Governance is about running your organisation
We provide charity law seminars delivered by a charity law solicitor. These will be advertised on our training section.
Each seminar will provide a summary of charity law updates, a themed workshop and a question and answer session. These seminars are for registered charities based in Leeds and exempt charities based in Leeds.
If you are looking for training on governance issues including the duties of trustees please go to our training section.
If you want to find legislation then there is a simple way to do so: go to www.legislation.gov.uk You will see a search box. Simply type in the name of the legislation that you wish to see. Here is a list of the main legislation that underpins governance and the various legal structures:
- The Charities Act 2011
- The Charities Act 1992
- The Charities (Protection and Social Investment)Act 2016
- The Trustee Act 2000
- The Charitable Incorporated Organisations (general) Regulations 2012; statutory instrument number 3012
- The Companies Act 2006
- Co-operative and Community Benefit Societies Act 2014”
Which legal structure is for you?
The legal structure of an organisation refers to the way in which it has been established and the rules which govern it.
There are a range of choices; it is important to choose a legal structure that is fit for purpose and meets your needs. The choices that you could consider are introduced below:
Many small community groups or voluntary organisations are unincorporated associations. An unincorporated association is a group of people who have come together for a particular purpose. Unincorporated associations often have a broad membership which elects a management committee to deal with the running of the organisation. However, the crucial thing to bear in mind is that if you choose an unincorporated association then the individuals involved are personally liable for the risks, liabilities and debts of the association.
An unincorporated association can not enter into contracts, leases or indeed employment contracts on its own, the individuals who manage the organisation (the management committee members) must do so on behalf of the association.
The advantage of an unincorporated form is that it will usually be subject to less regulation. Furthermore, the governing document, in the case of an unincorporated association is known as a constitution(or sometimes just ‘the rules’) and is simpler to understand.
Model constitutionA model constitution for unincorporated associations is available from theCharity Commission website. A model constitution for an unincorporated association, with charitable objects and an annual income of £5,000 or below is also available from theCharity Commission website.
Another kind of unincorporated legal structure is a trust. A trust is established by a trust deed. This is a document under which an individual or organisation gives assets to other individuals or organisations on condition that they do not use the assets for themselves but for a third party for a particular purpose. An organisation which is a trust will almost always have charitable status because trusts for non charitable purposes are not valid under English law. A trust does not have members. The governing document of a trust is a Trust Deed.
Model Trust Deed
The Charity Commission have created a model trust deed for a charitable trust
To incorporate is to form a company. If an organisation incorporates then the organisation takes on a legal personality! In addition, in a company the committee members are called directors and they become one body – a corporate body. Thus, it is the organisation that enters into contracts, takes on leases, employs staff and most wonderful of all the individual people involved are not personally liable for the acts of the organisation (except in certain circumstances).
The exceptional circumstances include:
- carrying on activities which are not permitted by the company“s objects or powers clauses
- carrying on the company“s business and running up further debts when it is known that the company is in financial difficulties and should be wound up
- signing a form to act as a guarantor for a debt owed by the company
- acting while disqualified as a director
- being in breach of a statutory duty
Being a company means the accounts must be prepared on an accruals basis and be submitted to Companies House within 9 months of the financial year end. A fine is incurred if this deadline is not met. Contact firstname.lastname@example.org further support.
A Company Limited by Guarantee is a suitable legal form for organisations that wish to register the company as a charity. Companies are regulated by Companies House. The governing document of a company is a Memorandum and Articles of Association.
Model Memorandum and Articles of Association
A model memorandum of association and model articles of association for charitable companies are available from the Charity Commission website.
Charitable Incorporated Organisation (CIO)
A Charitable Incorporated Organisation (CIO) can only be used by an organisation that is charitable. This provides the benefits of a legal entity and limited liability without the need to register a company with Companies House. Registration for CIOs is with the Charity Commission only. However, this form of incorporation is not suitable for all organisations. The Charity Commission states that “We think that the CIO will be most suitable for small to medium sized organisations which employ staff and/or enter into contracts. If your charity is likely to want to issue debentures, a company limited by guarantee will be a better option for you“.
