Depending on the structure of your charity, trustees may have different legal obligations and liabilities. However, they will be bound by the same duties of running a charity. We explore these principles and duties before looking at best practice in selecting and appointing trustees.
Charities: Trustees’ duties
Key concept: Trustees are the persons having the general control and management of the administration of a charity. Trustees are accountable for their decisions, so it is vital all trustees understand their obligations and potential liability from the outset. It is also important that charities ensure they have the right skills mix on the board.
Duty to promote charitable purpose
“Powers must be exercised for the purpose for which they have been given: to further the purposes of the trust.” This is referred to as the ‘guiding principle’.
No profit and no conflict rules
Trustees must not place themselves in a position of conflict – actual or potential – and should be mindful of perceived conflicts. Trustees who are connected to non-charitable organisations must be particularly mindful of their obligations. Trustees must also not profit from their position as a trustee. Robust conflict of interest policies must be in place.
Duty to act in the best interests of charity and beneficiaries
Trustees must have regard to which course of action would be in the best interests of the charity and its beneficiaries. This is a positive duty and may require trustees to take certain actions to protect the charity’s reputation and assets etc.
Duty to act within powers
Trustees should check their governing document and ensure that all actions are within the scope of their objects and powers, and such actions should only be to further the charity’s objectives.
Duty to act in good faith
Trustees must act with honest intentions and motives.
Duty of care
Sometimes referred to as a duty of prudence. This requires trustees to act with the same standard of care as an ordinary prudent businessperson would if they were under a moral obligation to provide for others and not just themselves. If a trustee has special skills they will be measured against their actual expertise.
Duty to act collectively
Trustees are collectively responsible for decisions.
Charities must operate for the public benefit – registered charities are required to report on public benefit as part of their annual report.
Charities: Trustees’ duties
Trustees of charitable companies are also directors under the Companies Act 2006 (as modified for charities). There are many additional requirements trustees must be aware of such as filings etc. which go beyond the duties of a trustee, such as:
- Financial reporting
- Trading disclosure
- Administration and filing at Companies House (in addition to any filings with the Charity Commission)
Charitable Incorporated Organisations
Section 221 of the Charities Act 2011 sets out some of the duties applicable to trustees of CIOs, for example:
- Exercising powers and performing functions in good faith and in a way that would be most likely to further the purposes of the CIO; and
- Exercising reasonable skill and care.
The Charitable Incorporated Organisations (General) Regulations 2012 also confirm the duty not to accept benefits from third parties (Reg 34).
For unincorporated charities, trustees have the usual duties, but may also have statutory duties. These include:
- Duty of care under Section 1(1) Trustee Act 2000;
- Duty to apply for a scheme* under Section 61 Charities Act 2011.
*A scheme changes, replaces or extends the trusts of a charity.
A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter, in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty.
Charities: Selecting trustees
Correct skill mix
Charities require a range of skills at board level, and where this is absent specialist advice should be sought. In smaller charities one trustee may have more than one role.
Be wary of unconscious bias and recruiting like for like – charities should look to foster a culture of debate and avoid potential groupthink situations.
Be cautious of individuals who are connected to the charity as conflicts may arise.
Succession planning and board refreshes
Complacency and over-familiarity have caused corporate collapse – boards should be refreshed where possible.
Who can be a trustee?
Currently, individuals and corporate entities can be trustees (but note rule changes on corporate entities being directors due to come into effect in the future under the Small Business, Enterprise and Employment Act 2015).*
Charitable companies currently need at least one director who is an individual.
Trustees must not lack capacity, and age restrictions apply and vary depending on structure.
Individuals who are automatically disqualified under Section 178 Charities Act 2011 cannot be a trustee.
Consider conflicts when considering appointment.
*Once the relevant section comes into force corporate directors will not be eligible for appointment.
Charities: Selecting trustees
Charity boards need a range of individuals to carry out the role of the trustee. Charities should seek to appoint individuals who possess the right mix of skills to complement the other trustees and the requirements of the charity.
In small charities it may be that one trustee does several roles, and so it will be important for those individuals to understand their limitations and when professional advice should be sought.
Check governing documents for minimum and maximum number of trustees and note that certain rules apply to certain types of trusts, e.g. trusts of land
It is recommended that at least three unconnected individuals are appointed as trustees as a minimum. When a charity is starting out the founding individuals may be the first trustees, but as the charity grows or becomes established it may be necessary to recruit additional trustees.
Step 1: What skills and knowledge does the board require? Conduct a skills audit.
Step 2: Check governing document to determine maximum/minimum number of trustees – if you need additional skills but are at the current maximum you may need to amend your governing document.
Step 3: Consider recruitment method. Internal appointments, trustee banks and advertisements are all options, but the overall process should be open, fair and transparent. Look for diversity and consider the nature of your charity.
Step 4: Clearly define the roles and responsibilities as well as any eligibility requirements – if your charity works with children or vulnerable adults a DBS check may be required for trustees, for example.
Step 5: Be clear on your appointment process.
Step 6: Vetting of potential trustees – ensure declarations are signed confirming that the potential trustees are eligible and make use of official registers and checks, e.g. Companies House, Insolvency Register and DBS.
Step 7: Appointment and induction
You might also like to view FSI’s Essential Trustee Series designed to help promote good governance for all charity Trustees. https://www.thefsi.org/services/essential-trustee-series/
This article was kindly contributed by Aviva’s international law firm partner DAC Beachcroft’s Charities & Not-for-Profit practice.
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