A constitution is a charity’s most important document. It is often described as a rulebook which governs the day-to-day operations of a charity: who is in control, how they make decisions, and how it supports its cause. Three key elements deserve particular attention:
- The charity’s objects, also known as its charitable purposes, determine who the charity may help, where, and how.
- The charity’s trustee benefit provisions set out to what extent the trustees may derive benefits from the charity, either indirectly or directly through remunerative payments.
- The charity’s dissolution provisions describe what will happen to its assets if the charity is brought to an end.
A range of circumstances may compel a charity to seek to change any of the above. Charities may be old, such that social or economic changes in the intervening years have left their original purposes ill-suited to serve the needs of their beneficiaries, or perhaps their constitution may have contained critical oversights from the beginning. In some cases, trustees may provide their charity with particular professional skills for which they should be paid, but for which their constitution does not allow them to be.
It is therefore imperative for trustees to understand how their charity’s constitutions may be amended, and the ways in which new provisions in the Charities Act 2022 may affect this, when they come into force early in 2024.
The current law: an inconsistent approach
The appropriate method to amend the above constitutional provisions, and indeed whether it is possible at all, depends on the type of charity in question.
The position is most simple for amendments to a charitable company’s articles of association or a charitable incorporated organisation’s (CIO) constitution. Their objects, trustee benefit, and dissolution provisions are considered regulated alterations. The members of the charity are entitled to pass a resolution to make any regulated alteration, but the charity must first obtain written consent from the Charity Commission. Whereas amendments to a CIO’s constitution only take effect once registered with the Commission, all changes to a company’s articles take effect immediately upon the passing of the members resolution – with the exception of changes to object, which take effect upon filing with Companies House.
The position for unincorporated charities is more complex, and the amendments here will relate to their constitution (if an unincorporated association) or trust deed (if a charitable trust). The constitution or deed itself may contain express powers to amend the above provisions, with a varying range of statutory fallbacks to rely on in their absence. The statutory position may also vary depending on whether the charity is considered a small or large unincorporated charity. Broadly, small unincorporated charities are those with annual income up to £10,000 and which do not hold designated land (ie land held on trust requiring it to be used for charitable purposes).
The trustees of small unincorporated charities may amend their purposes in accordance with an express power, or alternatively by relying on a statutory fallback whereby a two-thirds majority of the trustees vote in favour. This fallback power does not require approval of the members (if any). However, the Commission must be notified of any such change, and the change will only take effect 60 days thereafter. For large unincorporated charities, a change to their objects can only be achieved with the consent of the Commission (if the amendment takes place in accordance with an express power), or otherwise by a Charity Commission scheme (a document made by the Commission which adds, replaces, or amends the provisions in a charity’s existing governing document).
For all unincorporated charities, their trustee benefit provisions may only be amended in accordance with an express power. There is no statutory fallback power. Similarly, there is no statutory fallback allowing unincorporated charities to amend their dissolution provisions.
All other administrative changes may be made in accordance with an express power, or alternatively by relying on an additional statutory fallback whereby a majority of the trustees, followed by two-thirds of the members (if the charity has a membership distinct from its trustees), vote in favour. Here the change takes effect on the date of the members’ vote, or a date specified in the resolution, if later.
A streamlined approach: Charities Act 2022
The Charities Act 2022 sweeps away the patchwork regime of statutory fallbacks and replaces them with a single statutory power for unincorporated charities to amend their governing documents. Here the amendment must be approved by the majority of the trustees, and by the members (if any):
- By a 75% majority vote at a general meeting, or
- By decision without a vote at a general meeting where no members present object in response to the question put to the meeting, or
- By a unanimous decision of the members outside a general meeting.
Further, and to bring the regime in line with that of CIOs and charitable companies, amendments to the unincorporated charity’s purposes, trustee benefit, and dissolution provisions will require the consent of the Commission.
As regards the charitable purposes of charitable companies, there has been a slight relaxation in that only those amendments which alter the substance of the purposes, and not all amendments, will be regulated alterations requiring Commission consent.
Where consent is sought by any charity to amend their charitable purposes, the Commission will be required to have regard to new similarity considerations, namely:
- The purposes for which charity was established.
- The desirability of the proposed changed purposes to be similar to the original one.
- The need for the purposes to be suitable and effective in the light of current social and economic circumstances.
Finally, in relation to CIOs, any resolutions to change their constitution will take effect immediately, rather than on registration with the Commission. There is one exception for an alteration of the CIO’s purposes, which takes effect only when registered by the Commission, or on a later date specified in the resolution.
What do these changes mean for your charity?
The Charities Act 2022 brings clarity and consistency to the amendment of charitable constitutions. Unifying all constitutional amendments to unincorporated charities under one statutory power will give trustees the confidence that the decisions they make are procedurally valid; there may be less confusion about who makes the decisions, by what majority they must vote in favour, and when the change takes effect.
In some instances, the new act will afford trustees greater flexibility to make constitutional amendments which aid them in the day-to-day running of their charity. The most prominent example is that the new statutory power may be used to amend trustee benefit provisions of unincorporated charities where there is no express constitutional power to do so. This may allow charities to fully recognise and utilise the professional skills and expertise of their trustees, without the burdensome task of seeking a Commission scheme.
While adopting a unified approach to the Commission’s involvement in giving consent to regulated alterations across both incorporated and unincorporated charities brings further simplicity to the administration of charities, trustees should note there is a possibility of greater Commission involvement in their decisions following the introduction of these provisions. For example, trustees of small unincorporated charities seeking to change their purposes will need to obtain Commission consent under the new legislation, whereas currently they are simply required to notify the Commission of their decision to amend their purpose(s).
When considering whether to give consent to a change of purposes, the new statutory considerations give much needed clarity to the decision-making process of the Commission. The language used is similar to the principles governing cy-près schemes, therefore practitioners should be well equipped to advise trustees on the considerations they should incorporate in their decision-making process when considering if and how to amend their charity’s objects.
Joanna Blackman is an associate and Mark Beech is a trainee solicitor at Wrigleys Solicitors
Charity Finance wishes to thank Wrigleys for its support with this article