Note also that exempt charities cannot be Charitable Incorporated Organisations.
A CIO’s governing document is its constitution.
Model Constitution for CIOs
There are two separate types:
- Foundation model constitution: the only voting members are the trustees.
- Association model constitution: with a voting membership in addition to the trustees.
The Charity Commission have created model constitutions for both scenarios.
Accounts must be submitted to the Charity Commission within 10 months of the year end, but can be prepared on a cash or accruals basis. Contact email@example.com for further support.
Community Interest Company (CIC)
Community Interest Company (CIC) is a legal structure suitable for organisations that wish to be a social enterprise. A social enterprise is not a legal structure but an approach to business with social or environmental purpose and where surpluses are reinvested into the business or community. A CIC cannot be formed or used solely for the personal gain of a particular person, or group of people.
A CIC can be a private company limited by shares or a company limited by guarantee.A word of warning here. Most funders are not happy to fund community interest companies limited by shares.
A CIC has an asset lock – this means that the CIC can only use its assets and profits for the community specified.
A CIC must meet the Community Interest Test.This means that the regulator must be satisfied that the activities will be carried out for the benefit of the community.
A CIC cannot be a charity and is therefore more likely to incur a Corporation Tax liability. The accounts must be prepared on an accruals basis and be submitted to Companies House within 9 months of the financial year end. A fine is incurred if this deadline is not met. Contactinfo@wycas.org.ukfor further support.
The governing document of a CIC is a Memorandum and Articles of Association. For more information about Community Interest Companies visitDepartment of Business, Innovations and Skills website.
Registered Society ( Previously known as Industrial and Provident Society)
Registered Society refers to all the societies registered under the Co-operative and Community Benefit Societies Act 2014. These include Co-operative and Community Benefit Societies. Please note that societies previously known as Industrial and Provident Societies are now referred to as Registered Societies
For more information about Registered Societies visit the Financial Conduct Authority (FCA) website
For details of the effect on societies registered before August 2014 see
Please do not panic. No change of name is needed even if the society has Industrial and Provident Society in its name; registered number remains the same; Rules do not have to be changed.
Accounts must be prepared on an accruals basis and submitted to the FCA within 7 months of the financial year end. If the turnover is over £90,000 there must be a report from a qualified auditor. Contact firstname.lastname@example.org for further support.
A governing document is the document that your organisation has signed in accordance with the legal structure your organisation has chosen. The exception to this definition is that of charitable incorporated organisations which are not signed because they do not exist until they are registered with the Charity Commission!
What the governing document includes and what is known as depends on the legal structure – your organisation will only have one governing document!
|Company Limited by Guarantee||Memorandum and Articles of Association|
|Charitable Incorporated Organisation (CIO)||Constitution|
|Community Interest Company (CIC)||Memorandum and Articles of Association|
For more information about each of the legal structures and links to model governing documents see the Choosing a legal structure section.
Amending a Governing Document
Some guidance on the necessary procedures and the charity law is given below.
Where to start
In the first instance check the amendments clause in your existing governing document. This will provide guidance on the procedure to follow in order to amend the governing document.
However, in the case of registered charities there are other considerations to be taken into account with regard to the making changes. All charitable companies can amend their articles of association. However, there are certain regulated alterations which require the permission of the Charity Commission before the decision is taken through the procedure in the governing document.
These regulated changes are:
- Any change in the objects
- Any change to what happens to property on winding up
- Any change which authorise the funds or property to be used to benefit directors or members
- Most unincorporated charities with incomes of £10,000 or less can change their governing document although permission may be required in some cases.
Unincorporated charities with incomes of more than £10,000 can change the powers they have to administer the charity. If the governing document allows they can also change the purposes. Again, check the full guidance.
Whatever procedure is used the Charity Commission and, if applicable Companies House must be informed.
If your organisation wants to amend its governing documents guidance relating to charitable unincorporated associations, charitable trusts and charitable companies is available from the Charity Commission website. The process will take time and you may need to instruct a solicitor to assist with the process, for which you will pay legal fees.
Charities exist to benefit the public. The Charity Commission regulates charities in England and Wales.
