largercharities,whichwerepreviouslyexemptorexcepted,ontotheregisterofcharities.Itthereby

ensuresthatthesecharitiesareregardedinthesamewayasothercharities.TheCommissionitselfhasbeengivenupdatedobjectivesandpowerstosupportitsroleasamodernandeffectiveregulator.ItwillbecheaperandeasierforcharitiestochallengetheCommission’sdecisionsthroughtheCharityTribunal.AswellasimprovingtheCommission’saccountability,thiswillhelpcharitylawdevelopmoreflexiblyovertime.WehopethisguideclearlyexplainsthechangesmadebytheCharitiesAct�006andthatitprovidestheinformationtrusteesneedtoidentifytheopportunitiesavailablenow,andinthefuture.

ED MILIBAND MP DAME SUZI LEATHERMinisterfortheThirdSector Chair,CharityCommission

A. Foreword



B. Guide to the booklet



B1. Why this booklet?TheCharitiesAct2006–calledsimply‘theAct’inthisbooklet–waspassedbyParliamentinNovember�006butdidnotcomeintoforceimmediately.SomepartsoftheActcameintoforceon�7February�007.Mostoftherestwillcomeintoforcebyearly�008.ThebookletgivestrusteesanoverviewoftheAct,andismainlyforthosewhosecharitieshaveanincomeoflessthan£500,000ayear.However,itmayalsointerestthetrustees,employees,volunteersandadvisersofallcharities.

B2. Scope of the bookletThebookletcoversawiderangeoftopicsaboutcharitiesinEnglandandWales,theirtrusteesandtheCharityCommission.Ourshortexplanationsareaccurate,buttheyaimtohighlightthemainchangesintroducedbytheActandhelpyoufindoutwhichoneswillormayaffectyourcharity.TheActdealswithcomplexlegalmatters.Tobeclearaboutanynextstepsthatyoumayneedtotakeandwhentotakethem,pleaseseekfurtherguidance.

B3. Who has written the booklet?ThebookletcomesfromtheOfficeoftheThirdSectorandtheCharityCommission.TheOfficeoftheThirdSectorispartoftheCabinetOffice.Itadvancesanddevelopstheroleofthethirdsector,anditsresponsibilitiesincludethereformofcharitylaw.TheCharityCommission(usuallycalledsimply‘theCommission’inthisbooklet)istheindependentregulatorofcharitiesinEnglandandWales.TheCommission’saimsincludeimprovingcharities’effectivenessandincreasingpublicconfidenceandtrustincharities.

B4. Using the bookletTogetaflavourofthemainchangesataglance,turntosectionC.SectionsDtoIgivemoredetail.Undereachheading,wementionsignificantchangesintroducedbytheActwhichwillinterestyouasatrustee.IndividualprovisionsoftheActwillcomeintoforceatdifferenttimes.Somehavestartedalready,whileothersneedconsultation,regulationstobemade,andguidancetobepublished.Youcangenerallyfindmoreinformationaboutthenextstepsattheendofeachsectionofthebooklet,aswellasdetailsofwhatfurtherguidanceisavailablenowfromtheCommission’swebsite.ProgressupdateswillalsobepostedonthewebsitesoftheOfficeoftheThirdSectorandtheCommission(seetheAppendixfordetails).Theonlineversionofthisbookletwillbeupdatedfromtimetotime,andwillbeavailableonbothofthesewebsites.TheheadingswithinthesectionsalertyoutothebroadareasaffectedbytheAct.Generallywegiveaconcisesummaryofwhathaschanged(‘Theshortanswer’or‘Inbrief’)andthengivemorebackground(‘Inmoredetail’).Wehavearrangedthebooklettofitthewayyouwork,sothechangesmostlikelytoaffectyourroutineworkarenearthestart.Inafewplacestherearetechnicalwordsthatmaynotbefamiliartoallreaders.TheglossaryinsectionJexplainsthem.

B. Guide to the booklet



C. Summary for trustees of smaller charitiesSome of the Act’s provisions may seem modest, but together they will have a positive impact on the work and efficiency of your charity. They will apply whatever the type and size of your charity, and will help a diverse sector to flourish. In writing this guidance, the Office of the Third Sector and the Commission have been particularly mindful of your needs.



Thisbookletwillguideyouthroughwhathaschangedinkeyareassuchasdefinitions,financialthresholdsandtrustees’individualduties.

C1. IntroductionSmallcharitiesmakeupthelargestpartofthesector.ManyoftheAct’sprovisionsshouldbenefityourworkandefficiency.Belowwelistsomekeybenefitsforyou,andgivepointersastowheretoreadmore.

C2. Effective administrationNobodylikesredtape.Forsomesignificantareas,theneedforconsentfromtheCommissionhasbeenremoved(seeinparticularsectionsEandF):

• YouwillonlyhavetoregisterwiththeCommissionifyourannualincomeisover£5,000(seeD�).

• Smaller,unincorporatedcharitieswillbeabletotakecertainactionswithouttheCommission’spermission(forexamplechangingyourpurposesortransferringassets).

• Itwillbeeasiertochangeyourgoverningdocuments.

• Trusteescanactwithlessbureaucracy(andperhapslessanxiety)thaninthepast.Forexample,lookatwhat’schangedonpersonalliabilityandindemnityinsurance,remunerationorfundraising.

C3. Development and growthIntermsofyourcharity’sdevelopment,theActallowsyoutoadaptmorequicklytothesocialandeconomiccircumstancesaroundyou.Inparticular,itintroduces:

• newpowersforunincorporatedcharitiestotransferproperty,spendfromendowmentfundsormortgagetheirland;

• aneasierwaytotransferlegaciesanddonationswhencharitiesmerge(seeH�);and

• anewlegalstructureforincorporatedcharitieswithlimitedliability,toavoiddualregulationbytheCommissionandCompaniesHouse(seeD4).

C4. Building public confidenceThespiritoftheActisthatcharitiesneedtobeclearabouthowtheybenefitthepublic.Muchofthelegalframeworkforcharitieshasbeendevelopedbythecourtsoverseveralcenturies.TheActprovidesgreaterclarityandstrongeremphasisonthedeliveryofpublicbenefit(seeD1).

C5. Grey areasTheCommissioncanhelpclarifysomegreyareasthatmayholdyouback.Itcangivegeneraladviceandguidanceandhasnewpowerstogivedirectionsondonatedpropertyandgiftsortoruleonthemembershipofacharity(seeG1).

C6. When things go wrongOccasionally,theCommissionneedstoopenaninquiryintoacharity’sactivities.Wherethereareseriousproblems,theCommission’spowershavebeenenhanced(seeG�andG�).TheActalsointroducesaCharityTribunaltohearappealsagainstCommissiondecisions(seeH7).

C. Summary for trustees of smaller charities



D. The big changes for your charity The Act aims to help you and the Commission deal with straightforward matters more quickly and efficiently. We are aware of the need to protect charities – in particular smaller organisations – from too much bureaucracy. We want them to be free to use their resources for their beneficiaries and develop and grow easily. The Act introduces a new legal structure for charities, and requires charities to be clear about how they benefit the public.



D1. What is a charity? Charitable purposes and public benefitThe short answerTheActdefinesacharityasa‘bodyortrustwhichisforacharitablepurposethatprovidesbenefittothepublic’.Itlists13charitablepurposes,andanycharitymusthavepurposesfallingwithinthatlist.Thepurposes(oraims)ofacharityareusuallysetoutinitsowngoverningdocument.BeforetheAct,therewerefourtypesofcharitablepurpose(knownas‘heads’).Thesewerethereliefofpoverty;theadvancementofeducation;theadvancementofreligion;andotherpurposesforthebenefitofthecommunity.BeforetheAct,charitiesrelievingpovertyoradvancingeducationorreligionwerepresumedtobenefitthepublic.TheActremovesthatpresumptionandallcharitieswillhavetobeabletodemonstratehowtheirpurposesbenefitthepublic.

In more detailThe legal position:Howthelawunderstands‘charitablepurposes’hasdevelopedoverseveralcenturies.Forexample,charitablepurposesaredescribedinthepreambletotheCharitableUsesAct1601.Purposesconsideredcharitabletodayarebasedeitheronthoseoriginalonesoronotherpurposesalreadyestablishedbythecourtstobelikethem.Therangeofcharitiesthatexistsnowhasclearlyevolvedconsiderablysincetheseventeenthcentury.Bylistingtheseestablishedpurposes,theActupdatesthescopeofcharitableaimsforamodernsocietyandgivesamuchclearerideaofwhatisconsideredasbeing‘forcharity’.

Charitable purposes:Thenewlisthas12specificheadingsandonegeneralheading.Thislastgeneralheadingkeepswithinthescopeofcharityeverythingwhichiscurrentlycharitablebutwhichmaynotbecoveredbyanyofthe12specificheadings.Inthatway,all1�headingstogethercovereverythingthatischaritable.Thelistis:

• thepreventionorreliefofpoverty;

• theadvancementofeducation;

• theadvancementofreligion;

• theadvancementofhealthorthesavingoflives;

• theadvancementofcitizenshiporcommunitydevelopment;

• theadvancementofthearts,culture,heritageorscience;

• theadvancementofamateursport;

• theadvancementofhumanrights,conflictresolutionorreconciliation,orthepromotionofreligiousorracialharmonyorequalityanddiversity;

• theadvancementofenvironmentalprotectionorimprovement;

• thereliefofthoseinneedbyreasonofyouth,age,ill-health,disability,financialhardshiporotherdisadvantage;

• theadvancementofanimalwelfare;

• thepromotionoftheefficiencyofthearmedforcesoftheCrown,oroftheefficiencyofthepolice,fireandrescueservicesorambulanceservices;and

• otherpurposesthatarecurrentlyrecognisedascharitableorareinthespiritofanypurposescurrentlyrecognisedascharitable.

