19 March 2019 - Article
Whilst in the process of analysing the responses to its 300 page consultation paper into technical issues in charity law which was published last year, the Law Commission has decided to publish a (shorter) supplementary consultation paper looking at two issues which were not originally covered by the consultation: how charities can change their purposes and how trust corporation status can be obtained.
CHANGING A CHARITY'S PURPOSES
Charity law has evolved through a variety of statues which has led to a divergence of the rules governing charities established as a charitable company and unincorporated charities (such as trusts or associations). With the Charity Commission's prior consent, charitable companies can, under company law, change their purposes by a members' resolution. Unincorporated charities have no equivalent statutory power – they can only amend their purposes if there is an express provision allowing them to do so in their governing document or they are a small charity and meet the requirements of s275 Charities Act 2011. If neither apply, an unincorporated charity must seek a cy-près scheme from the Charity Commission which can only be made in limited circumstances.
There is no underlying public purpose for such differences and, with the aim of creating better and simpler law, arguably the Law Commission should work to align the two regimes. The Law Commission has proposed that unincorporated charities should also have a power to change their purposes (with the Charity Commission's consent) and suggests that factors the Charity Commission must consider in relation to applications for a cy-près scheme should apply when considering whether to given consent to a change of purposes for incorporated and unincorporated charities.
TRUST CORPORATION STATUS
As a principle of trust law, a sole trustee (other than a trust corporation) cannot give a valid receipt for the proceeds of sale arising under a trust of land. In order to give a valid receipt, there must be either two trustees or a trust corporation (an entity with a special status). Trust law developed this rule to protect individual beneficiaries and charitable purposes as a sole trustee was not trusted to deal with the proceeds of sale properly.
The need for two trustees or a trust corporation can cause problems for charities which incorporate (change from being a trust or unincorporated association to a company) or merge. Currently, there are three ways to obtain trust corporation status: apply to the Lord Chancellor, request a scheme from the Charity Commission (we often include trust corporation status in schemes we draft for charities in relation to other matters), or, in certain circumstances, make a vesting declaration under s310 Charities Act 2011.
The Law Commission has proposed that the trustees of all charitable companies and CIOs should be able to pass a resolution to acquire trust corporation status in relation to any charitable trust of which the corporate charity is a trustee.
The consultation is open until 31 October 2016 and full details are available here.