In Leeds there’s over 1,500 registered charities, (search for them using either the Charity Commission’s Register of Charities or the Doing Good Leeds directory) which means there’s many thousands of trustees in Leeds!
The Charity Commission rightly points out that setting up and running a charity requires a lot of work and indeed a lot of skills so it’s important for trustees know what is required. Find out more about registering as a charity and the responsibilities of trustees below.
Registration as a charity
Think carefully before setting up a charity. For example, avoid setting up a charity that duplicates the work of existing charities.
Who can register
An organisation is required to register as a charity if it:
- has charitable purposes
- exists for the public benefit
- has an annual income of £5,000 or above
Requirements for registration
The requirements for registration and links to the online charity registration process are given below.
Only organisations with charitable purposes and with an annual income above £5,000 must register with the Charity Commission. This is known as ”the registration threshold”. Please note: there will be an exception to this from January 2014. New Charitable Incorporated Organisations (CIOs) with anticipated annual incomes of under £5,000 will also be able to register as a charity.
An organisation must have charitable purposes in order to register as a charity and all of the purposes must be charitable. The 13 charitable purposes are:
- The prevention or relief of poverty
- The advancement of education
- The advancement of religion
- The advancement of health or the saving of lives
- The advancement of citizenship or community development
- The advancement of the arts, culture, heritage or science
- The advancement of amateur sport
- The advancement of human rights, conflict resolution or reconciliation, or the promotion of religious or racial harmony or equality and diversity
- The advancement of environmental protection or improvementThe relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage
- The advancement of animal welfare
- The promotion of the efficiency of the armed forces of the crown or the efficiency of the police, fire and rescue services or ambulance services
- Other purposes that are currently recognised as charitable or in the spirit of any purposes currently recognisable as charitable
- The Charity Commission website gives detailed guidance on charitable purposes
In England and Wales, public benefit is a crucial part of what it means to be a charity. A charity must have only charitable purposes. That is to say all the purposes of a charity must be charitable! All of these charitable purposes must be for the benefit of the public. This is known as “the public benefit requirement”.
The public benefit requirement has two aspects:
The benefit aspect
The public aspect
In order to fully appreciate the meaning and significance of these aspects it is necessary to read the public benefit guidance provided by the Charity Commission.:
There are three guides:
Public benefit: the public benefit requirement
Public benefit: running a charity
Public benefit: reporting
The Charity Commission website gives detailed guidance on public benefit.
What you need to know about the responsibilities of running a charity.
As a charity your organisation must comply with the Charities Act 2011. The Charity Commission website is the best place to look for everything relating to the responsibilities of charities.
The information that you will find includes:
- How to complete annual returns
- How to prepare annual report
- Legal requirements in respect of notifying the Charity Commission of changes to your charities
Good Practice guidelines including:
- The board
- Fit for purpose
- Improving your charity
- Being prudent
- Being accountable and transparent
There is a section on land and property which includes:
- mortgaging or transferring charity land and property.
There is guidance on:
- Accounts and financial matters
- Delivering public services
- Managing risk
- Reporting serious incidents
- International work
A company is a corporate body registered with Companies House. Companies are subject to the Companies Act 2006.
The term ‘incorporated’ means that a company has a separate legal identity to the directors. The advantage to the directors is that it is the corporate body that holds property, makes contracts, employs staff etc. and not the individual directors. Directors only have limited liability if they act within the law, if they follow their duties under company law, and if applicable their responsibilities under charity law. You should be aware that Companies House is a firm regulator of companies and there are fines if deadlines are not met for filing accounts and other matters.
It is important to understand that there are circumstances in which directors could be made liable for the debts of the company. Examples include: fraud; criminal offences; fraudulent trading; negligence; acting outside the objects of the company; continuing to trade when aware that the company is insolvent.
Incorporation as a company
Incorporation allows an organisation to limit the personal risk to individuals. This section considers the risks that may influence a decision to incorporate and the steps to take if your organisation wishes to incorporate. See also: Choosing a legal structure.
The usual triggers for incorporation as a company are:
- Taking on a lease
- Buying a freehold property
- Taking on employees
- Raising finance
- Entering into contracts
- Risk management
- Remember that if you need to register as a company you should do this before you register as a charity! The company will be registered with the Charity Commission.