D. The big changes for your charity


1� Charities Act 2006 – What trustees need to know

Thislastheadingencompassesmanyestablishedcharitablepurposes,forexamplereliefofunemployment,promotionofmoralandspiritualwelfare,rehabilitationofoffenders,andothers.Italsocoversanypurposesthatmightberecognisedascharitableinthefuture.Charitiescoveredbythethirteenthgeneralheadingaretreatedthesameintermsofregulationortaxascharitiescoveredbytheotherspecificheadings.The public benefit requirement:Allcharitiesmusthavepurposesthatbenefitthepublic.TheActstrengthensthisobligationbyrequiringthatall–andnotjustsome–organisationsontheregisterofcharitiesmustbeabletodemonstratethis.Allcharitiesseekingregistrationinthefuturemustprovideevidencethattheirpurposewillbeforthepublicbenefit.Someexistingcharitiesmayalsobeaskedtodemonstratehowtheymeetthistest.Developing the law on public benefit:Themeaningof‘publicbenefit’isnotalwaysstraightforward.TheCommissionwillhavetoassess,forexample,whatthebenefitsare,whowillbenefitandwhetherthatissufficientgiventhepurposesthecharityissetuptoachieve.Aswiththelawoncharitablepurposes,thelawonpublicbenefitwillcontinuetoevolveanddevelop.ItwillalterinresponsetothesocialandeconomiccontextwithinwhichcharitiesoperateandinresponsetodecisionsbytheCommission,theproposedCharityTribunal(seeH7)andthecourts.The Commission’s role: OneoftheCommission’snewobjectivesistopromoteunderstandingandawarenessofthepublicbenefitrequirement(seeI1).Tohelpmeetthisobjective,theCommissionhasalreadystartedconsultationandhaspublishedsomedraftguidanceonitswebsite,settingoutits

proposedapproach.Afterconsultation,theCommissionwillcarryoutpublicbenefitchecksonexistingcharities.Trustees’ role: Youarenotlegallyobligedtofollowtheguidancebutyoumusthaveregardtoitwhenitisrelevanttoyourcharity.The public benefit requirement and the provisions on charitable purposes will come into forceinearly�008.

Further information on the Commission’s website:

• Consultation on draft public benefit guidance

• Commentary on the descriptions of charitable purposes in the Charities Act 2006

D2. RegistrationIn brief Generally,onlycharitieswithanannualincomeabove£5,000mustregisterwiththeCommission.Thisthresholdhasgoneupfromitspreviouslevelof£1,000.Theregistrationrequirementsfor‘exempt’and‘excepted’charitieswillalsochangeandaresetoutelsewhereinthisbooklet(seeH1).

In more detailTheincreasetotheregistrationthresholdmeansthatmostcharitieswithanannualincomeof£5,000orlessdonothavetoregister.Thereusedtobearequirementthatacharitymustregister(regardlessofthelevelofitsincome)ifitpossessedapermanentendowment,orusedoroccupiedland.Thatisnowgone.ButallcharitiesthatoptforthenewstatusofCharitableIncorporatedOrganisation(seeD4)mustregisterwiththeCommission,regardlessoftheirincome.


Charities Act 2006 – What trustees need to know 1�


Purpose of the change:TheActwillsavetime(and,inmanycases,money)forseveralthousandsmallcharitiesbyreleasingthemfromthedutiesofregistrationandofmaintainingtheirregistereddetails.Smallercharitieswillthusbereleasedfromseveralcomplianceobligations,whilecontinuingtobenefitfromcharitablestatus.This provision came into forceon��April�007.Voluntary registration:TheCommissiondoesnotusuallyregisteranycharitythatisbelowthethresholdforcompulsoryregistration.Eventually,underchangesintheAct,thesesmallcharitieswillhavearighttoregistervoluntarily,butthisrighthasnotyetcomeintoforce.However,theCommissionrecognisesthatsomecharitieshaveaparticularneedtoberegisteredsointheinterimwillconsidertheirrequestsonacase-by-casebasis.TherighttovoluntaryregistrationisdelayedsothattheCommissioncandealwithotherworkresultingfromtheAct.WedonotexpectittocomeintoforceuntiltheCommissionhasdealtwithchangestoregistrationaffectingexceptedandexemptcharities,anditisunlikelytohappenbefore�009.Deregistering: Existingregisteredcharitieswithanannualincomebelowthe£5,000thresholdcanasktoberemovedfromtheregister,buttheywillstillremaincharitiesandwillhavetoabidebycharitylaw.TheCommissionwillproduceguidanceonthisinduecourse.


• Registering as a charity

• Removal of organisations from the register

D3. Audit, accounts and annual returnsIn briefThethresholdsforrequiringanauditandexaminationofcharityaccountswillingeneralberaised.Therewillbesimilarthresholdsforcharitiesthatarecompaniesandthosethatarenot.Mostcharitieswithanannualincomebelow£500,000willnotneedtohavetheiraccountsprofessionallyaudited.Otherauditthresholdsdependonlevelsofassetsorannualincomeorboth,onwhetherthecharityisacompanyornot,and(forgroups)onthelevelofgroupincome.AshappenedbeforetheAct,trusteesofeveryregisteredcharitywithanannualincomeofmorethan£10,000mustsubmitanannualreturn,withthecharity’saccountsandannualreport,totheCharityCommission.TheActhasremovedexpenditureasacriterionfordecidingwhetheranannualreturnmustbesubmitted,andwillchangetheoffenceoffailuretosubmitthereturn.

In more detail: charities that are not companiesFor financial years starting on or after 27 February 2007: Acharitythatisnotacompanymusthaveaprofessionalauditofitsaccountsifthefollowingthresholdsapply:

• itsgrossannualincomeisabove£500,000;or

• ithasanannualincomeover£100,000andassetsexceeding£�.8million;

or,regardlessofthesethresholds,if:

• itsgoverningdocumentstatesthatitmusthaveaprofessionalaudit;or



• theCommissionorderstheaccountsofthecharitytobeprofessionallyaudited.

Thegeneralpositionisthatonlyauditorswhoareregisteredandregulatedbyarecognisedsupervisorybody(andtherefore‘professional’)canauditacharity’saccounts.

For unincorporated charities that are not required to have a professional audit:

• Ifthecharity’sannualincomeisabove£10,000,itsaccountsrequireindependentexamination.

• Ifitsannualincomeisabove£�50,000,thentheindependentexaminermustbeamemberofaprofessionalbodynamedintheAct.

• Charitieswithanannualincomeof£10,000orlessmuststillprepareaccountsandhavethemavailableonrequest.

In more detail: charities that are companiesWhat happens to charitable companies with levels of assets or income below the audit thresholds?

• Acharitablecompanywithanannualincomeofbetween£90,000and£500,000andassetsof£�.8millionorlessmusthaveanaccountant’sreport.

• Acharitablecompanywithanannualincomeof£90,000orlessneedsneitheraprofessionalauditnoranaccountant’sreport,unlessitsassetsaremorethan£�.8million.

What is the audit threshold for charitable companies?

• Acharitablecompanywithanannualincomeofmorethan£500,000orassetsofmorethan£�.8millionmusthaveaprofessionalaudit.

The provisions have come into forceforfinancialyearsstartingonorafter�7February�007.Furtherchangeswillcreateasingleauditframeworkforallcharities,whetherornottheyarecompanies.Thesechangesareduelaterin�007orinearly�008.

In more detail: annual returnsAllregisteredcharitiesthathavetosubmitannualreturnstotheCommissionmustdosowithin10monthsoftheendofthecharity’sfinancialyear.Previously,trusteesofsuchcharitieswhopersistentlyfailedtosubmitannualreturns,annualreportsoraccountstotheCommissioncouldbeconvictedofanoffenceandfined.TheActchangesthedefinitionoftheoffencetoapplytoanytrusteeswhofailtosendinoneormoreofthesedocuments,whetherornotthefailureispersistent,andincreasesthepenaltyforthatoffence.Trusteeswillnotcommitanoffenceiftheycanshowthattheyhavetakenallreasonablestepstomeetthedeadline.Thereusedtobeasimilaroffencefortrusteeswhopersistentlyfailedtocomplywitharequestfromanypersonforacopyoftheaccounts.Thishasbeenextendedtocoverrequestsforacopyofthemostrecentannualreportaswell.Charitieswithanannualincomeoflessthan£10,000mustcomplywithrequestsforcopiesoftheiraccountsbutarenotrequiredtosubmitanannualreturntotheCommissionortoprovideanannualreport.When will the provisions come into force? Thechangestothepenaltyfortheoffenceoffailingtosubmitanannualreturn,accountsorannualreportontimewillapplytoallthosethataredueonorafter1April�008.Itwillalsoapplyfromthesamedatetotrusteeswhofailtomeetrequestsforaccountsandannualreports.




In more detail: group accounts by a parent (or ‘main’) charity Whereacharityispartofagroupoforganisations,thepreparationofgroupaccountshasbeenacceptedasgoodpracticeinthesector.However,ithasnotbeenalegalrequirement.TheActwillmakeitalegalrequirementforaparentcharitytoprovidegroupaccountsforitselfandthesubsidiariesunderitscontrol,wherethecombinedincomeorassetsofthegroupareaboveacertainthreshold.These provisions will be introducedafterconsultationwiththesectorin�007andareexpectedtocomeintoforcelaterin2007orearlyin2008forthefinancialyearsstartingafterthen.Furtherregulationsareneededtosetoutindetailthethresholdsatwhichgroupaccountswillberequired,whattheywillcontainandhowtheywillbeaudited.

WhistleblowingTheauditorsofunincorporatedcharitiescurrentlyhaveaspecificdutytoreportabuseorsignificantbreachesofcharitylawtotheCommission.Theyalreadyhavestatutoryprotectionagainstlegalactionforbreachofconfidenceordefamationwheretheydoso.ThenewActrecognisesthatdutyandextendsboththedutyandtheassociatedprotectiontoauditorsofunincorporatedcharities’andcharitablecompanies’accounts,aswellastoreportingaccountantsandindependentexaminersofcharityaccounts.The provisions will come into forcelaterin�007,althoughthedutyandtheprotectionrelatingtowhistleblowingwillapplyretrospectivelytomattersarisingbeforethisdate.


