Legal Newsletter (Sixth Edition)

Welcome to what, unfortunately, will be my final legal newsletter on behalf of RCVDA.

The funding for my role has now been exhausted and it is with much regret that the finance is not available to allow my role as legal consultant with RCVDA to continue.

I will say my goodbyes at the end, but first…

Story 1 – Starting A Charity

Charities exist to benefit the public, not specific individuals.

Because of this, charities pay reduced business rates and receive tax breaks but are restricted in what they can do and how they work. For example, charities need to:

• follow charity law, including telling the Charity Commission and the public about their activities
• only do things that are charitable according to the law
• be run by trustees who do not usually personally benefit from the charity.

You must register your charity with the Charity Commission once its annual income is more than £5,000.00.

Before you set up a charity, you should first think about whether being a charity would stop you doing things you want to do. For example:

• charity trustees are normally unpaid volunteers – they can only be paid with the approval of the Charity Commission in certain situations
• charities can’t usually benefit anyone connected with the charity, for example giving work to a trustee’s family member or company
• charities can only do things the law recognises as being charitable – they can’t do a mix of charitable and non-charitable work
• charities can’t take part in certain political activities, such as campaigning for a change in government
• registered charities must provide public, up-to-date information about their activities and finances

There are over 160,000 registered charities in England and Wales and many more unregistered charities with incomes under £5,000.00. Many small charities find it hard to get enough money for their cause. This is especially true for new charities because many people give to organisations they already know. Setting up and running a charity takes a lot of work and I have the ultimate respect for all the wonderful people that I have met during my time at RCVDA for your seemingly inexhaustible drive and enthusiasm. Long may you continue to impact upon and benefit the lives of the people within this area.

I have already been approached by one organisation asking if I will register them as a charity when I return to private practice and if I can still help you in this regard then I would invite you to contact Nick Dent at PG Legal Limited on 0191 466 1080 or by e-mail: [email protected]

Story 2 – Becoming A Trustee

Charity trustees provide leadership to their charity and make sure it is doing what it set out to. Most trustees give their time for free.

I am delivering a training seminar this Friday at Westfield Farm when I will be exploring whether being a trustee is a privilege or a liability. The response to the course has been excellent and I look forward to meeting the delegates in the wonderful surroundings of Westfield Farm later this week.

There has been sufficient interest to possibly run the course a second time. I have offered to return to RCVDA to deliver the course free of charge once again. Please register your interest either with RCVDA or at [email protected]

It should not come as any revelation to learn that trustees have overall control of a charity and are responsible for making sure it’s doing what it was set up to do. They may be known by other titles, such as:

• directors
• board members
• governors
• committee members

Whatever title they have in a particular charity, trustees are the people who lead the charity and decide how it is run. Most trustees don’t get paid for their role – they act out of a desire to help people and make positive changes. Volunteering as a trustee should be rewarding and enjoyable.

Trustees make sure the charity is running well and is doing what it was set up to do. This includes ensuring the charity:

• has the money it needs
• spends its money sensibly, on the activities it was raised for
• follows the law, including preparing reports and accounts to send to the Charity Commission
• doesn’t break the rules in its governing document (its constitution, trust deed, or articles)

Trustees of smaller charities might take on all or most of the work of running the charity. In larger charities, trustees often delegate the day-to-day operations to the staff and senior management. As a trustee, you will use your skills and experience to make sure the charity runs efficiently. But trustees are allowed to get advice from external sources like solicitors or other experts if they need to. I value all of you who have contacted me during my time at RCVDA seeking help and guidance.

All trustees make decisions about their charity collectively, working as a team. Decisions don’t usually need to be unanimous – so long as the majority of trustees agree.

Being a trustee means making decisions that will impact on people’s lives. Depending on what the charity does, you will be making a difference to your local community or to society as a whole.

Trustees use their skills and experience to support their charities, helping them achieve their aims. Trustees also often learn new skills and develop into new areas during their time on the board.

You and the other trustees must:

• follow the law and the rules in the charity’s governing document
• act responsibly and only in the interests of the charity
• use reasonable care and skill
• make well-informed decisions, taking advice when you need to

Continue to do so and enjoy a happy and prosperous 2014.

Story 3 – The End Of An Era…

You and the trustees may decide it is time to close your charity. This could be due to a number of factors, for example:

• a loss or reduction in funds
• a lack of members
• your charity is becoming a company

If your charity is registered, you must let the Charity Commission know you are going to close it so they can remove it from the register of charities. You should also read your charity’s governing document to see if it contains a ‘dissolution clause’: special instructions for what you should do to close your charity.

How an organisation ends depends on whether it is incorporated or unincorporated, and whether it is solvent (able to pay its debts) or insolvent. The terms winding up, dissolution, and liquidation are, in practice, used interchangeably to describe the process, but have different meanings legally.

Even where the organisation is solvent, specialist advice may be advisable to ensure all liabilities are met, assets are disposed of in accordance with the governing document, and it is wound up properly.

Where insolvency is a realistic possibility – or an inevitability – professional advice is essential. Two ‘tests’ – the cashflow test and the balance sheet test – are used to determine if an organisation is, or is likely to become, insolvent. If an organisation fails on either, it needs to take urgent advice from an accountant or solicitor.

It is a very serious matter to continue operating while the organisation could become or is already insolvent. Doing so exposes members of the governing body and in some cases other individuals – even if they have limited liability – to the risk of personal liability for the organisation’s debts. To reduce this risk it is essential that governing body members receive proper financial information, understand it, monitor reserves in relation to liabilities, and take appropriate action if they believe there is any risk of the organisation becoming insolvent.

Winding up is the process of ceasing to operate: stopping activities and services, dismissing staff, closing premises, paying the bills, terminating contracts, dealing with liabilities, and distributing any remaining assets.

When a solvent organisation is wound up, it is likely that some assets will remain after payment of all debts and costs of winding up. These assets may be distributed only as set out in the dissolution clause in the governing document. The most usual requirement is that they must be given to one or more organisations which have similar objects. The decision as to how the assets should be distributed may be left to the members of the organisation or to the governing body. In some cases third parties must be consulted. Alternatively, the governing document may name a specific organisation or organisations to which the assets must be given.

Clubs and some other non-charitable organisations may be allowed to distribute surplus assets to their members.

Liquidation is a formal process and involves selling or disposing of the assets of a company, charitable incorporated organisation, or industrial and provident society and dealing with the liabilities, which includes distributing money released from the sale of assets among those entitled.

Dissolution is the final stage in ending the organisation, when it ceases to exist. Companies, charitable incorporated organisations, and industrial and provident societies come into being by registration, and cease to exist only when they are formally dissolved and removed from the relevant register.

Unincorporated trusts and associations may dissolve themselves using the procedure in their governing document. If the organisation is a registered charity, the Charity Commission must be notified that it has been dissolved.

Story 4 – Stay Social! …

(and now on Flickr ~ search for RCVDA).