Steps for incorporating
A minimum of three directors to sign if you intend to register the company as a charity also.
Complete Form IN0I: Application to register as a company
All of these documents, together with the relevant fee, then need to be sent to Companies House.
All forms and instructions are available from theCompanies House website.
If your organisation is an already a registered unincorporated charity then the procedure you need to follow is more complicated.
Basically, you would be setting up a company, registering the company as a charity and then dissolving the existing unincorporated charity.
Voluntary Action Sheffield (VAS) have a helpful ‘Guide to incorporating existing charities’ which is available from theVoluntary Action Sheffield website.
Many of the tasks and responsibilities that companies are responsible for are required by company law. This is enforced by Companies House. Some of the essential responsibilities of companies are outlined below.
Companies need to carry out a long list of administration tasks after forming a company and there also administration tasks that have to be carried out throughout the year. Some of the jobs include creating: a register of directors; a register of company secretaries; a register of members; a register of trustee interests and a legal charges register.
(Voluntary Action Sheffield (VAS) have a helpful guide which includes details of the tasks involved in running a company, ‘An Introduction to the Legal Aspects of Setting Up and Running a Charitable Company Limited by Guarantee’ is available from the VAS website, see part 3 of for the guidance on “Running the Company.”)
Formally ending an organisation can be referred to as: closure; closing; closing down; dissolving; dissolution or winding up.
Whichever term is used it covers the whole process of ceasing to operate and bringing an organisation to an end.
Information on how to close different types of third sector organisation is given below.
Closing an unincorporated association or trust that is registered as a charity
The trustees of the charity are responsible for the charity until it has ceased to exist. Moreover, former trustees remain responsible for decisions taken while they were in position as trustees. The Charity Commission can make enquiries about any actions they have taken even after the charity has been removed from the register.
The trustees must address the responsibilities they have in respect of debts and liabilities. If necessary they should seek the advice of an organisation such as WYCAS.
The trustees must also identify and act upon employment issues in accordance with employment legislation. Advice is available from the PERS. Failure to follow proper procedures could result in unfair dismissals and leave the charity vulnerable to a claim through an employment tribunal. Trustees are individually liable.
Follow the instructions contained in the Charity Commission guidance — How to close a charity — https://www.gov.uk/guidance/how-to-close-a-charity and use the provisions in your constitution to follow the necessary procedures to dissolve the charity.
The final accounts must be prepared before formally dissolving the organisation. All appropriate agencies and individuals should be informed. These may include:
- service users
- insurance brokers or company
- bank manager
- immediate past committee members
- other organisations that are involved with your organisation; for example, suppliers
- any other relevant individuals or organisations.
Hold a Board Meeting to formally dissolve the organisation.
Once the charity has been dissolved:
- Close the bank account.
- Close any accounts with suppliers.
- Most formal record should be kept for 7 years.
- Paper records that are not required to be kept should be shredded.
- Computer hard drives should be cleaned or reformatted so that the documentation relating to the organisation is no longer available.
- Headed paper should be destroyed.
- Website should be closed down.
- All email accounts should be closed.
Removal from the Charity Commission Register:
The Charity Commission guidance, How to close a charity contains a link to an on line form called charity closure form — https://www.gov.uk/remove-charity-register
Closing a Charitable Company
A charitable company is regulated by company law as well as charity law. This means that there are two stages involved in the dissolution of a charitable company.
First you follow the process for removing a company from the Companies House register and then the Charity Commission’s process to remove the charity from the Charity Commission register of charities.
Guidance on voluntary striking-off and dissolution of a company is available in “Strike-off, Dissolution and Restoration (GBW 2)” on the Companies House website as well as the relevant forms. Guidance is also available from the Companies House contact centre on 0303 1234 500.
The trustees are responsible for notifying the Charity Commission of the dissolution and removal of a charitable company from the Companies House Register. They must notify the Charity Commission by using the link closure form — https://www.gov.uk/remove-charity-register found under the heading close a charitable company in How to close a charity- https://www.gov.uk/guidance/how-to-close-a-charity
Closing a CIO
Check the dissolution clause in your CIO constitution. If you have used the Charity Commission model for either a foundation CIO or an association CIO you will be looking for clause 29. Voluntary Winding up or dissolution.