• Annual Return

• Statement of Recommended Practice: accounting and reporting by charities

• Charity reporting and accounting: the essentials

D4. The Charitable Incorporated Organisation (CIO) – a new structure for charitiesIn briefTheCIOwillbethefirstlegalstructurecreatedspecificallytomeettheneedsofcharitiesandavailableexclusivelytocharities.Aswithacompany,itwillhavethebenefitsofincorporation,whicharethecreationofa‘legalpersonality’forthecharityandlimitedliabilityfortrustees.However,CIOswillneedneitherseparateregistrationwithCompaniesHousenorregulationundercompanylaw.ACIOwillbeacorporatebodywithaconstitution,andwillberegisteredwithandregulatedbytheCommission.TheCIOwillnotbesuitableforalltypesofcharity,andtrusteesshouldtakeprofessionaladviceiftheyareconsideringsettingupanewcharityasaCIOorwouldliketochangeanexistingcharityintothenewstructure.

In more detailWhy the CIO is needed: Therearetwomaintypesofstructureofcharity–unincorporatedandincorporated–butthereisnostructureforlegalincorporationspecificallyforcharities.



Atpresent,charitiesthatwanttheadvantagesofincorporationmustregisterascompanies.CharitablecompanieshavetheburdenofregisteringwithandreportingtobothCompaniesHouseandtheCommission,andmustfollowbothcharitylawrequirementsandcompanylawrequirements.TheCIOwillhelpcharitiestoobtainthebenefitsofincorporationwithouthavingtoundergodualregistrationandregulation.

What will be the advantages of CIOs over charitable companies?

• Single registration.AcharitablecompanyhastoregisterwithCompaniesHouseandwiththeCommission.TheCIOwillonlyneedtoregisterwiththeCommission.

• Less onerous requirements when preparing accounts. SmallCIOswillbeabletopreparereceiptsandpaymentsaccounts;largeroneswillpreparestandardCharitiesActaccrualsaccounts.Allcharitablecompanies,regardlessofsize,havetoprepareaccrualsaccounts(abalancesheet,astatementoffinancialactivitiesandnotes)thatmeetthegeneralrequirementsofcompanylaw.

• Less onerous reporting requirements. CIOswillonlyhavetoprepareanannualreportundertheCharitiesAct.CharitablecompanieshavetoprepareareporttomeettherequirementsoftheCompaniesActsaswellastheCharitiesAct.

• Only one annual return.Charitablecompanieshavetoprepareanannualreturnundercompanylaw,andmostmustalsosubmitaseparateannualreturnundercharitylaw.

• Less onerous filing requirements.CIOswillonlyhavetosendaccounts/reports/returnstotheCommission.Charitable

companieshavetosendthemtoboththeCommissionandCompaniesHouse.

• Less onerous requirements relating to the reporting of constitutional and governance changes.CIOswillbesubjecttofewerreportingrequirementsthancharitablecompanies,andwillonlyhavetoreporttotheCommission,ratherthantoboththeCommissionandCompaniesHouse.

• Lower costs. TheCommission,unlikeCompaniesHouse,doesnotmakeanychargesforregistrationorforfilingofinformation.

• Simpler and more flexible constitutional forms. BecauseCIOswillnotbesharingaframeworkwithcommercialbodies,itwillbepossibletocreatesimplerandmoreflexiblegoverningdocumentsthatspecificallymeetcharities’needs.

• More straightforward merger arrangements.Thesearenotavailabletocharitablecompanies.

How to become a CIO: TrusteesshouldfirstconsiderwhethertheCIOwouldprovideanappropriatelegalentityfortheircharity.AnyonewantingtosetupacharitywillbeabletomakeuseoftheCIO.ApplicantswillneedtoregisterwiththeCommissionacopyoftheirproposedconstitutionandanyotherdocumentstheCommissionmightrequestofthem.TheActalsomakesconversionofanexistingcharityintoaCIOasstraightforwardaspossible.ThiscanbedonebyconvertinganexistingcharitablecompanyintoaCIOortransferringtheassetsofanexistingunincorporatedcharitytoaCIO.AnexemptcharitycannotbeaCIO.When CIO status might be refused:TheCommissionwillbeabletorefuseanapplicantif:




• theCIOisnotbeingestablishedexclusivelyforcharitablepurposes;

• itsconstitutiondoesnototherwiseconformwiththeActorregulationsmadefollowingtheAct;or

• theproposednameoftheCIOisthesameasortoosimilartothatofanothercharityorismisleadingoroffensive.

What needs to happen next:ThenewlegalframeworkfortheCIOstillrequiressecondarylegislationintheformofregulationstobemadebytheMinisterfortheCabinetOffice.TheregulationswillsetoutmoredetailonhowCIOswillbeestablishedandwilloperate.TheOfficeoftheThirdSectorwillconsultin�007ontheregulationsthatwillberequired,andthenewframeworkisexpectedtocomeintoforceinearly�008.ItislikelythatvariousmodelconstitutionswillbepreparedforCIOs.InformationwillbeavailableontheCommission’swebsite.



E. Less red tape The Act is deregulatory in spirit, allowing charities to modernise and giving them greater flexibility to fulfil their purposes more effectively.



E. Less red tape

E1. Changing your purposesIn briefIfyouarethetrusteeofasmallerunincorporatedcharity,withagrossincomeinyourlastfinancialyearofnomorethan£10,000,theActmakesiteasierforyoutoupdateyourcharitablepurposes.Providedthatthenewpurposesaresimilartotheoriginalpurposes,youdonotneedtoasktheCommissiontomakea‘Scheme’tochangethem.

In more detailThe rules:Wherethetrusteesofacharityconsiderthattheirexistingcharitablepurposesarenolongerrelevantinmodernsociety,theymaybringthemuptodatemoresimply.Theupdatedpurposesmustservethecharity’sinterestswellandmustbesimilartotheoldones.So,forexample,acharitysetuptorelievesicknesscouldupdateitspurposestotakepartinahealthpromotionschemetopromotehealthyliving.Voting:Thetrusteesmustsatisfythemselvesthatthechangeisinthecharity’sinterestsandthat(sofarasisreasonablypracticable)thenewpurposesconsistoforincludepurposessimilartothosebeingreplaced.Thetrusteesmustpassaresolutionbyatleasttwo-thirdsofthosewhovote,andsendacopytotheCommissionwiththereasonsforpassingtheresolution.Timescale: Theresolutionautomaticallytakeseffect60daysafterreceiptbytheCommission,unlesstheCommissionobjects.However,thisperiodcanbeextendediftheCommissionrequirestheresolutiontobepubliclyannounced,or

requestsmoreinformation.Inpractice,theCommissionisonlylikelytoobjectwherethenewpurposesveryclearlydonotservethecharity’sinterestswell,oraredissimilartotheoldones.Next steps: TheCommissionwillbeprovidingmoredetailedguidanceandaformofresolution.Trusteesshould,however,considertheneedtotakelegalorotherexpertadviceonanychangestheywishtomaketothepurposesoftheircharity.The provisions will come into force inearly�008.

E2. Altering your governing documentIn briefIfyourepresentanunincorporatedcharity,youmaynowchangethe‘administrativepowersandprocedures’–thepartsofyourgoverningdocumentthatconcernthegeneralrunningandadministrationofyourcharity–withouttheCommission’spriorapproval.Ifyourcharityisacompany,youcanalreadymakecertainchangestoyourgoverningdocumentwithoutobtainingtheCommission’spriorapproval.TheActmakesiteasierforcharitiesthatwishtomakesuchchanges.

In more detail: unincorporated charitiesAdministrative powers and procedures:Thesearethepartsofacharity’sgoverningdocumentconcerningthegeneralrunningandadministrationofthecharityandtheworkofitstrustees.Anexamplemightbethenumberoftrusteesneededtoformaquorumatmeetings.TheActupdatesandextendsexistingrulestomakeiteasierforanyunincorporatedcharityto


�0 Charities Act 2006 – What trustees need to know

modifyitspowersorprocedures.Trusteesofallunincorporatedcharitiescanusethispower,althoughtheycanchoosetouseinsteadanyequivalentpowerinthecharity’sgoverningdocument.Safeguards:Thisupdatedpowerretainsanimportantsafeguardforcharitiesthatareunincorporatedassociationswithabodyofmembersdistinctfromthetrustees.Forthesecharities,themembersofthecharitymustholdameetingtoapprovearesolutionofthetrustees.Atthatmeeting,theresolutionmustbeapprovedbyatwo-thirdsmajorityonavoteorbyadecisiontakenwithoutavoteandwithoutanyexpressionofdissent.TrusteesmustalsoremembertokeeptheCommissionregisterentryfortheircharityuptodatewithanychangesmadetotheirgoverningdocumentsunderthispower.The provisions came into force on�7February�007.


• Unincorporated charities: amendments to governing documents – guidance for trustees

• Orders and Schemes

In more detail: charitable companiesSpeeding up the process: Charitablecompanieswishingtochangetheirgoverningdocumentmustfollowtherequirementssetoutinthatdocument,andtherequirementsoftheCompaniesActs.However,theywillneedtheCommission’sconsentonlyforspecificamendmentsthatconcerntheessentialcharacterofthecharity.Theseareamendmentsto:

• theobjectsofthecharityinitsgoverningdocument;

• anyprovisioninitsgoverningdocumentwhichdealswithwhathappenstopropertyonthedissolutionofthecompany;and

• anyprovisioninitsgoverningdocumentwheretheamendmentwouldauthoriseanybenefittothedirectorsormembers,ortootherpeopleconnectedtothem.

The provisions come into forcelaterin�007orinearly�008.


Charities Act 2006 – What trustees need to know �1


�� Charities Act 2006 – What trustees need to know

F. What has changed for the individual trustee?This section looks at what changes the Act brings for individual trustees.


Charities Act 2006 – What trustees need to know ��

F. What has changed for the individual trustee?

F1. Is the role of trustee still a voluntary one?The short answerIngeneral,yes.TheActdoes,however,allowfortrusteestobepaidforprovidinggoodsorservicestoacharityifcertainconditionsaresatisfied.Thisisnotpaymentforbeingatrusteeorforanytypeofcontractualemploymentwithinthecharity.

