The way a charity is run depends upon its legal structure. This is outlined in its governing document, adopted when the charity is set up, or as updated over time. A charity’s structure determines:
- Who will run it and whether it will have a wider membership.
- Whether it can enter into contracts and employ staff in its own name.
- Whether the trustees will be personally liable for what the charity does.
There are four main types of charity structure:
- Charity Incorporated Organisation (CIO)
- Charitable company (limited by guarantee)
- Unincorporated association
- Trust
All charities need trustees. A charity trustee is one of a group of individuals who control the overall management of a charity. Charity trustees are also known as:
- Directors
- Board members
- Governors
- Committee members
The Charity Commission outlines trustees’ 6 main duties. They are to:
- Ensure the charity is carrying out its purposes for the public benefit.
- Comply with the charity’s governing document and the law.
- Act in the charity’s best interests.
- Manage the charity’s resources responsibly.
- Act with reasonable care and skill.
- Ensure the charity is accountable.
Some charities also have members. Members have ultimate control over the charity, because they make decisions relating to things such as changing the charity’s constitution, appointing and removing trustees and determining whether a charity should be wound up. Members, however, do not have responsibility for the management of the charity’s day to day activities.
In some charities, members are the trustees, and trustees are also members. This mirroring helps keep administration down, but it also reduces the scope for checks and balances – since by default trustees report to the membership each year at the annual general meeting.
One charitable structure – the trust – has no membership but relies on the trustees making all decisions.
One point of uncertainty in charity regulation regards the difference between charity trustees and members. This concerns the extent to which members are, or are not, obliged to act in the best interests of the charity, called a fiduciary duty, or whether their actions may be guided by their own interests.
The Court of Appeal’s (CA) July 6th decision on the appeal against the High Court’s decision in Children’s Investment Fund Foundation (UK) v Attorney General and others [2017] EWHC 1379 seems to offer some clarification on this question. The CA ruled in line with Section 220 of the Charities Act 2011 on CIOs, which states that:
each member of a CIO must exercise the powers that the member has in that capacity in the way that the member decides, in good faith, would be most likely to further the purposes of the CIO.
This ruling may set a legal precedent for charity members, because it seems to suggest that members have the same fiduciary duties as trustees, as long argued by the Charity Commission. Crucially though, the CA maintained that this duty is subjective, and it is up to the member to determine how best to act in a way which will benefit the charity. The CA’s judgement does not rule on the scope of members’ fiduciary duties; instead what is important is the members’ state of mind. If a member is of sound mind, they may act as they wish as long as they deem their actions to be in the interests of the charity. Given that this is subjective, almost by definition, it is possible that this point may prove contentious in future cases.
If your organisation needs guidance on good governance or help with trustee training, please contact us.
Thank you to Felix Tambling for his research for this article.