Now read the Charity Commission guidance on How to close a charity.
See the section:Close a CIO. Note that a CIO can not use the online closure form. The Charity Commission guides you in this section on how to inform them.
Closing an Unincorporated Association
This section is intended for a third sector organisation that is not:
- registered as a charity
- incorporated as a company
- registered as an industrial and provident society.
There is no set procedure for closing down unincorporated associations other than those described in the dissolution clause of the organisation’s constitution. If your organisation does not have a constitution or does not have a dissolution clause in the constitution seek advice. The Small Groups Development Worker at VAL would be able to advise you further.
The management committee must address the responsibilities they have in respect of debts and liabilities. If necessary they should seek the advice of an organisation such as WYCAS (West Yorkshire Community Accounting Service).
The management committee must also identify and act upon employment issues in accordance with employment legislation. Advice is available from PERS (Pay and Employment Rights Service).
Failure to follow proper procedures could result in unfair dismissals and leave the organisation vulnerable to a claim through an employment tribunal. Management committee members are individually liable.
Follow the procedures in your constitution. These are the usual steps:
- The management committee meets and decides it is necessary to close the organisation. Ideally, the management committee would have knowledge of the organisation’s assets and liabilities at this meeting.
- The management committee calls a special general meeting (or in your constitution it may be called extraordinary general meeting) giving the required notice to members as stated in the dissolution clause. This is usually either 28 or 21 days, however, it is essential to check your constitution. The notice will contain the resolution to dissolve the organisation.
- The special general meeting must be quorate. Check your constitution to see how many members must be present at a special general meeting.
- The meeting must formally approve the resolution by the majority stated in the dissolution clause.
- Minutes of the meeting that record the wording of the resolution must be kept. An example of the wording could be: “A special general meeting of the above named organisation called for the purpose of recommending closure to the members was duly convened and held at …… (place) on …… (date). It was agreed by the members present that the organisation should close. The members of the committee were instructed to proceed with closing the organisation in an orderly and proper manner.” The minutes of the resolution should also indicate how the assets of the organisation will be allocated after the settling of any outstanding liabilities. There may be a clause in the constitution relating to this.
After The Special General Meeting
The committee appoints someone to ensure that all assets, debts and liabilities are identified. This is usually the treasurer.
If there are enough funds to meet the financial obligations then these are paid off, contracts terminated, service providers are notified and remaining assets distributed as specified in the resolution.
If there are not enough funds to meet financial obligations the management committee should seek help to ensure that assets are properly disposed of and to reduce the risk of personal liability for them as individuals. The final accounts must be prepared before formally dissolving the organisation.
All appropriate agencies and individuals should be informed (see the list above in the Closing a Registered Charity section).
Hold a management committee meeting to formally dissolve the organisation.
Once the organisation has been dissolved:
- Close the bank account
- Close any accounts with suppliers
- Most formal records should be kept for seven years.
- Paper records that do not need to be kept by law should either be shredded or passed to West Yorkshire Archive Service.
- Computer hard drives should be cleaned or reformatted so that the documentation relating to the organisation is no longer available.
- Headed paper should be destroyed.
- Website should be closed down.
- All email accounts should be closed.
Help with Closure
Further help is available from the following organisations:
Thanks to Newcastle Council for Voluntary Service for the use of their information sheets in providing this information.
Conflicts of Interest
Trustees must always act in the best interests of the charity they represent. Anything that may affect the decision of a trustee in the best interests of the charity is a conflict of interest.
A conflict of interest is explained best by a few examples:
- A trustee is employed by a local authority that is considering funding the charity
In this example there is not necessarily any financial or other gain for the trustee but the trustee would need to declare the conflict of interest to the other trustees.
- A trustee receives payment for some work they do for the charity
This example concerns direct financial gain and the Charity Commission points out that payment to trustees needs to be authorised, either by a clause in the governing document or by an Order of the Court.
