Governing documents for a charitable company
The Charities Act 2011 recognises two types of company: the Charitable Company as defined by the Charities Act 2011, s 193, and the Charitable Incorporated Organisation (CIO) defined by section 205. The constitution for a Charitable Company is stipulated by the Companies Act 2006, in contrast the constitution for a CIO is defined by the Charities Act 2011.
Charitable Incorporated Organisation
A CIO is an alternative legal form for a charity. Legally it is a corporate body, without the requirement to incorporate under the Companies Act 2006. The considerable advantage of a CIO versus a Charitable Company is the Companies House reporting and accounting requirement are negated, together with the onerous company regulations. The company retains its own legal identity and therefore the directors receive no or limited liability.
What must the CIO constitution contain?
The Charities Act 2011, s 206, allows the Charity Commission to specify its own regulations as to the form and contents of the CIO constitution. The CIO constitution must, as a minimum, contain:
- its CIO name,
- its purpose,
- its address in England and Wales,
- the liability of members on winding up or if the members have no liability,
- who may become a member and the process of becoming a member,
- the appointment of one or more trustees and any conditions of eligibility,
- how property is to be distributed on the dissolution of the CIO.
Model Governing Documents for a Charitable Company
In the corporate domain, the company articles of association were simplified by the Companies Act 2006 and on incorporation a company may adopt model articles without any amendment. Charities are required by the Charity Commission to input specific information into the model articles, in particular the charity objects which are particular to each individual charity.
What must the Charitable Company’s articles contain?
- the charity’s name,
- its objects and purpose,
- the powers available to the company,
- who can be a trustee, how they are appointed, how long they can hold office and if they can be reappointed,
- how many meetings are needed, how they are arranged, how a chair is appointed, how votes are made and counted (including minimum numbers for this),
- who can be a member, age restrictions, ending someone’s membership, how membership meetings are called,
- how trustees must not benefit from the charity (excluding reasonable expenses) without commission approval or unless it is authorised in the governing document,
- how the trustees can change the charity’s governing document, when commission approval is needed, how amendments are recorded,
- if the charity can be closed, what happens to any remaining assets (charitable assets can only be used for charitable purposes).
What are the charity’s objects?
The articles of a non-charitable company incorporated under the Companies Act 2006 are not required to have objects. Companies incorporated under previous Companies Acts were required to include an objects clause in the Memorandums of Association describing the purpose of the company and its activities it was authorised to undertake. Acting outside of the company objects is considered ultra vires.
Charitable articles must restrict the company’s activities to specifically furthering the charitable objects. The charity’s objects are defined by identifying the charity’s purpose and what it is set up to achieve.
Charities in England and Wales are set up with the singular function of achieving their charitable purpose. The purpose must fall within the description of purposes described in the Charities Act 2011, s 3, and benefit the public. The Charity Commission provides guidance on writing charitable purposes.
Governing Documents, gaining approval from the Charity Commission
In 2018-19, roughly 60% of applications submitted to the Charity Commission resulted in registration and 40% of applications failed based on incorrect information being submitted or failure to follow up requests by the commission for further information. It could be speculated a great many of applications fail due to inaccurate governing documents.
The Charity Commission suggests employing the relevant Charity Commission’s model governing documents to reference the contents and form the basis of the constitution.
Which governing documents are used for the CIO?
The Charity Commission provides two model constitutions:
- Model constitution for CIO with voting members other than its charity trustees ('Association' model).
- Model constitution for a CIO, whose only voting members are its charity trustees ('Foundation' model).
It should be noted the CIO is not a company as defined by any company act and the organization is not required to register with companies’ house.
Does the Charity Commission provide other types of model constitution?
The simple answer is yes. In addition the Commission provides the following model governing documents.
- Model memorandum of association for a charitable company not having a share capital.
- Model trust deed for a charitable trust.
- Model constitution for a small charity.
- Model constitution for an unincorporated charity.
Model governing documents for NHS Charities
- NHS charities: model declaration of trust for an NHS special purpose charity (2007 version) – model C.
- NHS charities: supplemental deed for general purpose charities comprising unrestricted funds but whose objects are more narrowly defined than the statutory remit - model G.
Model governing documents for Armed Forces Charities
- Constitution for Membership Service Funds - no managing trustee.
- Constitution for Membership Service Funds - with managing trustee.
- Trust Deed / Standard Governing Document non membership - no managing trustee.
- Trust Deed / Standard Governing Document non membership - with managing trustee.
- A charity may incorporate as a company. Dual registration is required with Companies House and the Charity Commission.
- A Charitable Company is subject to dual legislation: the Companies Act 2006 and the Charities Act 2011.
- The model articles for a private company limited by guarantee are not fit for purpose if registering with the Charity Commission and will require the inclusion of additional information required by the commission. (see additional information above).
- The model articles provided by the commission can be adapted to provide specific bespoke clauses and rules particular to the charity.
- The alternative to the onerous responsibilities of dual registration is use a CIO, providing the trustees a body corporate with a separate legal identity and the provision of no or limited liability.
- A CIO employs a constitution as opposed to the articles of association of a company incorporated under a Companies Act.
- The contents and format of the CIO constitution is provided legislatively, in addition, the commission is free to make rules to its subject matter. A CIO constitution is prescribed and cannot be adapted, modified or replaced, as is the case with the articles of association of a non-charitable company.
- The Charity Commission expects those registering a charity to use the model governing documents.