If you agree to be a trustee of a charity, whatever the nature of that charity, whether it is a charitable company, unincorporated association, charitable trust or otherwise, you will be subject to a number of duties and potentially exposed to liabilities. Unincorporated charities are subject to the Trustee Act 2000 whereas corporate trustees are subject to company law (such as the Companies Act 2006) and both are subject to the charities acts (such as the Charities Act 2011).
Trustees of corporate charities, as directors, have limited liability and so the trustees are protected as regards the liabilities of the company/charity to third parties, which is not necessarily the case for trustees of non-corporate charities. Those trustees may be liable for any shortfall where action is taken against the charity and the charity does not have sufficient funds to pay. For example, where a charity has liabilities that exceed the value of its assets, the trustees could be liable for any amount that the charity cannot cover.
If your charity is unincorporated and employs staff or enters into other contracts, the trustees should seriously consider changing the charity into an incorporated form such as a charitable company limited by guarantee or a charitable incorporated organisation (referred to as a CIO).
According to the Charities Act 2011 the expression “charity trustees” means the persons having the general control and management of the administration of a charity. If you were asked to name a duty of a trustee, you would probably say that they must act with “reasonable care and skill”. However, this duty is more onerous a duty than one might think. To assess whether you are meeting the requirement, it is useful to consider whether you are utilising the skills and experience you have yet recognising when you should take advice. You should ensure that you have enough time to commit to your role as a trustee and be an active participator in trustee meetings.
As a trustee you must be mindful of the purpose(s) for which your charity acts, which must be for the benefit of the public. This means that you must understand what purpose the charity was originally set up for together with its objects. Information relating to this can be found in the governing document of your charity and, in order to meet this requirement, it is necessary for you to be organised by planning what your charity will do and what you want it to achieve. You should be careful when considering this as all of its activities must be carried out with the intention that it “further supports its purposes”. These purposes cannot only be written down on paper – they must actually be carried out; failure to keep a charity proactive in this manner could lead to a breach of your duty as a charitable trustee or an unneeded dispute.
When deciding what may best enable your charity to achieve the purpose set out in its governing document, the trustees should work together to reach a balanced and informed decision ensuring that thought is given to long-term goals, rather than just the short-term. When doing this, it can be difficult to ensure that you do not do anything which may conflict with your personal interests or loyalty to another body or person, but you must avoid this situation and raise any concerns as soon as you recognise the signs of a conflict. You should also ensure that you, or anyone who is deemed to be financially connected to you, do not receive any form of benefit from the charity unless it is correctly authorised and is considered to be in the best interests of the charity.
Your duties as a trustee do not end there. You also have a “duty of prudence”, the essence of which means you must act responsibly, reasonably and honestly. To comply with this duty you should take steps required to
- ensure that the charity’s assets are only used to support or carry out its purposes
- avoid exposing the charity’s assets, beneficiaries or reputation to undue risk
- regularly assess that the charity is not over-committed (which would lead to an inability to achieve goals), and
- comply with any restrictions on spending funds or selling land.
It is also a requirement for you to comply with certain statutory and reporting requirements. For example, you should be able to demonstrate that your charity complies with relevant legislation, is well-run and efficient. This way the pressure can be taken off you by instructing solicitors, as it may not just be charity law that applies – if your charity owns or rents premises or provides care services, there are potentially wide-ranging pieces of legislation to consider.
Liability of trustees
Trustees of corporate charities have limited liability and protection from claims of third parties. Trustees of non-corporate charities however may be liable for any shortfall where action is taken against the charity and the charity does not have sufficient funds to pay.
In addition to liabilities to third parties, there may be certain situations when trustees (even of corporate charities) can be held personally liable to their charity where they breach their duties. This could be a liability towards their charity for a financial loss caused by their improper conduct, or to a third party who has commenced legal proceedings against the charity which it cannot meet.
Generally, the law will protect those trustees from personal liability to their charity if they have acted honestly and reasonably and have not benefited from their actions. However, it is worth noting that a higher standard will be expected of you if you are being paid to act as a trustee or are acting in a professional capacity.
There are many ways you can mitigate liability, for example, by ensuring the charity files its accounts on time, ensuring conflicts of interest are prevented from affecting decisions, holding regular meetings with the other trustees and keeping proper records of any decisions made and the reasons for theam.
Trustees can sometimes be caught out when they have not sought appropriate advice, for example, by causing a breach of an employee’s terms, conditions or rights, failing to pay for goods or services or if a member of the public is injured whilst on the charity’s premises. These situations may be avoided if a solicitor is instructed beforehand, as they will have the expertise to recognise what protection you should be afforded. Whilst this can be in the form of explaining the requirements expected of a trustee and how to achieve them, sometimes it can be adviseable to ensure your charity has appropriate insurance and/or is incorporated so that you can avoid personal liability (unless you act improperly) and instead the corporate charity itself will be accountable to third parties.
Further information can be found by reading the Charity Commission’s guidance on The essential trustee: what you need to know, what you need to do.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.