In more detailThe benefits: Charitytrustees,orthoseconnectedtothem,mayreceivepaymentmoreeasilyforprovidinggoodsorservicestothecharitywherethereisaclearbenefittothecharity.Thiscouldinclude,forexample,legalwork,plumbingorelectricalservices.The rules: Charitieswillbeabletopaytheirtrusteesforprovidinggoodsorservicesaslongas:

• thetermsaresetoutinawrittenagreement;

• theamountisreasonablegiventheservicesprovidedbythatperson;

• thetrusteesaresatisfiedthatthearrangementisinthebestinterestsofthecharity–thiswillusuallymeanthatitwillsavethecharitymoneyorprovideabetterqualityservice;

• ifmorethanonetrusteeisbeingpaid,thebenefitingtrusteesareaminorityofthecharity’strustees;

• thegoverningdocumentsofthecharitydonotcontainanythingthatmightprohibittherelevantpersonfromreceivingthatpay;and

• trusteeswhostandtobenefittakenopartinanydecisionabouttheagreement.

Safeguards: Thereareadditionalsafeguardstopreventmisuseofthepower.OneisthedutytohaveregardtotheCommission’sguidance;theotheristherequirementtoactinaccordancewiththedutyofcaresetoutintheTrusteeAct�000.Thedutyofcarestatesthatatrustee‘…mustexercisesuchcareandskillasisreasonableinthecircumstances,havingregardinparticular:a) toanyspecialknowledgeorexperiencethathehasorholds

himselfoutashaving,andb) ifheactsastrusteeinthecourseofabusinessorprofession,

toanyspecialknowledgeorexperiencethatitisreasonabletoexpectofapersonactinginthecourseofthatkindofbusinessorprofession.’

Guidance: CharitiesproposingtopaytheirtrusteesshouldrefertotheCommission’sguidanceonthesubject,whichwillbeavailableonitswebsite.Theyshouldalsoconsiderwhetheritwouldbeappropriatetoseekprofessionaladvice.The provisions will come into forceinearly�008.

F2. Trustee liabilitiesIn briefWeknowthatpersonalliabilitycausesworryforexistingandpotentialtrustees,eventhoughitisrareforatrusteetosufferactualfinancialloss.TheActgrantstheCommissionanewpowertorelievetrusteesfrompersonalliabilityforbreachoftrustordutywheretheyhaveactedhonestlyandreasonablyandoughtfairlytobeexcused.



TheActalsorecognisesthatitisreasonableforcharitiestobuytrusteeindemnityinsurance,andremovesmostoftheobstaclestothis.Trusteesmaypaythepremiumswiththecharity’smoney,subjecttocertainlimitationsandconditions.

In more detail: personal liabilityWhencharitiesrunintoproblems,trusteesmaybepersonallyliableforanyresultingdebtsorlosses.Todate,theCommissionhasnotbeenabletogivetrusteesanyfirmassurancethattheywillnotbeheldliable,asonlythecourtscangivethisassurance.However,trusteeswillnowbeabletoapplytotheCommissionaswellasthecourtsforrelieffrompersonalliability.Thepowerappliesonlywheretrusteeshaveactedhonestlyandreasonablyandoughtfairlytobeexcused.TheCommissionwillstilltakedeliberatebreachesoftrustveryseriously.

In more detail: trustee indemnity insurance Untilnow,charitieshaveusuallyneededtheCommission’sapprovaltobuyindemnityinsurancefortheirtrustees.TrusteesnownolongerneedanexplicitpowerfromtheCommissionorfromtheirgoverningdocumentbeforebuyingsuchinsurance.TheActsetsoutcertainconditions:

• Trusteesmustsatisfythemselvesthatitisinthecharity’sbestintereststobuyindemnityinsurancewiththecharity’smoney.

• Thecharity’sgoverningdocumentmustnotexpresslyprohibitthepurchaseofindemnityinsurance,buttrusteescannowbuyindemnityinsurancewherethegoverningdocumentsimplystatesageneralprohibitionagainstpersonalbenefit.

Limitations:Anyindemnityinsurancepolicymustexcludesomespecificareas,mainlyinrelationtocoveringcostsandfinesfromtrusteesactinginbadfaith.Disqualified trustees:Wheresomeonehasbeendisqualifiedfromactingasacharitytrustee,theCommissionmustgrantanapplicationtowaivethedisqualificationafterfiveyears,unlessthereisgoodreasonnotto.ThisappliesonlytotrusteeswhoweredisqualifiedfromactingasatrusteebecauseofmisconductormismanagementintheadministrationofthecharityinEnglandorWales.The provisions came into forceon�7February�007.


• Charities and insurance

• Waiver of disqualification for acting as a charity trustee

• Trustee indemnity insurance





G. What can the Commission do for you?The Act strengthens the Commission’s role in encouraging the better administration of charities. This will prevent charities getting into difficulties in the first place and allows the Commission to help them uphold principles of good governance. In rare and serious circumstances, however, the Commission needs to be able to act quickly and protect charities when things go wrong. The Act gives it a wider range of regulatory powers in such situations.



G. What can the Commission do for you?

G1. Resolving problems and better administrationIn briefTheActgivestheCommissionmoreflexibilitytohelpcharitiesresolvevarioussituationsthatcanbeproblematicorburdensome.Thesesituationsincludehowtodealwith:

• charitabledonationsthatcannolongerbeusedasintended;

• acharityestablishedforpurposesthatarenolongerrelevanttomodernsociety;and

• charitieshavingincompleteorconfusingmembershiprecords.

In more detail‘Cy-près’: Thisisalong-establishedlegalprincipleusedwhere:

• acharitabledonationhasbeenmadeandthefundscannotbeusedfortheoriginalpurposesoftheappeal;or

• acharityhasbeenestablishedforpurposeswhichhavebecomeoutofdateandunworkable.

Theprincipleisthatanychangeintheuseofthedonationorthepurposesofthecharitymustbeas‘nearto’theoriginalpurposesaspossible.(‘Cy-près’means‘nearto’inNormanFrench.)‘Failed’ funds:Charitiesoccasionallyrunappealsthatfailtogetenoughmoneytomeettheiroriginalaim.Equally,anappealmaybesosuccessfulthattherearesurplusfundswhichcannotbeused,andwhichcannotbereturnedtothedonors.Inothercases,fundscanexistforwhichtherearenolongeranybeneficiaries.Thecy-prèsdoctrinehaspreviouslyrestrictedtheabilityoftheCommissionandthecourtstoallowcharitiestousethese‘failed’fundsinflexibleways.

How it will work:TheActallowstheCommissionandthecourtstotakeintoaccountcurrentsocialandeconomiccircumstanceswhenapproachedbycharitiesseekingmorefreedominhowtheycanusethesefunds.Forexample,theCommissionwillconsiderhoweffectivethenewpurposesareinthecurrentsocialandeconomiccircumstances.Charitieswillbeabletousedonatedmoneymoreflexiblywhentheycan’tuseitastheyoriginallyplanned,whilestillhonouringthespiritinwhichtheoriginaldonationwasmade.TheActalsoenablestheCommission,aswellasthecourts,todirectthatcertainpropertyistobetreatedasbelongingtodonorswhocannotbeidentified.Out-of-date purposes: TheCommissionhaslongbeenabletomakeaSchemetochangeacharity’spurposeswheretheyarenolongerworkableandwherethecharityhasnopowertomakethechangesitself.TheActliberalisesthecy-prèsdoctrinesothatmodern-dayconditionscanbetakenfullyintoaccountwhendecidingonthenewpurposes,whilepreservingtheintentionbehindthecharity’soriginalpurposes.InmakingaScheme,thecourtsorCommissionmusthaveregardto:

• thespiritoftheoriginalgift;

• thedesirabilityofchoosingnewpurposesthatareclosetotheoriginalpurposes;and

• theneedforthecharitytohavepurposesthataresuitableandeffectiveinthelightofcurrentsocialandeconomiccircumstances.

TheresultshouldbethatanynewpurposestheCommissionagreeswillbeinkeepingwiththevisionofthecharity’sfoundersorthedonorsandwillalsoenablethecharitytooperateeffectivelyinthemodernworld.The provisions will come into forceinearly�008.



Resolving membership disputes:Membershipcanbeanimportantconsiderationforsomecharities.Thisisespeciallytruewheremembersmayvoteandmayhaveotherconstitutionalrights.IncertainlimitedcircumstancestheCommissionwillusetheActtoresolveanydisputesaboutwhoisorisnotamember:

• whenthecharityinquestionappliesfortheCommission’sassistance;or

• attheCommission’sdiscretionwithinthecourseofaninquiry.TheCommissionalsohasthepowertoappointsomeonetodecidethecharity’smembership,ratherthandosoitself.The provisions came into forceon�7February�007.The relaxation of publicity requirements for Schemes and Trustee Orders:TheCommissionhaspowerstomakeaSchemetoallowacharitytochangethewayitcarriesoutitspurposes,orhowitisrun.BeforetheAct,acharityhadtoadvertisetheSchemeatleastonemonthinadvanceofitcomingintoeffect,usuallyinthelocalpress.ThesameappliedtosomeOrdersmadebytheCommissionconcerningtrusteesorotherindividuals,suchasthoserelatingtotheirappointmentorremoval.What is in place now: UndertheAct,theCommissioncanalreadyuseitsdiscretionindecidingwhetherpublicityforaSchemeorTrusteeOrderisneededornot.TheCommission’spolicyistorequirepublicityonlyiftherearegoodreasonsforit.Thiswillremoveanadministrativeburdenformanycharities.Applying discretion:EveniftheCommissiondecidesthatpublicityisneeded,itcanchoosethelengthofnoticeperiod

andwhetherpublicitymustoccurinthelocalareaofthecharity.Overall,publicityislikelytobeneededlessoften,andwhereitisneeded,noticeperiodswillbeshorter.The provisions came into forceon�7February�007.