- The sibling of a trustee has submitted a quote to the trustees for a piece of work
In this example a relative of the trustee stands to gain and trustees should not make decisions in order to gain financial or other benefit for their family, friends or business connections, the trustee would need to declare the conflict of interest to the other trustees.
How to manage conflicts of interest
The Charity Commissions suggests that a good way to manage conflicts is to have a written policy on how to deal with conflicts and keep a register of interests.
If your charity has a conflict of interest policy in place and a system for recording interests then it is going to be much easier for trustees to grasp the implications of this issue. Trustees who are involved in more than one organisation, or more than one charity, should always remember which ‘hat they are wearing’ when they attend a meeting of the board of trustees of the charity. All other hats should be left outside and if they do arise then the interest should be declared!
It is good practice at the beginning of a meeting for every charity trustee to declare any private interest which he or she has in an item to be discussed, and certainly before any debate of the item itself.
What to include in a conflict of interest policy
Your organisation should have a conflict of interest policy in place. It should include:
- General duties of trustees
- Statement about declarations of interest
- Financial interests
- Duality of interests (which hat example!)
- What to do when interest may be unclear
- How to record interests
Help with conflicts of interest
The Charity Commission’s website provides more detailed guidance about the following:
Charities and meetings (including declaring conflicts of interest)
Charities that employ staff are required by law to haveemployers’ liability insurance. The charity must have, and display in the workplace, a certificate of employers’ liability insurance. It covers the charity against any claims by workers for injury or disease. “Worker” is defined as anyone who has a contract or apprenticeship whether that is written, oral or implied. It does not usually cover volunteers, visitors, trustees, or self employed people working for the charity. However, your charity may wish to take out a policy that does specifically cover volunteers as well as paid staff.
The Charity Commission in their guidance also emphasise the following in respect ofvolunteers:
For insurance purposes, charities are advised to treat volunteers in the same way as they do their employees and to ensure that they are covered by the usual types of insurance a charity might buy, such as employers’ liability or public liability cover. A charity should ensure that its volunteers are protected from harm as a result of any negligence on its part. Also, both the charity and its volunteers should be covered in the event of a third party being injured through the actions of a volunteer. The charity should check any policy to make sure:
- That it definitely includes volunteers
- How the term “volunteer” is defined for the purposes of that policy
- Whether any upper or lower age limits apply
- That the policy covers the types of activities that the volunteers will be undertaking
If your charity owns or operatesvehiclesthen the charity must comply with the provisions of the Road Traffic Acts: The charity must have insurance against third party injury and property damage.
If the vehicles belong to trustees, employees, or volunteers and they are using their own vehicles for the purposes of the charity then the charity must make sure that the insurance held by the owners of the vehicle covers this use. Any additional premiums for this use could be covered by the charity.
Please be aware that there are special requirements in respect of minibuses used to transport people on a hire basis and the charity should seek advise from their insurers if this applies to their charity.
It is a little known fact that special insurance cover is must be included in a safety certificate for equipment such as lifts and hoists, dumb waiters and also fork-lift trucks.
Buildings and Land cover
This covers the fabric and structures of any buildings or land that the charity owns or occupies. If your charity rents premises, then your charity needs to check the terms of the lease to ascertain whether it is the responsibility of your charity or the landlord to take out buildings insurance. If your landlord is responsible for the buildings insurance cover then your charity should make sure that it is insured against any associated losses that the charity may face as a result of damage to the building. Also, if the charity is responsible for repairs to the building, the trustees may need to consider whether other risks should also be insured against.
If your charity owns land or buildings please read carefully the guidance provided by the Charity Commission in CC49. The link to this follows at the end of the insurance section.
