It’s really common for us to find dated (even antiquated) governing documents when we are supporting small and medium sized charities with their governance. Some have not been reviewed (or even read) by Trustees for years or decades.

Why does this matter?

While it’s is true that the sky hasn't yet fallen in for any of them, we find that charities with dated governing documents usually present with a host of non-compliance and other concerns.

In almost all cases the Trustees are in breach of their key legal duty to comply with the charity’s governing document and the law. Therefore, if the charity ever got into trouble, or there was a complaint to the Charity Commission, this could have serious consequences for the Trustees, up to and including personal financial liabilities and/or disqualification from acting as a Trustee.

This is a risk that is easily eliminated, so why take the risk?

What is a governing document?

The most common forms of governing document are:

• (Memorandum and) Articles of Association for a charitable Company.

• Constitution for a Charitable Incorporated organisation.

• Trust Deed for a charitable Trust.

• Constitution for a charitable Unincorporated Members Association.

• Rules for a charitable Community Benefit Society

Other, less common forms of governing document include a Royal Charter or an Act of Parliament.

Sometimes the governing document is accompanied by rules or bylaws made under powers in the governing document, which in turn become part of a charity’s suite of governing documents.

What are the common breaches?

The common issues we find for charities with dated governing documents include:

• The charity is undertaking activities that fall outside its charitable purposes (objects). This is a serious matter and one which could cause the Charity Commission to seek to recover money spent on such activities from the Trustees.

• Some individuals are receiving unauthorised private benefits, such as Trustees being paid for services not authorised within the governing document. Again, this could result in the Charity Commission seeking to recover monies from the individuals concerned and/or the Trustees.

• Conflicts of interest are not being managed in accordance with the requirements of the governing document, which could lead to disqualification.

• The composition of the Board of Trustees does not meet the requirements of the governing document or the Trustees are being appointed in ways not allowed for by the constitution (e.g. elections rules are not being followed).

• The membership of the charity (if it has a wider membership) is either unclear or no longer complies with the requirements of the governing document.

• Statutory registers for members and Trustees are not being adequately maintained.

• Decisions are being made by people or committees who do not have the authority to do so under the governing document.

• Meetings are frequently not quorate, are improperly convened or are being held in ways that are not authorised by the governing document (for example by video or telephone conference). This has been particular issue during the pandemic restrictions and will become so again when emergency legislation authorising electronic meetings expires.

How can the risk be eliminated?

In our view, all charities should maintain a simple record of their key documents - governing documents, policies, etc. - which states when they were last reviewed and updated and specifies a frequency for regular review of each.

A review of the governing document should take place every couple of years, although it is unlikely it will need updating unless there are major changes in the law or what the charity does (in which case the amendments should be made when or before those changes occur without waiting for the next planned review).

A key advantage of conducting a review every couple of years is that this encourages all Trustees to read the governing document from time to time. This is essential because case law is very clear that Trustees cannot discharge their legal duty to comply with the charity’s governing document if they have not read it. This is also why all prospective new Trustees should be given a copy of the governing document to read before they agree to become a Trustee.

Regular review will also reveal areas of the governing document that may be difficult to understand, perhaps because they are written in legalistic or archaic language. In this case the relevant provisions should be updated, or perhaps even an entirely new governing document should be adopted.

For example, the governing documents of a charitable company created before the Companies Act 2006 came into force, will consist of the Memorandum and Articles of Association, unless an entirely new governing document has been adopted since. After the 2006 Act came into force, the substantive provisions in those two document are combined into a single document, the Articles of Association. It is very likely such older documents will be written in opaque language and they are very likely to be out of step with the 2006 requirements (making interpretation very difficult for any one who is not familiar with the 2006 Act). It is also likely they will not confirm to Charity Commission guidance and good practice (such as requirements restricting benefits to members and Trustees or on management of conflicts of interest).

A good starting point for updating a governing document is to look at the Charity Commission model governing documents and compare them to your own.

If you choose to adopt a new governing document or make changes to the existing one, remember that there are regulatory requirements. For a registered charity, if you want to change the objects, dissolution clauses or provisions dealing with member/Trustee benefits or conflicts of interest you will need Charity Commission consent before formally deciding on the changes (e.g. at an AGM or EGM).

Once you have obtained any required consents you should follow the procedure set out in your existing governing document to adopt the changes and then file the new governing document with the relevant regulator(s).

Once the new governing document has been adopted, if the charity is a company then you must first file the new document and the associate special resolution with Companies House. It only takes legal effect on the date it is accepted by Companies House.

Once the new governing document is accepted by Companies House, you must file it with the Charity Commission (even if they previously gave consent to some or all of the changes). All registered charities that are not companies must file changes to their governing document with the Charity Commission (again whether or not prior consent was required and obtained).

For charities registered in England and Wales who are also registered in Scotland, similar procedures need to be following with the Office of the Scottish Charity Regulator (OSCR).

If you have a dated governing document then it can be a little bewildering to navigate these processes for the first time, but once you have modernised your governing document a regular review cycle will mean that it never gets out of hand again and making changes should be much simpler.

To find out more about how to review and update your governing document or any of the issues raised in this article, please contact us at julian@almondtreeconsulting.co.uk to arrange free initial telephone discussion.