• Orders and Schemes

• Dealing with representations in response to public notices

G2. Protecting charitiesIn briefTheCommissionwillbeabletodirecttrusteesandemployeestotakespecificactions,aswellasdirecthowcharitypropertyisused.Itwillalsobeabletosuspendorremovecharitymembershipfromtrusteesoremployeeswhoarealreadysuspendedfromtheirpositionasatrusteeoremployee.

In more detailSpecific directions: FortheCommissiontodirecttheactionsoftrustees,officers,employeesoracharitablecorporatebody,itmusthaveaninquiryunderway.TheCommissionwillinterveneifitbelievesthatmisconductormismanagementhasoccurred,orifithasconcernsaboutthesecurityorproperapplicationofcharityproperty.Application of charity property: TheCommissioncanact–withoutaninquiryunderway–ifitbelievesthatthoseowningorcontrollingthepropertyarenotapplyingitproperlyforitsintendedpurposes.TheCommissioncanuseitspowerinrelationtoanypropertyheldbyorintrustforacharity.The



G. What can the Commission do for you?

powerissubjecttoconditions.TheCommissionmustnotdirectanactionthatisillegalorprohibitedbythecharity’strusts,orinconsistentwiththecharity’spurposes.Suspensions from membership:AninquirymustalreadybeunderwayfortheCommissiontobeabletoexercisethispower.Itmay,forexample,removeorsuspendmembershipofacharityfromapersonwhohasalreadybeensuspendedorremovedfromthepositionoftrustee,officer,agentoremployee.Thiswouldpreventsuchapersonseekingre-electionorre-appointmenttotheirformerpositionbyvirtueoftheircharitymembership.The provisions will come into forceinearly�008.

G3. Wider powers in conducting statutory investigationsIn briefTheActgivestheCommissionanewpowertoenterpremisestotakeandseizedocumentsorinformation.Thispowerisonlyavailableinlimitedcircumstances,andissubjecttosafeguards.TheCommissionexpectstouseitrarely.

In more detailThe circumstances:TheCommissionmustfirsthavesetupaninquiry.TheCommissionmustalsosatisfyaJusticeofthePeacethattherearedocumentsorinformationonthepremisestobesearchedthatarerelevanttotheinquiryinquestion,andthatifrequestedthesewouldnotbeprovided,orwouldberemoved,tamperedwith,hiddenordestroyed.Ifsatisfiedofthesematters,theJusticeofthePeacemayissueawarrantto

theCommissionauthorisingthesearchandseizure.The scope of the Commission’s actions:Itisallowedtoactinthefollowingways:

• enterandsearchthepremisesstatedinthewarrant;

• removeanydocuments,computerdisksorotherelectronicstoragedeviceswhichappearrelevanttotheinquiry;

• preventsuchmaterialbeinginterferedwithordestroyed;

• keepthedocumentsordevicesforaslongasitneedstoforthepurposesoftheinquiry;

• takecopiesof,orextractsfrom,documentsandinformationoncomputerdisksorelectronicstoragedevices;and

• requirepeopleonthepremisestoexplainadocumentorinformationortotelltheCommissionwhereitcanfindrelevantdocumentsorinformation.

Requirements of the Commission:Itmustenterthepremiseswithinonemonthofthedateofissueofthewarrant,andatareasonabletimeofday.Itmustmakeawrittenrecordoftheentryandseizureand,ifrequested,provideacopyofthatrecordtotheoccupierofthepremisesortheirrepresentative.Thewrittenrecordmustincludecertaininformation,includingthenamesofthoseconductingthesearch,andalistofallthedocumentsordevicestaken.Thatrecordshouldbemadebeforeleavingthepremises(unlessthisisnotpracticable).Return of seized items: TheCommissioncangiveseizeditemsbackeithertothepersonfromwhomittookthemortoanyofthetrusteesofthecharitytowhichtheybelonged.The provisions came into forceon�7February�007.



H. Specific circumstancesThis section sets out the new provisions for specific circumstances that charities may face in their work. Some of these are one-off events, such as the introduction of registration requirements for many of the larger ‘excepted’ and ‘exempt’ charities. Some are less commonplace, such as appealing against the Commission’s decisions: the establishment of the Charity Tribunal will make it cheaper and simpler for charities to do so. Other provisions relate to specific activities – transferring property or fundraising, for example – in which charities may be engaged. The Act also introduces a new role for the Commission in checking whether charities and other organisations are fit and proper to carry out public collections.



H. Specific circumstances

H1. Excepted and exempt charities: what’s changed?The short answerCharitiesthatwere‘excepted’,andsomethatwere‘exempt’fromregistrationbeforetheActwaspassed,willhavetoregisteriftheirgrossannualincomeexceeds£100,000.TheActalsoclarifieshowexemptcharitiesaretoberegulatedinfuture.

In more detail: excepted charitiesRegistration of excepted charities: Overtheyears,somegroupsofcharities–suchasBoyScoutandGirlGuidecharities,andvariousreligiouscharities–havebeenexcusedfromregisteringwiththeCommissionalthoughtheyhavebeensubjecttoitsjurisdiction.TheActnowrequiresthosewithanannualincomeofmorethan£100,000toregisterwiththeCommissionandtofulfiltheresultingobligations.Annual income of £100,000 or less: ThesecharitieswillcontinuetobeexceptedandneednotregisterwiththeCommission,althoughthiswillbereviewedinfiveyears’time.Purpose of the change:Toensurebetteraccountabilityandregulationfortheorganisationsconcerned.

In more detail: exempt charitiesRegistration of exempt charities: HistoricallyitwasconsideredthatpublicbodiesotherthantheCommissionadequatelymonitoredcertaincharities’compliancewithbasiccharitylaw.Thisiswhysomegroupsofcharities,suchasfurthereducationcorporations,foundationandvoluntaryaidedschools,mostuniversitiesandsomemuseums,weretermed‘exempt’.

TheywereoutsidetheCommission’sjurisdictionandwerenotevenallowedtoregister,althoughtheydidhavetocomplywithcharitylaw.TheActaimstoensurethatthesecharitiesareproperlymonitored.Itdistinguishesbetweenthoseexemptcharitiesthathaveadefined‘principalregulator’andthoseonesthatdonot.Exempt charities that will be supervised by a ‘principal regulator’: ThesecharitieswillnothavetoregisterwiththeCommission.Theprincipalregulatorwillbeanexistingbodythatcurrentlysupervisesthecharityforotherfunctionsbutwilltakeonadditionalresponsibilityformonitoringcharitylawcompliance.AgoodexampleofaprincipalregulatoristheHousingCorporation,whichregulateshousingassociationsinEngland.However,attherequestoftherelevantprincipalregulator,theCommissionwillbeabletoinvestigateexemptcharities,andtheywillbesubjecttotheCommission’sprotectivepowers.Where it is not possible to identify a principal regulator: Suchexemptcharitieswillnolongerbeexemptandwillbecomeexceptedcharities,fallingwithinthefulljurisdictionoftheCommission,includingitsprotectiveandinvestigativepowers.However,onlythose(previouslyexempt)charitieswithanannualincomeofover£100,000willhavetoregister.Next steps: TheOfficeoftheThirdSectorisworkingwithprincipalregulatorstoagreehowthenewarrangementswillworkandtomakesurethattheregulatorshavethepowerstheyneedforthisrole.These changes for exempt and excepted charities are not expected to come into forcebefore�008.Thecharities


�� Charities Act 2006 – What trustees need to know

themselves,theproposedprincipalregulatorsofexemptcharitiesandtheCommissionneedtimetoprepareforthechanges.

H2. Small charities and the transfer of propertyIn briefTheActupdatesandextendsexistingprovisionstomakeiteasierforthetrusteesofasmall,unincorporatedcharitytotransferitspropertytoanothercharity.TheActwillincreasethenumberofcharitiesthatcanbenefitfromtheseprovisionsbyraisingtheupperannualincomelimittowhichtheyapplyfrom£5,000to£10,000.

In more detailCurrentlysomeverysmallunincorporatedcharitiescantransferalltheirpropertytooneormorecharitiesbymakingaresolution,whichtheCommissionmustapprove.ThisissimplerthanapproachingtheCommissiontomakeaSchemetoeffectthetransfer.Thisroutewillbesimplifiedevenfurtherandwillbecomeavailabletocharitieswithanannualincomebelow£10,000,althoughcertainsafeguardswillremain.Scope: TheActalsowillallowpropertytobetransferredtomorethanoneothercharity.Thetrusteesmustconsiderthatsuchatransferisnecessarytoadvancethepurposesforwhichtheyholdtheproperty.Also,inthecaseofunrestrictedproperty,therecipientsmusthaveatleastonepurposethatissubstantiallysimilartothoseofthecharitymakingthetransfer(differentrequirementsapplytopropertythatispermanentendowment–seebelow).

Obtaining the Commission’s consent to a transfer: CurrentlytheCommissionmustgiveitsconsentbeforeatransfercantakeplace.Thenewregimeissimpler.IftheCommissiondoesnotobjecttothetransferwithin60daysofreceivingthecharity’sresolution,itisdeemedtohaveconsented.However,the60-dayperiodcanbeextendediftheCommissionrequirespublicnoticeoftheresolutionorfurtherinformation.If the charity holds permanent endowment: ‘Permanentendowment’meansproperty(suchasland,buildings,investments,cashorotherproperty)thattrusteesmaynotspendasifitwereincome,orselltoraisecash.Therearespecialrulesabouttheseprovisionsforcharitiesholdingpermanentendowment.Unliketheregimeforunrestrictedproperty,capitalmayonlybetransferredtorecipientswhomeetatleastoneofthefollowingcriteria:(i) Wherethetransferistotwoormorecharities,then: • takenasagroup,theyhavepurposesthatare

substantiallysimilartoallofthepurposesofthecharitymakingthetransfer;and

• takenindividually,eachhaspurposesthataresubstantiallysimilartooneormoreofthepurposesofthecharitymakingthetransfer.

(ii)Wherethetransferistoasinglecharity,thentherecipientmusthavepurposesthataresubstantiallysimilartoallofthepurposesofthecharitymakingthetransfer.

TheCommissionwillpublishguidanceaboutthedivisionofpermanentendowmentbetweentwoormorerecipientcharities.The provisions will come into forceinearly�008.


Charities Act 2006 – What trustees need to know ��


H3. Register of mergersIn briefAtechnicalproblemforcharitiesthatmergeispossibleuncertaintyoverwhattodowithlegaciesandothergiftsintendedforcharitiesthathave‘disappeared’asaresultofthemerger.TheActrequirestheCommissiontosetuparegisterofmergersthatwill(inmostcases)overcomethisproblem.TheActwillalsosimplifytheprocessoftransferringproperty,includingland,inthesecases.

In more detailThe register of mergers:Thiswillhelpwhenamergeroccursinwhicheither:

• onecharitytransfersallitspropertytoanotherandceasestoexist;or

• twoormorecharitiescometogether,bothceasetoexistandinsteadanewcharityisformedwhichholdstheircombinedproperty.

TheCommissionwillcreatetheregistertorecordcertaindetailsofeverymergernotifiedtoitandwillmaketheregisteravailabletothepublic.The benefits: Althoughregisteringamergerisnotcompulsory,itdoesallowforgiftstoacharitytobeautomaticallytransferredtothenew,mergedcharity.Thisisparticularlyusefulwheretherearelegaciesorothergiftsthatwerelefttothecharitiesthat‘disappear’asaresultofthemerger.Thisprovisionhelpstohonourthespiritoflegaciesandgiftsmadetooneofthemergingcharities.Usinga‘vestingdeclaration’simplifiesthetransferoftitletolandbelongingtoanyofthecharitiesinvolved;

insuchcasesitwillbecompulsorytonotifytheCommissiontoregisterthemerger.The provisions will come into forcelaterin�007.

H4. Spending from endowment fundsIn brief Smallerunincorporatedcharities(thosewithanannualincomeof£1,000orless,oranendowmentwithamarketvalueof£10,000orless)willfinditeasiertospendpermanentendowmentthatisnotlandheldontrustsforspecificuses.Largerunincorporatedcharities,however,willonlybeabletodosoinparticularcircumstancesandmusthavetheCommission’sagreement.

In more detailPermanent endowment:Thismeansproperty(suchasland,buildings,investmentsorcash)thattrusteesmaynotspendasifitwereincome.Currently,ifacharityispermanentlyendowed,itcanspendtheincomegeneratedfromtheendowmentbutcannoteasilyspendtheendowmentfunditself.TheActwillextendthecircumstancesinwhichacharitycanspendpermanentendowmentasifitwereincome.Small unincorporated charities: Theaboverulesonspendingpermanentendowmentwillapplytounincorporatedcharitiesthateitherhaveanannualincomeof£1,000orless,orwherethemarketvalueoftheendowmentfundinquestionis£10,000orless.TheActwillallowthetrusteesinthesecircumstancestoresolvetospendthepermanentendowmentwithoutneedingtheCommission’sconsent.



However,charitiesmustfirstsatisfythemselvesthatthepurposesforwhichtheendowmentfundwascreatedcouldbemoreeffectivelycarriedoutbyspendingsomeorallofthecapital.Thisdoesnotapplytolandheldontrustsforspecificuses.Larger unincorporated charities:Ifacharityisunincorporatedwithanannualincomeinthelastyearofover£1,000andthemarketvalueofthepermanentendowmentisover£10,000,slightlydifferentruleswillapply.Itmayspendpermanentendowment,buttosafeguardtheinterestsofdonorsitmustfirstobtaintheCommission’sconsent.Indecidingwhetherornottoallowacharitytospendtheendowment,theCommissionmusttakeintoaccountanyevidenceofthedonor’swishes,aswellasanychangeinthecharity’scircumstances.Thenewrulesdonotapplytolandheldontrustsforspecificuses.The provisions will come into forceinearly�008.

H5. Mortgaging charity property for a loan or grantIn briefTrusteesnolongerneedtheconsentofthecourtsoroftheCommissiontoallowlandbelongingtotheircharitytobemortgaged,providedthattheyobtainandconsiderproperwrittenadvice.

In more detailThe conditions: Previously,trusteesneededtheauthorityofthecourtsoroftheCommissiontograntamortgageovertheircharity’sland.Anexceptionwaswheretrusteesweregrantingthemortgageassecurityfortherepaymentofaspecificloan,andhadobtainedandconsideredproperwrittenadvice.Scope:TheActextendstherangeofmortgagesforwhichtrusteesdonotneedtheconsentofthecourtortheCommission.Theymaynow,withoutconsent,grantmortgagestosecuretherepaymentofagrant,andtosecurethedischargeofothersortsofobligationaswellastosecurespecificloans.Also,theynolongerneedconsenttograntmortgagestosecureanyfutureloan,grantorobligationthattheyasthelendermightmaketotheborrower,aswellastheloan,grantorobligationunderimmediateconsideration.Undertherulesgoverningmortgagesforwhichconsentisnotrequired,trusteesmustcomplywiththefollowingrequirements:(i) Inthecaseofamortgagetosecurealoanorgranttheymust

obtainandconsiderproperadvicegiventotheminwritingonwhethertheproposedloanorgrant:

• isnecessaryfortheparticularcourseofaction; • isappropriateintermsofthestatusofthecharity;and • hasinterestandotherchargesthatarereasonableand

thatthecharitycanaffordtopay.(ii)Inthecaseofamortgagetosecuremeetingthedemandsof

anyotherproposedobligation,theymustobtainandconsiderproperadviceonwhetheritisreasonableforthemas




trusteestotakesuchanaction,havingregardtothecharity’spurposes.

The provisions came into forceon�7February�007.


• Disposing of charity land

• Borrowing and mortgages

• Disposals of charity interests in property

H6. Fundraising In brief Currently,professionalfundraisersandcommercialparticipatorsmustmake‘solicitationstatements’whenraisingmoneyforcharities.TheActtightensuphowthesestatementsmustbemade.Italsorequiresthosedirectlyinvolvedintherunningofacharity–suchasitstrusteesoremployees–tomakeasimplestatementwhencollectinginpublicforthatcharity.TheActwillestablishacomprehensiveandunifiedschemefortheregulationofpubliccharitablecollections.TheCommissiongainsanewroleincheckingwhetherorganisationsarefitandpropertocarryoutpubliccharitablecollections.Ingeneral,organisedcollectionsmustbelicensed,althoughthereisanexemptionforshort-termcollectionsthatoperatelocallyandonasmallscale.

In more detail: solicitation statementsProfessionalfundraisersandcommercialparticipatorsmustmakeadetailedstatement,whichmustincludeinformationaboutforwhomtheyarecollectingmoneyordonationsandhowmuchtheirorganisationisbeingpaidfortheappeal.This

iscalleda‘solicitationstatement’.Trusteesoremployeesmustexplaintheirroleinthecharitywhencollectinginpublicplaces.Volunteerfundraisersneednotmakeastatement.Definitions:A‘professionalfundraiser’isapersonorbusinessthatispaidtoraisemoneyforcharities.A‘commercialparticipator’isnotafundraisingbusiness,butabodythatinthecourseofitsnormalbusinessactivitiestakespartinapromotionalventurewithacharity,orforacharitablecause,toraisemoneyforit.Thelawalreadyrequirescharitiestohaveacontractualarrangementwhentheyworkwithprofessionalfundraisersorcommercialparticipators.Volunteers, trustees, officers, employees etc of a charity:TheActdoesnotrequirevolunteerfundraiserstomakeasolicitationstatement.However,whenfundraisinginapublicplaceordoortodoor,theActwillrequiretrustees,officersandemployeesofacharitytostate:

• forwhomtheyarefundraising;

• ifthereismorethanoneinstitution,theproportionsinwhichtheinstitutionsarerespectivelytobenefit;

• thefactthattheyareanofficer,employeeortrusteeoftheinstitution;and

• thattheyarepaidforfundraising.Professional fundraisers: Inappealingonbehalfofacharity,charitiesorcharitablecauseformoneyorotherproperty,professionalfundraiserswillneedtoindicateclearly:

• forwhomtheyarefundraising;

• ifthereismorethanoneinstitution,theproportionsinwhichtheinstitutionsarerespectivelytobenefit;



• howpaymenttothemiscalculated;and

• howmuchtheywillbepaidinconnectionwiththeappeal,orasaccurateanestimateasisreasonablypossibleinthecircumstances.

Commercial participators:Incarryingoutapromotionalactivityforacharity,charitiesorcharitablecauses,formoneyorotherproperty,commercialparticipatorswillneedtoindicateclearly:

• whichcharitiesorcharitablecauseswillbenefitfromthepromotionalventure;

• ifthereismorethanoneinstitution,theproportionsinwhichtheinstitutionsarerespectivelytobenefit;and

• howmuchoftheproceedsfromthepromotionalventurewillgotothecharity,charitiesorcharitablecause(s),orgiveasaccurateanestimateasisreasonablypossibleinthecircumstances.

Further work:TheOfficeoftheThirdSectorandtheCommissionwillworkwiththesectortodeveloppracticalguidanceinordertohelpcharities,professionalfundraisersandcommercialparticipatorsmeetthenewrequirements.The provisions will come intoforcelaterin�007.

In more detail: public charitable collectionsTypes of collection to be covered by the new licensing scheme:Allcollectionsforcharitable,philanthropicorbenevolentpurposesthatareconductedeitherdoortodoororinapublicplacewillbecovered,includingcollectionsofcash,directdebitsorstandingorders,andgoods.

Types of collection not covered by the new licensing scheme: Collectionsthattakeplaceinsideshopsorotherbusinesspremises,churches,villagehalls,people’shomesandotherprivateplacesarenotcovered;norarestaticcollectiontins,andcollectionsfornon-charitablepurposes.Public places:TheActreferstocollectionsin‘publicplaces’.Thisnewdescriptionwillextendtosomeprivatelyownedlandtowhichthepublichasunrestrictedaccess,suchasstationtickethallsandsupermarketforecourts.Local, short-term charitable collections:TheActallowsanexemptionforthese.Theprecisedefinitionofwhattypesofcollectioncanqualifyasalocal,short-termcollectionwillbesetoutinregulationsfollowingconsultation.ThespiritoftheActisthatinfrequent,locallyorganisedcollectionsinvolvingvolunteers,suchascarolsinging,oracollectionforaschooljumblesale,willnotbeburdenedbythelicensingscheme.Theseexemptcollectionsneednotbelicensed,buttheorganisermustletthelocalauthorityknowaboutthecollectionbeforehand.Licensing: Licensingunderthenewschemewillhavetwostages.Stage1:Anyoneproposingtoorganisepubliccharitablecollections(otherthanexemptones–seeabove)mustapplytotheCommissionforapubliccollectionscertificate.Whereacertificatehasbeenissued,theCommissionwillbeabletosuspendorwithdrawit,orattachfurtherconditionstoit.Thecertificatewillbevalidforuptofiveyearsbeforeneedingrenewal.TheCommissionmayrefusetoissueacertificateoncertainspecifiedgrounds,forexamplethattheapplicanthas




failedtoprovidenecessaryinformation,orthatheorshehasbeenconvictedofcertainoffences.Stage�:Thisdependsonthetypeofcollection.Door-to-door collections: Ifthefirststagehasbeensuccessful,theorganiserwillbeabletoconductdoor-to-doorcollectionsinanyareainEnglandandWales,providedtheynotifytherelevantlocalauthorityinadvance.Theywillnotneedaspecificpermit.Collections in a public place: Ifthefirststagehasbeensuccessful,theapplicantcanapproachthelocalauthorityforapermitforapublicplacecollection.Thepermitallowscollectionatcertaintimesincertainpublicplacesinthatlocalauthorityarea.Thelocalauthority’sdecisiontoissueapermitornotmustbebasedsolelyonwhetherthecollectionwouldcauseapublicnuisance.Inmakingthisdecisionthelocalauthoritywillconsiderwhetherthereissufficient‘capacity’inthenominatedareaandthiswilldependonwhatothercollectionsarebeingconductedinoraroundthatlocationandatwhichtimes.The licensing scheme will not come into forcebefore�009.TheOfficeoftheThirdSectorandtheCommissionneedtodomoredetailedworkinpreparingandconsultingonregulationsandguidance.Inaddition,theCommissionmustbeequippedtotakeonitsnewrole.

H7. The Charity TribunalIn briefCurrently,charitiesthatwishtoappealagainsttheCommission’slegaldecisionsonlyhavetheoptionofgoingtotheHighCourt.Thiscanbeprohibitivelyexpensiveandcomplicated,particularly

forsmallcharities.TheActwillestablishaCharityTribunalasafirstlevelofappeal,whichwillbecheaper,moreconvenientandlessformal.Thiswillallowsmallercharitiesanaccessiblemeansofaddressinggrievances.AccesstotheHighCourtwillstillbepossibleonappealagainstadecisionoftheCharityTribunal.

In more detailThe Tribunal’s scope: TheTribunalwillhearapplicationstoreviewsomematterswhichpreviouslywouldhavebeensubjecttothejudicialreviewprocedure,andwillhearappealsagainsttheCommission’slegaldecisions,whichwouldpreviouslyhavebeensubjecttoanappealtotheHighCourt.ItwillbeabletoconsiderdecisionsthattheCommissiondidtake,andalsosomedecisionsthatitchosenottotake.IfacharityisunhappyaboutadecisiontheCommissionhastaken,itshouldfirstdiscussthiswiththeCommission,whichwillcarryoutaninternaldecisionreview.Ifafterthisprocessthecharityisnotsatisfied,itwillbeabletoappealtotheTribunal.CasesmaybebroughtagainsttheCommissionbycharitytrusteesorotherpartiesaffectedbyitsdecision,aswellasbytheAttorneyGeneral.TheCommissionwillbetherespondent.TheTribunalmayconsidermattersreferredtoitbytheAttorneyGeneral,or,withtheAttorneyGeneral’sconsent,bytheCommission.Thesewouldgenerallybequestionsabouttheoperationorapplicationofaparticularlycomplexareaofcharitylaw.TheAttorneyGeneralwillalsohavethepowertointerveneinacasebeforetheTribunal,wheres/heisnotalreadyaparty.Thispowermaywellbeexercisedincomplexcasesandmayhelptorelievethepartybringingtheappealofsomelegalcosts.The Tribunal’s work: TheTribunal’srolewillbetomakejudgmentsaboutthelegalityoftheCommission’sactionsin



exercisingitsstatutorypowerstoregulatecharities.TheTribunalwillhavevariouspowersthatitcanexerciseifitfindsthattheCommissionhasactedunlawfully.Forexample,itmaydecidetoquashadecisionifitfindsthattheCommissionhasnotfollowedthecorrectprocess,andtoreplaceitwithitsowndecision.OrtheTribunalmaydirecttheCommissiontotakethedecisionagain,followingthecorrectprocess.Inconsideringappeals,theTribunalwillneedtoconsiderthematterandlookatanyadditionalevidencethatmayhavecometolight.Costs and compensation: TheTribunalwillbeabletoquashtheCommission’sdecisionsandawardcostsincertaincircumstances.Itwillnotbeable,however,toawardcompensation.Rules: TheLordChancellorwillmakeruleswhichwillprovidemoredetailastothepracticeandproceduretobefollowedinproceedingsbeforetheTribunal.Appeals to the High Court: IfacharitytakespartinthelegalproceedingsbeingheardbytheTribunal,itmayappealtotheHighCourtagainstadecisionoftheTribunal.ItmustfirsthaveobtainedpermissionfromtheTribunalor,ifrefusedbytheTribunal,fromtheHighCourt.IngeneralitmaybringsuchanappealonlyonthegroundsthattheTribunalhasmadeamistakeinlaw(forexampleinhowithasinterpretedthelaw)andnotbecauseithasmadeamistakeastofacts.SoitwillnotusuallybeappropriatetopresentfreshevidencetotheHighCourt.

The Commission’s conduct and service: TheTribunalwillnotconsidercomplaintsabouttheCommission’sgeneralconductandservice,whichwillcontinuetobedealtwiththroughtherouteoftheexistingcomplaintsprocedure.Thisallowsforappealtoanindependentcomplaintsreviewer(thefinalstageoftheCommission’scomplaintsprocedure).The provisions will come into forceinearly�008.





I. About the CommissionSince the previous Charities Act was passed in 1992, the Commission has developed its role as an effective, modern regulator. The Act supports this by establishing a renewed constitutional framework which clarifies its objectives and how it should operate. The Commission will be led by a larger, more diverse board that can better reflect the sector it works with.



I. About the Commission

I1. The Commission’s roleIn briefTheActdefinestheCommission’sobjectivesandfunctions,andgivesitsomegeneraldutieswhicharemeanttoguideitwhenperformingitsfunctions.

In more detailThe objectives:Thefiveobjectivesaresetoutbelow:1. The public confidence objective: Toincreasepublictrust

andconfidenceincharities.�. The public benefit objective:Topromoteawareness

andunderstandingoftheoperationofthepublicbenefitrequirement.

�. The compliance objective:Toencouragecharitytrusteestocomplywiththeirlegalobligationsinexercisingcontrolandmanagementoftheadministrationoftheircharities.

4. The charitable resources objective:Topromotetheeffectiveuseofcharitableresources.

5. The accountability objective:Tomakecharitiesmoreaccountabletodonors,beneficiariesandthepublic.

The general functions:TheCommissionwill:

• decidewhetherinstitutionsare,orarenot,charities;

• encourageandfacilitatethebetteradministrationofcharities;

• identifyandinvestigatewhencharitiesarebeingmismanagedormisusedandtakeactiontoputthingsrightortoprotectcharityproperty;

• carryoutitsnewroleinissuingpubliccollectionscertificates;

• maintainanaccurateandup-to-dateregisterofcharities,andusethisandotherinformationtosupportitsworkandhelpachieveitsobjectives;and

• provideinformationandadviceormakeproposalstoMinistersonmattersrelatingtoitsobjectivesandfunctions.

The duties: InitsworktheCommissionmustcomplywithcertainduties,asfollows:

• TheCommissionmust,asfarasispracticable,actinawaywhichiscompatible:

– withitsobjectivesandwhichisappropriateforachievingthoseobjectives;and

– withencouragingcharitablegivingandvoluntaryparticipationincharitywork.

• TheCommissionmust,inappropriatecases,considertheneedforcharitiestobeabletoinnovateortosupportinnovationwhichaffectscharitiesgenerally.

• TheCommissionmusthaveregardtobestregulatorypractice.Thisincludesapplyingtheprinciplesthatregulatoryactivitiesshouldbeproportionate,accountable,consistentandtransparent,andtargetedonlyatcasesinwhichactionisneeded.

• Asanorganisation,theCommissionmusthaveregardtotheprinciplesofgoodcorporategovernanceandtotheneedtouseitsresourcesinthemostefficient,effectiveandeconomicalway.

The main provisions came into forceon�7February�007.


4� Charities Act 2006 – What trustees need to know

I2. The Commission’s status and structure In briefTheCommissionhasbecomeanewbodycorporate,withanexpandedboard.ThereisaclearstatementofitsindependencefromMinisters.

In more detailAn expanded and more diverse board: TheActallowstheCommissiontorecruituptofournewnon-executiveboardmembers.TheActalsorequiresthattheboardasawholehasabroadrangeofknowledgeandexperienceoftheoperationandregulationofcharitiesandofthelegalframeworkinwhichitworks.AtleastoneoftheboardmembersmusthavespecialistknowledgeofconditionsinWales.Thiswillhelptoensurethattheboardreflectsthediversityofthecharitablesector.Open governance: Since�005theCommissionhas,onavoluntarybasis,heldanannualgeneralmeeting(AGM)thatisopentothepublic.TheActmakesitastatutoryrequirementthatitmustholdapublicAGMduringwhichitsannualreporttoParliamentisdiscussed.Accountability to Parliament: TheCommissionmustreportannuallytoParliamentonitswork,itsprogressinmeetingobjectives,theperformanceofitsgeneraldutiesandthemanagementofitsaffairs.

Safeguard: TheCommission’sindependencefromMinistersandgovernmentdepartmentsisanimportantelementincontributingtopublicconfidenceincharities.Weknowthatcharitiesthemselvesvalueithighlytoo.TheActpreservestheCommission’sindependenceasanon-ministerialgovernmentdepartment.The main provisions came into forceon�7February�007.


Charities Act 2006 – What trustees need to know 4�



J. GlossaryThis section explains what some of the technical terms used in this booklet mean.



J. Glossary

Auditormeansapersonwhoisaregisteredauditorandisregulatedbyarecognisedsupervisorybody.Section4�(�)oftheCompaniesAct1985coversthisinmoredetail.Body corporateisthelegaltermforacorporation.Acorporationisalegalentitythat,althoughformedbyindividuals,existscompletelyseparatelyfromthem.Cy-prèsisalong-establishedlegalprincipleapplyingtocircumstanceswhereacharitabledonationhasbeenmade,orwhereacharityhasbeenestablished,forpurposesthatarenolongerworkable.Anychangeintheuseofthedonationorthepurposesofthecharitymustbeas‘nearto’theoriginalpurposesaspossible.(Cy-prèsisNormanFrenchfor‘nearto’.)Excepted charity meansacharitythatneednotregisterwiththeCommissioneitherbecauseofregulationsmadebyMinistersorbyanOrdermadebytheCharityCommission.UndertheAct,thelargeramongtheexceptedcharities(withanannualincomeover£100,000)willhavetoregisterwiththeCommissionwhentherelevantpartoftheActisimplemented.Exempt charitymeansacharityincludedinSchedule�totheCharitiesAct199�andanyothercharitiesdeclaredexemptbylegislation.Theyareforthemostpartgroupsofinstitutionssuchasuniversities,museumsandhousingassociations.Untiltherelevantpartsofthe�006Actcomeintoforce,exemptcharitiesarenotallowedtoregisterwiththeCommission.Therewillbenewrequirementsforregistration,whicharesetoutinmoredetailinthisbooklet(seeH1),meaningthatsomeofthelargeronesamongthemwillnolongerbeexempt.Whetherthiswillapplytoapreviouslyexemptcharitywilldependfirstonwhetheraprincipalregulatorhasbeenidentifiedforthecharityand,second,onthelevelofitsannualincome.

Governing documentmeansalegaldocumentsettingoutthecharity’spurposesand,usually,howitistobeadministered.Itmaybeatrustdeed,constitution,MemorandumandArticlesofAssociation,conveyance,will,RoyalCharter,SchemeoftheCommissionorotherformaldocument.Incorporated charity meansacharitythatisalsoacompanyorhasasimilarlegalstatusasacorporateentityinlaw.Independent examinermeansapersonindependentofthetrusteeswhoisreasonablybelievedtohavethenecessaryabilityandpracticalexperiencetomakeacompetentandimpartialexaminationofthecharity’saccounts.Independentexaminationisalessonerousformofscrutinythananaudit,butcharitiesshouldrefertothe199�Actforfurtherguidanceand,ifindoubt,seekaccountancyadvice.InquirymeansaninquiryintoacharityorcharitiesopenedbytheCharityCommissionunderSection8ofthe199�Act.LandmeanslandinEnglandandWaleswithorwithoutbuildings,andincludesanyestateorinterestinland,suchasaleaseorrightofway.Objectsarethedescriptioninacharity’sgoverningdocumentofthecharitablepurposesthatthecharityistoachieve.Permanent endowmentmeansproperty(land,buildings,investmentsorcash)thatmaynotbespentbythetrusteesasifitwereincome.Provisionmeansaclauseinalegalinstrumentprovidingforaparticularmatter.Purposemeanstheoverridingreasonforthecharitytoexist.Itiswhatacharityaimstoachievefromitswork.Acharity’s



purposesareusuallydescribedinitsgoverningdocumentinthe‘objectsclause’.Tobeacharity,anorganisationmusthavepurposes,allofwhicharecharitable.Schememeansalegaldocumentthatamends,replacesoramplifiesthetrustsofacharity.ASchemecanbemadebytheCommissionorcourts.Trusteemeansacharitytrustee.Charitytrusteesarethepeoplewhoareresponsibleforthegeneralcontrolofthemanagementoftheadministrationofthecharity.Inthecharity’sgoverningdocumenttheymaybecalledtrustees,managingtrustees,committeemembers,governorsordirectors,ortheymaybereferredtobysomeothertitle.Unincorporated charity meanseitheratrustoranassociation.‘Unincorporated’meansthatsuchorganisationsarenotcompanies:theydonothaveaseparatelegalidentityandthereforecannotenterintocontractsintheirownname.Theindividualcharitytrusteeswouldbenamedinacontract,andwouldberesponsibleformeetingitstermsandliabilities.Theterm‘incorporation’isoftenusedtodescribethetrustees’establishmentofacharitablecompanytotakeovertheunincorporatedcharity’soperations.Therearevariousprosandconstoincorporation,andtrusteesshouldseeklegaloraccountancyadvice,orboth,beforeproceeding.A vesting declarationmeansadocumentthattransfersthetitletolandandotherpropertyfromonecharity(orsetofcharitytrustees)toanothercharity(orsetofcharitytrustees).





AppendixThis section signposts sources of further useful information.



Appendix

TheCharitiesAct�006,withtheexplanatorynotesthataccompanyit,isavailableonthewebsiteoftheOfficeofPublicSectorInformationatwww.opsi.gov.uk.TheCharitiesAct199�andCharitiesAct199�arealsoavailableonthiswebsite.HardcopiescanbeboughtfromTheStationeryOffice.YouareencouragedtousetheCommission’swebsiteatwww.charitycommission.gov.uk(tel:0845�000�18)tokeepuptodatewithdevelopments,aswellastofindoutmoreabouttheCommission’sroleastheregulatorofcharitiesinEnglandandWales.RelevantguidanceabouttheActwillbepublishedthere.TheOfficeoftheThirdSectorimplementationplan,whichsetsoutwhenthevariousprovisionsoftheActwillcomeintoforce,canbefoundatwww.cabinetoffice.gov.uk/thirdsector.OtherinformationaboutcharitylawandtheActisonthesamesite.InformationabouttheCharitiesBillcanbefoundontheUKParliamentwebsiteatwww.publications.parliament.uk.

SeveralothersourcesgivefurtherguidanceonmattersrelatingtotheimplementationoftheAct.Listedherearesomethatmayhelptrustees.

Association of Chief Executives of Voluntary Organisations (ACEVO)www.acevo.org.ukTel:0845�458481ACEVOistheprofessionalbodyforthethirdsector’schiefexecutives.

Charity Finance Directors’ Group (CFDG)www.cfdg.org.ukThisisthemembershiporganisationforthoseworkingincharitieswhohaveresponsibilityforfinancialmanagement.

Charity Law Associationwww.charitylawassociation.org.ukTheCharityLawAssociationisestablishedwiththeaimofenablingthosewhoadviseonorusecharitylawtomeet,exchangeideasandintelligence,andusetheirexperienceandexpertiseforthebenefitofthecharitysector.

Charity Trustee Networks (CTN)www.trusteenet.org.ukTel:0148��0�80CharityTrusteeNetworks’mainobjectivesaretopromotetheefficiencyandeffectivenessofcharitiesbyimprovingtheirgovernancethroughtrusteenetworksandbypromotingtheeducationoftrusteesintheprinciplesandpracticeoftrusteeship.



Companies Housewww.companieshouse.gov.ukTel:0870��6�6CompaniesHouseincorporatesanddissolveslimitedcompanies,andstoresinformationdeliveredundertheCompaniesActs.

In-House Charity Lawyers Groupwww.cigroup.org.uk/charity.aspTheIn-HouseCharityLawyersGroupisrunbyandforin-houselawyersincharities,enablingitsmemberstomeet,network,andexchangeideas,experiences,resourcesandbestpractice.

Institute of Fundraisingwww.institute-of-fundraising.org.ukThisistheprofessionalbodyrepresentingandsupportingfundraisers.

Her Majesty’s Stationery Office (HMSO) (now part of the Office of Public Sector Information)www.opsi.gov.uk

National Council for Voluntary Organisations (NCVO)www.ncvo-vol.org.uk,www.askNCVO.org.ukFreephonehelpdesk:0800�798798,textphone08000188111NCVOistheumbrellabodyforvoluntaryorganisationsinEngland.Itswebsiteincludesanonlinegatewaytovoluntarysectorinformation.askNCVOisasourceofguidancefortrusteesonawiderangeofpracticalandlegalissues.

Northern Ireland Council for Voluntary Acton (NICVA)www.nicva.orgNICVAistheumbrellabodyforvoluntary,communityandcharitablegroupsinNorthernIreland.Itprovidesover1,000affiliatedmemberswithinformation,adviceandtrainingonawiderangeofissues,frommanagementconsultancyandfinancetopolicydevelopmentandlobbying.

Scottish Council for Voluntary Organisations (SCVO)www.scvo.org.ukSCVOistheumbrellabodyforvoluntaryorganisationsinScotland.

Wales Council for Voluntary Actionwww.wcva.org.ukWCVA’sinteractivewebsiteoffersinformationforandaboutthevoluntarysectorinWales.

Induecourse,legalfirmsandpublisherswillproduceguidestotheAct.Youshouldcheckthetradepressforfurtherinformationaboutthese.



AcknowledgementsThe Office of the Third Sector and the Charity Commission are grateful to James Tickell and Radojka Miljevic of Campbell Tickell for their contribution to the drafting of this guidance.


Office of the Third Sector Charity Commission Cabinet Office PO Box 1227 35 Great Smith Street Liverpool L69 3UG London SW1P 3BQ Telephone: 0845 300 0218Telephone: 020 7276 6400 Web address: www.charitycommission.gov.uk Fax: 020 7276 6333

Web address: www.cabinetoffice.gov.uk/thirdsector

Publication date: May 2007

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