The trustees need to consider the following:
- Whether the cover should be on a “new for old basis”
- Whether the cover includes loss arising from theft
- Whether the cover needs to include accidental damage
- Whether specific items need to be covered such as computers
- Whether insurance is needed for money in transit
- Whether insurance is needed for money on the premises
Public liability cover
This covers injury, loss or damage caused to anyone as a result of your charity’s negligence or breach of legal duty and covers people using your charity’s premises or services. When taking out public liability insurance the trustees need to make sure that the policy covers: trustees; employees; volunteers; visitors to the charity’s premises. The normal limit of public liability insurance is one million. In the event of a claim exceeding the maximum amount payable under the policy the trustees might find themselves personally liable for the shortfall. This would be the case if adequate cover was available, but the trustees unreasonably failed to purchase it, having regard to the nature of the risk and the cost of the cover. It is imperative that the trustees fully disclose the full range and nature of the charity’s activities and fundraising activities to the insurer. Here is a cautionary and true tale: any fundraising event involving aviation exposure from hot air ballooning, aircraft, or events held at an airport are not covered by public liability insurance. The same applies to watercraft and marine activities. In these case specialist insurance would need to be purchased.
Other possibilities that may require cover
Personal Accident:this can provide compensation to trustees, employees and volunteers who have an accident during the course of their activities on behalf of the charity.
Trustee indemnity:The best protection for trustees is incorporation because this results in limited liability for the trustees. But limited liability does not protect trustees from any breach of trust such as being in breach of the Health and Safety at Work Act, nor does limited liability protect trustees from various statutory liabilities including some criminal offences. Thus, trustees may also wish to consider indemnity insurance. A registered charity cannot purchase this type of insurance unless its governing document allows it to do so. There needs to be a balance here between peace of mind for the trustees and the reality of what is actually insured against! Trustee Indemnity Insurance does not cover the cost of fines. It does not cover liabilities to third parties. In reality, this type of insurance protects trustees where honest mistakes in managing the charity have resulted in a liability being incurred.
Professional indemnity:if your charity provided formal advice giving this insurance covers the cost of wrongful advice and can be extended to cover slander and libel actions.
Legal expenses:this would cover legal costs and expenses for such matters as defence of employment disputes, defence of prosecutions, defence in civil proceedings such as Inland Revenue investigations.
Terrorism and political violence:this is no longer covered in standard insurance policies.
There are a number of ways to manage risk, one of which is to buy insurance cover. The Charity Commission in its guidance identifies the following questions to ask in deciding whether insurance is the most appropriate way to manage potential risks:
- Which of our areas of activity present a real or significant risk of a particular form of loss or liability occurring?
- How much would it cost to take out insurance to cover that risk? Have we shopped around or asked our broker for competitive quotes?
- Can we take any other measures to manage the risk, for example increasing security measures or improving internal financial controls?
- Would it be better for our charity to pass the risk to a third party (apart from an insurer), for example, the movement of cash from the premises to the bank might be contracted out to a professional cash handling company?
- If we decide not to insure against a risk, would our charity be able to continue its work or remain viable if it incurred losses from that risk?
- If we are an unincorporated charity, have we considered the risk of personal liability? As trustees we may find ourselves with a personal liability through no fault of our own if our charity’s assets are not sufficient to cover any liability it incurs.
- Should we reduce or stop the activity which gives rise to risk?
- Appoint someone with special responsibility for all insurance matters
- Check insurance responsibilities in your lease
- Review the amount that you are buying for each type of insurance annually
- Always read the small print
- Keep a copy of policies off site in case the worst happens!
- Keep your inventory of furniture and equipment up to date
- Keep up to date with payments
- Make sure that all information given to insurance provider is up to date and accurate
- You really should be going for “ new for old”
- Never admit liability to a third party
- Report claims without delay
- Have a procedure for reporting and recording accidents
- Display disclaimer notices in communal areas to limit liability in the event of a claim”
The Good Governance Code
Good Governance: A Code for the Voluntary and Community Sector is a guide written by voluntary organisations for voluntary organisations.
There are three versions of the Code:
- Full Code
- Summary Code
- Code for Small Organisations
The Code concentrates the six key principles that trustees should follow and provides practical guidance on how to put the principles into practice. Basically, the Code helps organisations to assess whether they are following good practice. Underlying each principle is the additional principle of equality.
The six principles of the Good Governance Code are:
- Understanding the board’s role
- Doing what the organisation was set up to do
- Working effectively
- Exercising control
- Behaving with integrity
- Openness and accountability
- Helpful resources
- The Code can be downloaded from the Good Governance Code website
Additional information is available from the websites: