The Essential Trustee:What you need to know

June 2005

CC3

“Be the change you want to see in the world”Mahatma Gandhi

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The Essential Trustee: What you need to know

Contents

A. Foreword 2B. The charity framework in brief 3C. Introduction 4D. Trustee duties at a glance 6E. Trustees and their responsibilities 7F. Compliance 12G. The duty of prudence 19H. The duty of care 26I. If things go wrong 29J. Further information and advice 32

Guidance from the Charity Commission for all who serve as Trustees or

Directors on the governing body of a charity, or who are about to take up

Trustee responsibilities.

Acknowledgement: The Charity Commission is grateful to James Tickell at Campbell Tickell Associates for drafting this publication.

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Dear Reader,Charities exist to create a better society. They operate for many different purposes, and inmany ways. But they are united by their visions of a world without poverty, cruelty, disease,injustice or inequality. In England and Wales charities have long been a mainspring of positivesocial change. Behind them stand their Trustees, who have the ultimate responsibility forrunning them.

You are probably reading this because you have just become, or are about to become, aTrustee. If so, we welcome you and congratulate you. Your skills and energy will help to makea difference to your chosen cause and charity. You will become responsible for the charity’smission, for its property, finances and the employment of any staff or volunteers. Withoutgood and committed Trustees, no charity can hope to succeed.

Being a Trustee can be hard work and in most cases it is unpaid. But by contributing youshould also gain. Trusteeship should be rewarding, providing many opportunities for personaldevelopment. As you give your skills to the running of your charity, you will at the sametime gather new skills and experience.

For instance, you will need to plan the strategic future of the charity and its work. You willneed to take the lead in developing and managing staff and volunteers – for most charities,their most important resource. You may also need to become involved in policy decisionswithin the charity, in the local community, regionally or nationally. Innovation, problem-solving and representing the charity in public may also be needed.

You will of course be joining a team of Trustees. To be effective, the team will need a rangeof people with a good mix of skills. It will also be diverse, with people who understand theneeds to be served, and others with business and management experience. This should alsobe positive – you will be meeting and working with new people with different backgrounds,and from different walks of life.

So we would like to wish you well as a Trustee, and hope that you will gain real satisfactionfrom making a contribution to society. The Charity Commission exists to regulate charities, andprotect their reputation. But we are also here to help and advise you and your colleagues.

As you read this booklet, you will find out more about your new responsibilities, and alsoabout how we and other organisations can assist and support you. Together we can helpmake the world a better place.

Geraldine Peacock Chairman

Andrew Hind Chief Executive

A message from the Chairman and the Chief Executive of the Charity Commissionto charity Trustees.

AForeword

What are charities?Charities are organisations set up for the benefit of the community. They enjoy some tax advantages from the government but theycannot trade for profit. To qualify as a charity,an organisation has to meet strict conditionsabout its overall purposes, also referred to as itsobjects. The organisation also has to be set upwith a constitution or rules which meet certainconditions. These rules are usually referred to as a charity’s governing document.

Some charities are set up to give direct help,advice, grants or support to people in variouskinds of need, for instance older people, or thosewith a particular medical condition. Charities arealso set up to carry out research, provide trainingor education, or to focus on meeting the widerneeds of a particular deprived area. And somecharities exist mainly to support other charities,by giving grants and other assistance to them.

Several kinds of organisation can qualify as a charity. For instance, some charities arealso registered companies, while others aretrusts. Some charities are also set up by speciallegislation. All are subject to the general principlesof charity law.

Most charities are small local organisations, but some are large national operations withhousehold names, such as Help The Aged orOxfam. Charities receive their money in variousways, such as donations from the public, paymentfor services provided, government grants and legacies.

Role of the TrusteesCharity Trustees are the people who serve onthe governing body of a charity. They may beknown as Trustees, Directors, Board Members,Governors or Committee Members. CharityTrustees are responsible for controlling themanagement and administration of a charity.

Their responsibilities and duties are summarisedon the next page. The great majority of Trusteesserve as volunteers, and receive no payment fortheir work.

Charity Trustees come from all walks of life, andare united by their wish to create positive changein society. Most people are eligible to serve as Trustees. The work of a Trustee should berewarding and enjoyable, and an opportunity toserve the community while learning new skills.

Role of the Charity CommissionThe Charity Commission is the independentregulator of charities in England and Wales. Ourjob as regulator is to work closely with charitiesto ensure that they are accountable, well run andmeet their legal obligations in order to promotepublic trust and confidence. Most charities mustregister with the Commission, although somespecial types of charity do not have to register.There are some 190,000 registered charities inEngland and Wales. In Scotland the frameworkis different, and the Commission does notregulate Scottish charities.

The Commission provides a wide range of adviceand guidance to charities and their Trustees,and can often help with problems. Registeredcharities with an annual income or expenditureover £10,000 must provide annual informationand accounts to the Commission. The Commissionhas wide powers to intervene in the affairs of acharity where things have gone wrong.

More information about the Commissiontogether with a range of guidance for charitiescan be found on our websitewww.charitycommission.gov.uk, or by ringingour contact line 0870 333 0123.

This page sets out an overall description of the framework for charities, Trusteesand the Charity Commission. It is not a legal document, but an overall summaryof the position, written in everyday language.

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BThe charity framework in brief

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CIntroduction

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C1. What is this guidance about?We are often asked to explain what is expectedof someone who is appointed to act as acharity Trustee. To be a Trustee requires time,understanding and effort. It is also a rewardingopportunity to serve the community anddevelop personal skills. This guidance answerssome of the more common questions and setsout briefly the duties of Trustees.

C2. ‘Must’ and ‘should’: what we meanIn this booklet, where we use ‘must’, we mean it is a specific legal or regulatory requirementaffecting Trustees or a charity. Trustees mustcomply with these requirements. To help youeasily identify those sections which contain a legalor regulatory requirement we have used the symbol next to the short answer in that section.

We use ‘should’ for items we regard as minimumgood practice, but for which there is no specificlegal requirement. Trustees should follow thegood practice guidance unless there’s a goodreason not to.

We also offer less formal advice andrecommendations that Trustees may findhelpful in the management of their charity.

C3. Previous guidanceThis booklet replaces the previous‘Responsibilities of Charity Trustees’. It is acomplete rewrite in a new format. If you arefamiliar with the earlier version, please readthis as a way of refreshing your knowledge of Trustee responsibilities.

C4. Scope of this bookletThis booklet covers a range of key areas aboutthe work of charities and their Trustees. Sometopics are complex and governed by differentlaws and regulations depending on the kind ofcharity. You should not rely on this booklet tobe an accurate or full description of legal mattersaffecting your charity. It provides a generalintroduction and overview, and highlights areaswhere you may need further advice from us orfrom your charity’s legal advisers.

C5. Using this bookletThe structure of this guidance follows the mainheadings used in the next section, ‘Trusteeduties at a glance’. Under each heading, we aska selection of the relevant questions that newor existing Trustees may raise about their duties.Generally we give a concise summary answer(‘The short answer’), and then give morebackground (‘In more detail’).

C6. Other sources of help and adviceThere are many resources which trustees can useto help them. We encourage trustees to makeuse of the expertise of relevant organisations to help them run their charities as effectively as possible.

Contact details for all the organisations mentionedin this guidance, with a brief description of whatthey do, can be found in section J.

C7. Some technical terms usedAlthough we have tried to write this booklet ineveryday language, we have had to usetechnical terms in places. This list explains someof them:

Custodian Trustee: A custodian Trustee is acorporation appointed to have the custody, asdistinct from the management, of trust property(exceptions are the Public Trustee, the TreasurySolicitor and the Official Custodian, the onlyindividuals able to act as custodian trustees.)Where a custodian Trustee is appointed to holdproperty of a charity, the administration of thecharity is left in the hands of the charity trustees.A custodian trustee is not a charity Trustee.

Holding Trustee: Holding Trustees areindividuals appointed to hold the property ofthe charity. They can only act on the lawfulinstructions of the charity Trustees and inaccordance with any provisions contained in thegoverning document.

Governing document: A legal document setting out the charity’s purposes and, usually,how it is to be administered. It may be a trustdeed, constitution, memorandum and articles of association, will, conveyance, Royal Charter,Scheme of the Commissioners, or other formal document.

Incorporated charity: A charity which is also a company or has a similar legal status as acorporate entity in law. See section E2 for more detail.

Nominee: An individual or corporate body,normally appointed by the Trustees, whosefunction is to hold the legal title to the charity’sproperty or investments on behalf of theTrustees. Nominees have no role in the charity’smanagement. They must act on the instructionsof the Trustees, unless they are told to dosomething that is in breach of trust.

Permanent endowment: The property of the charity (e.g. land, buildings, investments or cash) which the Trustees may not spend as if it were income. It must be held permanently,sometimes to be used in furthering thecharity’s purposes, sometimes to produce anincome for the charity. Trustees cannot normallyspend or dispose of permanent endowmentwithout our authority.

Property: Includes not only land and buildingsbut also investments, cash and other assets.

Unincorporated charity: This may be either a trust or an unincorporated association. See section E2 for more detail.

Quorum: The minimum number of Trustees whomust be present for the meeting of the Trusteesto be properly constituted. The governingdocument may specify this.

Secretary: An officer of a charity. May be aTrustee, employee or other agent of the charity.

Company Secretary: An officer of a charitablecompany with duties set out in company law to ensure compliance with the charity’s owngoverning document and various legal matters.

The 1993 Act: This is the Charities Act 1993.

The 2000 Act: This is the Trustee Act 2000,which sets out the main duties and powers ofthe Trustees of unincorporated charities.

Scheme: A legal document made by theCommission, normally under section 16 of the1993 Act, used to change almost any aspect ofa charity’s purposes or administrative provisions.

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DTrustee duties at a glance

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Trustees and their responsibilitiesCharity Trustees are the people who serve onthe governing body of a charity. They may beknown as Trustees, Directors, Board Members,Governors or Committee Members. The principlesand main duties are the same in all cases.

(1) Trustees have and must accept ultimateresponsibility for directing the affairs of a charity, and ensuring that it is solvent,well-run, and delivering the charitableoutcomes for which it has been set up

Compliance – Trustees must: (2) ensure that the charity complies with

charity law, and with the requirements of the Charity Commission as regulator; inparticular ensure that the charity preparesreports on what it has achieved and annualreturns and accounts as required by law

(3) ensure that the charity does not breachany of the requirements or rules set out inits governing document and that it remainstrue to the charitable purpose and objectsset out there

(4) comply with the requirements of otherlegislation and other regulators (if any)which govern the activities of the charity

(5) act with integrity, and avoid any personalconflicts of interest or misuse of charityfunds or assets

Duty of prudence – Trustees must: (6) ensure that the charity is and will

remain solvent

(7) use charitable funds and assets wisely, andonly in furtherance of the charity’s objects

(8) avoid undertaking activities that mightplace the charity’s endowment, funds,assets or reputation at undue risk

(9) take special care when investing the fundsof the charity, or borrowing funds for thecharity to use

Duty of care – Trustees must: (10) use reasonable care and skill in their work

as Trustees, using their personal skills andexperience as needed to ensure that thecharity is well-run and efficient

(11) consider getting external professionaladvice on all matters where there may bematerial risk to the charity, or where theTrustees may be in breach of their duties

If things go wrongThe Charity Commission offers information andadvice to charities on both legal requirementsand best practice to help them operate aseffectively as possible and to prevent problemsarising. In the few cases where serious problemshave occurred we have wide powers to lookinto them and put things right. Trustees mayalso be personally liable for any debts or lossesthat the charity faces as a result. This willdepend on the circumstances and the type ofgoverning document for the charity. However,personal liability of this kind is rare, and Trusteeswho have followed the requirements on thispage will generally be protected.

This page summarises the main duties and responsibilities of charity Trustees.Again, it is not a legal document, but sets out the legal principles in everydaylanguage. The headings on this page are also used for sections of the moredetailed guidance that follows.

Charity Trustees are the people who serve on the governing body of a charity.They may be known as Trustees, Directors, Board Members, Governors orCommittee Members. The principles and main duties are the same in all cases.

Trustees have, and must accept, ultimate responsibility for directing the affairsof a charity, and ensuring that it is solvent, well-run, and meeting the needsfor which it has been set up.

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E1. What should I do before I become a Trustee?

The short answer

You should take all reasonable steps to findout as much as you can about the charity,and about what will be expected of you asa Trustee.

In more detail

Finding out more: Before you become a Trustee,you should learn as much as you can about thecharity, and what being a Trustee will mean foryou. For instance, for an existing larger charity,we advise you to read annual reports, importantpolicies and the annual accounts; we also advisethat you meet existing Trustees, senior staff andperhaps some of the people who benefit fromthe charity’s work. Some charities may alsoinvite you to sit in on a Trustees’ meeting as anobserver before you formally join. You maywish to find out what training and support thecharity offers its Trustees.

The governing document: You should also geta copy of the charity’s governing document, andread it. It will probably be a dry legal document,but it is the charity’s main constitutional document,and governs key aspects of the charity’s work.If it isn’t clear what it means, then one of theexisting Trustees or the charity’s Secretaryshould explain it to you.

E2. Trustees and directors – what’sthe difference?

The short answer

Although there are many names forTrustees, their central responsibilities arethe same in all cases. However, there aretwo main types of charity – unincorporatedand incorporated. The exact legal positionof Trustees is slightly different in each.

In more detail

‘Unincorporated charities’: These may be ‘trusts’or ‘associations’. Their governing document willusually be a trust deed or a constitution or ascheme of the Charity Commission. In anunincorporated charity, the property of the charityis usually held by the Trustees or their nominees.

‘Incorporated charities’: Most of these arecharitable companies registered with CompaniesHouse as well as the Charity Commission. Here,the company is a legal entity in its own right,and the Trustees are the directors of thecompany. You can get more information aboutthe role and responsibilities of companydirectors from Companies House. Contact detailsfor Companies House are in the FurtherInformation section. There are also other typesof special incorporated charities eg charitiesincorporated by Royal Charter or by statute.These are not regulated by Companies House.

Your position: Before you become a Trustee, youshould find out whether your charity is incorporatedor not, as this will affect your legal position andresponsibilities. In this guidance we have statedwhere differences occur, but have not describedthem in detail. You will find more in our otherpublications on particular subjects.

ETrustees and their responsibilities

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E3. Am I eligible to become a Trustee?

The short answer

Most people over 18 years of age canbecome Trustees, but a few are not eligible.People under 18 can be Trustees of anincorporated charity, but cannot be Trusteesof an unincorporated charity.

In more detail

Ineligible people: Those who have already beendisqualified as company directors and existingemployees of the charity are some of the peoplewho cannot usually become Trustees. In somecases, people who receive benefits from thecharity may also be ineligible. Full details are in our booklets Recruitment, Selection andAppointment of Charity Trustees (CC30) andUsers on Board: Beneficiaries who becomeTrustees (CC24).

E4. Who appoints new Trustees?

The short answer

Usually, the charity’s governing documentsets out how Trustees are to be appointed –this varies according to the particular charity.In other cases the position can be morecomplicated, and the Trustees may need tocontact us to help make a new appointment.All Trustees, however appointed, must actin the charity’s best interests, and must notrepresent the interests of any outsideorganisation or their own personal interests.

In more detail

Appointment methods: In many cases thecharity’s governing document says how Trusteesare to be appointed. Often it may say that somepeople are to be Trustees because of an officewhich they hold (known as ex officio Trustees);common examples are the mayor of a town or the head teacher of a school. Sometimes anamed person or organisation is given the rightto appoint new Trustees. For an organisationwith a wider membership, the members usuallyappoint some or all of the Trustees in an annual election.

Existing Trustees: If the governing documentdoes not say anything about another method ofappointment, then the existing Trustees of anunincorporated charity may appoint newTrustees. You must follow the procedure set outin the governing document where possible.

If there are problems: If it is not possible toappoint new Trustees, for example because thereis no person with the right to appoint them, thecharity must tell us. We have the power to appointnew Trustees in those circumstances. Again,detailed information is in Recruitment, Selectionand Appointment of Charity Trustees (CC30).

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E5. How long does theappointment of a Trustee last?

The short answer

If the governing document does not specify the length of service of a Trustee,the appointment continues until the Trusteedies, resigns or is removed from office.

In more detail

Set terms: In some cases the governingdocument will say that Trustees are to serve fora given period, usually a set number of years.We regard having a set term for trusteeship asbest practice.

Reappointment: A Trustee whose term of office has expired can be appointed for a furtherterm of office, unless the governing documentprohibits it. This should be checked before any reappointment.

E6. Can a Trustee resign?

The short answer

Yes – it is usually straightforward for aTrustee to resign. But in some situations,especially with unincorporated charities, it is important to check the charity’sgoverning document carefully. Sometimeslegal advice will be needed to ensure thatthings are done properly.

In more detail

Incorporated charities: It is generallystraightforward for a Trustee of an incorporatedcharity to resign, unless the number of Trusteeswould then drop below the minimum set out inthe governing document. In such cases, a newTrustee must first be appointed to replace theoutgoing one. In all cases the charity shouldcheck the terms of the governing document.

Unincorporated charities: In the case of anunincorporated charity, the situation can be morecomplicated. As above, any resignation must behandled as set out in the governing document.If the governing document does not say anythingabout this, a legal framework is set out (in the‘Trustee Act 1925’), for how Trustees may dealwith the situation. Trustees should get properadvice to ensure they act correctly.

Title deeds to land: If the resigning Trustee’sname appears on the title deeds to land ownedby the charity, then this must be changed,following a set legal procedure. Again, Trusteesshould obtain proper advice to ensure this isdone properly.

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E7. Can Trustees delegate theirresponsibilities?

The short answer

Trustees can generally delegate certainpowers to agents or employees, but willand must always retain the ultimateresponsibility for running the charity.

In more detail

Delegation powers: Trustees always have theultimate responsibility for running their charity.But they generally have the power to delegatecertain powers to agents, subject to theirgoverning document, and any relevant legislation.The Trustee Act 2000 says that Trustees ofunincorporated charities can delegate:

• carrying out a decision that the Trustees have taken;

• the investment of assets, including landsubject to the trust;

• raising funds for the trust other than by theprofits of trade which is an integral part ofcarrying out the trust’s charitable purposes; or

• any other function prescribed by an ordermade by the relevant Secretary of State.

Dealing with third parties: Someone acting as a delegate or agent of the Trustees shouldalways make clear in dealings with third partiesthat they are acting in that capacity (particularlyif they are not an employee of the charity), andshould always record in writing what was agreedin the conversation.

E8. How do Trustees makedecisions?

The short answer

All decisions by the Trustees concerning acharity are taken by all the Trustees, actingcollectively and as a team. However, thedecisions need not be unanimous; a majoritydecision is sufficient.

In more detail

Collective responsibility: Subject to any power of delegation there is a general rule thatTrustees must take personal responsibility fortheir decisions, and that all decisions concerningthe charity must be taken by the Trusteesacting together.

Setting up groups or committees: Trustees canalways invite some of their number to look intoparticular matters and make recommendations.The decision whether or not to act on therecommendations is for the Trustees to taketogether. In some cases the governing documentof a charity may permit the Trustees to set upcommittees with delegated powers to carry outparticular functions.

Delegating to employees: The Trustees of somecharities may need to delegate decisions onday-to-day management matters to employees.In these cases the scope of the authority shouldbe clearly laid down in writing and instructionsgiven for decisions on important matters to bereported to the Trustees. Trustees should establishproper reporting procedures and clear lines of accountability. Information and guidance for Trustees who employ staff is provided by anumber of organisations, including the NationalCouncil for Voluntary Organisations (NCVO) andthe National Association of Councils for VoluntaryService (NACVS).

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E9. What do the Chair andTreasurer do?

The short answer

Some Trustees are known as ‘officers’ andhave special responsibilities. These includethe Chair, Treasurer, and in some casesthere may also be other designated officers.

In more detail

Special responsibilities: The Treasurer and theChair of the charity will have wider responsibilitiesthan other Trustees. For instance, the Treasurerwill ensure that proper accounts are kept, andhelp set financial and investment policies. TheChair, as well as helping to plan and chair Trusteemeetings, may also be the link between theTrustees and the employees and representingthe charity at appropriate events. However,when it comes to making decisions about thecharity, the Trustees must take them together.

A number of organisations, including theInstitute of Chartered Secretaries Administrators(ICSA), provide model job descriptions for Chairsand Treasurers.

E10. Can a charity’s property be heldby someone other than the Trustees?

The short answer

The Trustees of unincorporated charitiesmay find it convenient for the title to landowned by the charity to be held by theOfficial Custodian for Charities or by aCustodian Trustee or a Holding Trustee.Trustees also have a power to appoint anominee to hold the title. Whether andhow they do this depends on the charity’sgoverning document and the law.

In more detail

Reasons for appointing a corporate body to holdtitle: If the Trustees hold the title to the charity’sproperty this can lead to practical difficulties,particularly where the Trustees change regularly. It can be more convenient to hold the propertytitles in the name of a corporate body, whoseidentity never or rarely changes. This must bedone only with proper legal authority and Trusteesshould seek legal advice, especially before doingso for the first

Making the appointment: To appoint a corporatebody in this way, a charity must follow its owngoverning document, and also comply withrelevant legislation. Three Acts of Parliamentapply in different situations (the Public TrusteeAct 1906, the Charities Act 1993, and theTrustee Act 2000). We may also give powers toappoint nominees. You can get more details inAppointing Nominees and Custodians: Guidanceunder S.19(4) of the Trustee Act 2000 (CC42).

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FCompliance

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F1. Do all Trustees have to followthe same set of principles?

The short answer

The principles of trusteeship are set out by law for unincorporated charities. For incorporated charities, the generalprinciples are similar, but will depend onthe charity’s governing document and thelaw affecting corporations.

In more detail

The legal position: The Trustee Act 2000defines some of the key statutory powers andduties of Trustees of unincorporated charities. Italso gives such Trustees the powers they needto administer their charity effectively. If you aresuch a Trustee, you should find out more aboutthe Act, and how it applies to your charity.Further guidance on the Trustee Act 2000 is onthe Operational Guidance page on our websitewww.charitycommission.gov.uk

Incorporated charities: The 2000 Act does not apply to incorporated charities. But wherean incorporated charity is itself a Trustee of anunincorporated charity, then the Act will applyto its actions as a Trustee.

Trustees must:

• ensure that the charity complies with charity law, and with the requirementsof the Charity Commission as regulator; in particular ensure that the charityprepares reports, annual returns and accounts as required by law

• ensure that the charity does not breach any of the requirements or rules setout in its governing document and remains true to the charitable purposeand objects set out there

• comply with the requirements of other legislation and regulators which governthe activities of the charity

• act with integrity, and avoid any personal conflicts of interest or misuse ofcharity funds or assets

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F2. Can Trustees be paid for their duties?

The short answer

Generally, no. Most Trustees are unpaid, and must not benefit in any way from theirconnection with the charity. There are limitedexceptions to this rule.

In more detail

Prohibited benefits: Trustees are not entitled toreceive any payment out of the charity’s fundsother than reasonable and necessary out-of-pocketexpenses, such as the cost of travel to attendTrustee meetings. Additionally, they must notbenefit, either directly or indirectly, from thecharity by, for instance:

• taking a lease of the charity’s property;

• borrowing money from the charity; or

• making contracts to do business with the charity.

When Trustees abuse their position: This is alegal rule and any Trustee who breaks it mayhave to make good any loss that results to thecharity out of their own pocket. Even if there isno loss, a Trustee who makes a profit frombreaking the rule may have to pay the amountof any profit to the charity.

Exceptions: There is an exception to this rulewhere the governing document explicitly allowspayment to Trustees, and/or allows them to dobusiness with the charity. Any personal benefitmust be strictly confined to the terms of thegoverning document. In certain circumstances,we have the power to authorise a transactionbetween a charity and a Trustee personally, wherethe Trustees can show that there are clearadvantages to the charity. You can get moreinformation in Payment of Trustees (CC11).

In line with the principles of proportionality setout in our publication The Charity Commissionand Regulation, there are simplified proceduresto allow payments totalling less than £1,000 ayear to a trustee for providing a service to thecharity. You can get details in our guidancePayment of Trustees (OG92 B3), available onour website www.charitycommission.gov.uk

F3. Can a Trustee be employed by the charity?

The short answer

Generally, no because trustees must notgain from their position. Again, there arelimited exceptions to this rule.

In more detail

The legal position: Generally, a Trustee cannotbecome an employee of their charity nor can anemployee become a Trustee. The exceptions are where the governing document of the charityexplicitly authorises it, or if permission has beengiven by us or a court of law.

When Trustees abuse their position: This is alegal rule and a Trustee who breaks it may haveto repay to the charity any benefits they havereceived, such as salary. The rule still applies evenwhere the Trustee has resigned as a Trustee,before or after taking up employment.

The exception: The only instance in whichspecial permission may not be needed is wherethe charity can show that the Trustee has notobtained the employment by reason of being aTrustee and there is no ongoing conflict of interest.This would mean that the Trustee concerned:

• had no significant involvement with thecharity’s decision to create or retain the post,or with any material aspect of the recruitmentprocess; and

• had resigned as a Trustee to apply for the postin advance of a post being advertised publiclyin a fair and open competition.

Seeking advice: If in any doubt, a charityshould approach us or a legal adviser for adviceat an early stage.

F4. Must charities register with the Charity Commission?

The short answer

Generally, yes. Most charities must register.There are some exceptions to this rule forspecial classes of charity. Once registered,charities must comply with our requirements.

In more detail

The law says: The 1993 Charities Act requiresTrustees to register charities in England and Waleswith us and to give any information needed forthe purposes of registration. Any charity whichhas permanent endowment, or an income fromall sources exceeding £1,000 a year, or whichuses or occupies land for its own purposes, isrequired to register. Some special classes of charityare free from the requirement to register. You canget more details in Registering as a Charity (CC21).

Charity status: Once a charity is registered, thelaw says it should generally be accepted as acharity by outside bodies. This may well help inobtaining tax and rating relief or in obtaininggrants from other charities.

Letterheads etc: Every registered charity withan income over £10,000 in its last financial yearmust state that it is a registered charity on anyappeal documents and on many of its financialdocuments, such as cheques, invoices and receipts.It is not a requirement to state the charity’sregistration number, but many charities do so.

Keeping us informed: Once a charity has beenregistered, Trustees must tell us about any changesto the details that appear on the Central Registerof Charities, such as the name or purposes ofthe charity or the name or address of the charity’scorrespondent, or if the charity ceases to existor operate.

F5. Do Trustees have to keep accounts?

The short answer

Yes. All charities must prepare annualaccounts. Different rules apply to differentsizes and types of charity. Preparing accountsis of course only one part of proper financialplanning and control.

In more detail

The legal position: There are legal requirements(in the 1993 Act and associated regulations) forcharities, relating to:

• maintenance and retention of accounting records;

• preparation of charity accounts and annual reports;

• audit or independent examination of accounts;

• submission of accounts, annual reports andannual returns to us; and

• availability of accounts to the public.

Financial thresholds: How far any individualcharity must comply with these requirementsdepends on the level of gross income and/ortotal expenditure. Trustees must familiarisethemselves with the appropriate requirements.Registered charities with gross income or totalexpenditure of over £10,000 per year must submittheir accounts to us annually, within 10 monthsof the end of the relevant financial year.

Non-submission of accounts: If Trustees fail tosubmit their accounts and annual return to uson time, this could lead to us taking actionagainst the Trustees. This action could includeconducting an investigation into the charity orpublishing the charity’s details on our websiteas defaulting in the submission of annualaccounts and returns.

Incorporated charities: Different accounting rulesapply to charities that are companies. Furtherinformation is available from Companies House.

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F6. Why are accounts and a report necessary?

The short answer

Because they are a central part of theaccountability of charities to funders, regulatorsand the wider public.

In more detail

Accountability and stewardship: The annual reportand accounts are the primary means throughwhich Trustees report on their stewardship oftheir charity and show public accountability. Thetwo documents form a package and should besent out together. The accounts provide financialinformation as to how resources are obtainedand used and about the financial situation of thecharity. The annual report should explain whatthe charity is trying to do, how it is going aboutit, and whether it has achieved its objectives. Italso provides an opportunity to explain the figuresin the accounts, such as fundraising costs andtheir effectiveness.

F7. What guidance is there about accounts?

The short answer

There is a good range of available guidancefrom us and other bodies.

In more detail

Our guidance: We provide a range of accountingguidance to help Trustees prepare their annualreport and accounts. All are available on ourwebsite or from our Contact Centre on 0870333 0123. We recommend you start by readingCharity Accounts: The framework (CC61).

Smaller charities: We also provide two accountspacks, aimed at smaller charities and designedto fulfil all legal requirements when completed.

• Receipts and Payments Accounts Pack (CC64);and

• Accruals Accounts Pack (CC65).

The SORP: In addition, there is the ‘Statementof Recommended Practice, Accounting andReporting by Charities’ – in effect regulationsabout how accounts should be prepared. This isusually referred to as SORP 2005 and is availablefree from our websitewww.charitycommission.gov.ukor copies can be ordered from the publishersCCH at £15 per copy. To order call CCH on 0870 777 2906 (between 8.30am and 5.30pmweekdays) or email their customer services,quoting product code CCSORP, atcustomerservices@cch.co.uk. Alternatively orders can be placed online atwww.cch.co.uk/product319.

All charities should follow SORP 2005 (unless a more specialist SORP applies), orprovide a clear explanation of the reasons for any departure from it.

F8. Do charity accounts needexternal audit or scrutiny?

The short answer

All charities with income or expenditure ofmore than £10,000 must have theiraccounts scrutinised by “an independentperson”. Larger charities will need a fullexternal audit. Charities that are companiesmust comply with company law.

In more detail

Deciding the requirements: Whether and howthe accounts of a particular charity need externalscrutiny must take into account statutoryrequirements and any provisions in the charity’sgoverning document. For further informationsee Charity Accounts: The framework (CC61).You may also ring our Contact Centre for adviceon 0870 333 0123.

Requirements in the governing document: Thegoverning document of a charity can imposeaccounts scrutiny requirements which are morestringent than the statutory ones; in such casesTrustees may be able to amend the governingdocument in line with statutory requirements,and should contact us for advice in suchcircumstances. Statutory requirements mustalways take precedence over provisions in thegoverning document.

Independent person: In general statutoryrequirements mean that all charities with anincome or expenditure over £10,000 must havetheir accounts scrutinised by an “independentperson”. This can be by independent examinationor an audit by a registered auditor. To be“independent” the person concerned should not be:

• a Trustee;

• involved in the administration of the charity;

• a major donor or beneficiary; or

• a close relative, business partner or employeeof any of the above.

External audit: If a charity’s income or expenditureexceeds £250,000 in the current year or eitherof the two preceding years, the accounts mustbe audited by a registered auditor.

Incorporated charities: Different rules apply tocharities which are companies. Further informationcan be obtained from Companies House.

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F9. What are charity Trustees’duties in relation to fundraising?

The short answer

Trustees must ensure that any fundraisingactivity carried out by, or on behalf of, theircharity is properly undertaken, and that allfunds collected are properly accounted for.

In more detail

The legal position: Where Trustees allow oremploy people to undertake fundraising on theirbehalf, all funds raised should be paid into a bankaccount in the charity’s name before deduction ofthe fundraiser’s expenses. In certain circumstancesthis is a legal requirement. Trustees must always:

• ensure that any appeal properly describeswhat donations from the public will be usedfor; and

• ensure that where professional fundraisers areemployed as agents for the charity, a propercontract is drawn up.

Good practice: In addition to these legalrequirements, Trustees should always:

• insist on approving both the fundraising methodsand any appeal literature that will be used ontheir behalf;

• be prepared to be open and honest about thecosts of such an appeal if asked; and

• explain in their annual report the effectivenessof fundraising activities to explain the figuresgiven in the accounts.

More information: Charities and Fundraising(CC20) and Charities and Commercial Partners(RS2) explain Trustees’ duties when raisingfunds in more detail.

F10. What if the charity’s objectsno longer serve a useful purpose?

The short answer

If a charity’s objects are no longer relevantthere are ways of changing them. Wherecharities don’t have the powers themselvesto make the changes, they must contact us.

In more detail

Regular review: Trustees should regularly reviewwhether their charity is still meeting a usefulpurpose. Sometimes a charity can become moreeffective by changing the way it works. In othercases it may need to change the objects orprovisions (or both) in its governing document.

Amending the governing document: Thegoverning document of most unincorporatedcharities contains a power enabling its amendment.In some cases the charity can amend the objectswithout our intervention, subject to what is saidin the governing document and the general law;in many others any amendment will require ourwritten consent. In either case, any new objectsshould be kept close to the charity’s originalintention and must remain legally charitable.

Contacting the Commission: Any Trusteesintending to make or propose an alteration arestrongly advised to seek our views beforehand.If the charity’s governing document has noamendment provision, or one that does notallow the objects to be amended, Trusteesshould contact us for help.

Incorporated charities: Section 64 of the 1993Act requires a charitable company to seek ourprior consent to any amendment of the company’sobjects or provisions relating to the way thecompany’s property is used.

Special procedures for small charities: Trustees ofsome small charities without proper amendmentprovisions may be able to use the special provisionsin the 1993 Act to amend the trusts of the charity.You can find details in Small Charities: Transfer ofProperty, Alteration of Trusts, Expenditure ofCapital (CC44).

After the objects have been changed: Whetheror not our prior authorisation is needed Trusteesmust give us details of any change to theobjects of the charity.

F11. With what other laws andregulations must Trustees comply?

The short answer

Like all organisations, charities are subjectto the law of the land. Aspects of their workmay be regulated by other governmentbodies. Trustees need to be aware of theserequirements, and must ensure that thecharity complies.

In more detail

Some examples: The exact answer will depend on the type of charity, and the activitiesit undertakes. The following list gives examplesof key areas that may apply to your charity:

• For charities that are companies, company law.

• For charities employing staff, employment law.

• Health and safety legislation, for instance asrelating to staff, volunteers and beneficiaries.

• Legislation concerning racial equality,disability discrimination, equal opportunitiesand similar areas.

• For charities providing registered care, therequirements of the Commission for SocialCare Inspection.

• For charities working with children or othervulnerable people, the range of legislationprotecting those clients.

• For charities that are housing associations, the requirements of the Housing Corporation.

External advice: We emphasise that this is not a full list, and that many other regulators andInspectorates may be involved with certaincharities. Trustees may need to seek externaladvice to be sure they are aware of all theircompliance responsibilities.

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GDuty of prudence

G1. What are the financial duties of Trustees?

The short answer

The Trustees of every charity must ensurethat its finances are used appropriately,prudently, lawfully and in accordance withits objects.

In more detail

Financial management: This could includemaking decisions about fundraising, the provisionof services, and investments. This is an importantduty in any charity. Whatever the size of thecapital and income of the charity, proper financialmanagement is the key to the success of thecharity and its ability to help its beneficiaries.

Trustees must:

• ensure the charity is and will remain solvent

• use charitable funds and assets wisely, and only in furtherance of thecharity’s objects

• avoid undertaking activities that might place the charity’s endowment, funds,assets or reputation at undue risk

• take special care when investing the charity’s funds or borrowing funds for itto use

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G2. What are the principles for Trustees?

The short answer

Trustees must act reasonably and prudentlyin all matters relating to the charity andmust always bear in mind that their primeconcern is the charity’s interests. The charity’s income and property must be applied only for the purposes set out in the governing document.

In more detail

Fairness and objectivity: The charity’sexpenditure must be applied fairly amongpeople who are properly qualified to benefitfrom it. The Trustees of charities withpermanent endowment must maintain a fair balance between the interests of presentand future beneficiaries, for example whenselecting investments.

Accumulation of surpluses: The income of acharity must be applied for its purposes withina reasonable period of receipt, unless theTrustees have an explicit power to accumulateit. Without such a power, the Trustees shouldnot allow the charity’s income to accumulateunless they have a specific use for it in mind. If the Trustees are allowed discretion about the use of the charity’s property, but are in anydoubt about the proper use of that discretion,they should ask us for advice. You can findinformation about charities holding reserves inCharities and reserves (CC19).

Personal conduct of Trustees: Trustees must actreasonably and prudently in all matters relatingto the charity and need always to bear in mindthat their prime concern is its interests. Theymust not let any personal views or prejudicesaffect their conduct as Trustees. They mustexercise an appropriate degree of care inadministering their charity. See also Section Hconcerning the duty of care referred to in theTrustee Act 2000.

Conflict of interest: Where Trustees are requiredto make a decision that affects the personalinterests of one of the Trustees, the charity’sgoverning document may require that thatperson should not be present at any discussionor vote on the matter. Even if the governingdocument does not require this, Trustees shouldfollow this procedure as a matter of good practice.

Further information: You can find more detailsabout procedures for dealing with conflicts ofinterest in our guide to Trustees on conflicts ofinterest, which can be viewed via the Guidancefor Charities page on our websitewww.charitycommission.gov.uk

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G3. What duties do Trustees havetowards charity property?

The short answer

Trustees must always act to protectproperty owned by the charity. If a charityhas permanent endowment, particular caremust be taken to maintain its value.

In more detail

The Trustee role: Trustees are accountable forthe charity’s solvency, continuing effectivenessand the preservation of its endowments. Theymust exercise overall control over its financialaffairs. They should ensure that the way thecharity is administered is not open to abuse by unscrupulous associates or employees; andthat their systems of control are rigorous andconstantly maintained. More details and achecklist of controls is in our guidance InternalFinancial Controls for Charities (CC8).

Land and buildings: If the charity owns land orbuildings, Trustees need to know on a continuingbasis what condition it is in, that it is beingproperly used, and that adequate insurance is inplace. The Trustee Act 2000 confers a power toinsure property but it does not impose a duty todo so. However, the trusts of many charities doimpose a positive duty to insure: if Trustees failto insure property this will be a breach of trust.More details are available in our guidanceCharities and Insurance (CC49).

Cash management: Money not needed forimmediate expenditure should be invested. We recommend that if expenditure is expectedin the near future, surplus cash is deposited toearn interest. Investments need to be reviewedperiodically to ensure they remain suitable for the charity's needs. Wherever possible, wesuggest that funds are placed in a range ofinvestments so as to avoid substantial lossescaused by the failure of a single investment or institution.

Bank accounts: Trustees must follow anyrelevant clause in the charity’s governingdocument that specifies who is authorised tosign cheques. If there is no provision in thegoverning document which relates to theoperation of bank accounts, the bank mandatemust specify at least two Trustees as signatories,unless the Trustees can reasonably claim that itis necessary for employees to sign cheques toallow the charity to operate. Further guidanceon security matters related to a charity's finances,is available in our guidance Internal FinancialControls for Charities (CC8). You can also findguidance on electronic banking on the Guidancefor Trustees page on our website atwww.charitycommission.gov.uk

Protecting endowed property: In particular,Trustees need to ensure that property which ispermanent endowment is used in a way thatproduces enough money for expenditure whileat the same time safeguarding the value of theinvestment. We can offer Trustees a power touse the ‘total return approach’ to investment,which offers a more flexible approach. For moreinformation about this, see our guidanceEndowed Charities: a Total Return Approach toInvestment, on the Operational Guidance pageon our website.

Debts and money due: Trustees must ensurethat all income due to the charity is receivedand that all tax and rating relief due is claimed.

G4. What powers do charity Trusteeshave when investing funds?

The short answer

The Trustee Act 2000 gives Trustees a generalpower of investment. This allows Trusteesto place funds in any kind of investment as though they were the absolute owner of those funds: Trustees must comply withcertain conditions when using this power.The general power of investment is inaddition to any existing power, but is subjectto any restrictions and exclusions in thecharity’s governing document.

In more detail

Trustee duties: When exercising any power of investment Trustees must follow standardinvestment criteria on the suitability anddiversification of investments. They must alsoreview the investments from time to time, andtake proper advice when investing or reviewingthose investments. They must also comply with the duty of care except, in the case of a constitutional power of investment, where it is excluded.

Incorporated charities: The governingdocuments of charitable companies will usuallygive comparable powers of investment; theycan be changed where they do not.

Further information: You can find more guidanceon selecting and managing the charity’sinvestments in Investment of Charitable Funds:Basic Principles (CC14).

G5. What are Common InvestmentFunds and Common Deposit Funds?

The short answer

Common Investment Funds and CommonDeposit Funds are collective investmentschemes which are open only to charities inEngland and Wales.

In more detail

Common Investment Funds: A CommonInvestment Fund (CIF) is a type of collectiveinvestment scheme in which money contributedto the scheme by investors is pooled and theoperator of the scheme invests the money in a range of investments in accordance with thepublished policy of the scheme. They are similarto unit trusts, and provide specialised investmentmanagement. There are a number of CIFs, eachof which has different objectives. They can takeinvestments only from charities and may havedifferent requirements about minimum investments.Trustees of investing charities will still beresponsible for reviewing their investmentsperiodically and will still need to do so toensure that investment in a particular CIFcontinues to be appropriate.

Common Deposit Funds: Similar to CIFs, butdealing with cash deposits rather than investments,common deposit funds (CDFs) enable charitiesto deposit their money collectively, with abetter rate of interest than if investing alone.You can find more information on CIFs on theGuidance for charities page on our websitewww.charitycommission.gov.uk

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G6. Can Trustees buy land?

The short answer

Yes – Trustees have a general power to buyland (this term includes buildings).

In more detail

The legal position: The Trustee Act 2000 andthe Trusts of Land and Appointment of TrusteesAct 1996 give Trustees of unincorporated charitiesthe power to acquire and manage freehold orleasehold land in the United Kingdom. The landcan be acquired as an investment, for occupationby beneficiaries, or for any other reason.

Duty of care: Trustees should remember thatthe general power to acquire land is subject tothe statutory duty of care.

Incorporated charities: The governingdocuments of charitable companies will usuallygive comparable powers to acquire land. Seealso our guidance Acquiring Land (CC33).

G7. Can Trustees sell or lease landbelonging to the charity?

The short answer

Yes. Most charities can sell land, unless it forms a part of their endowed property.There are certain requirements which theymust meet when selling a charity’s land.

In more detail

Power to sell or lease land: The governingdocuments of many charities (including mostcharitable companies) will give the Trusteespower to dispose of land. Those that lack such apower may be able to rely on statutory powersin the Trustee Act 2000 and the Trusts of Landand Appointment of Trustees Act 1996, providedthat this is consistent with the charitable trustson which the land is held.

Procedures for disposal: Before Trustees may sell, lease or otherwise dispose of land or buildings, they will normally have to follow a statutory procedure. In certain circumstances,this will require Trustees to obtain an Orderfrom us beforehand, giving consent. Trusteesconsidering the sale of charity property shouldread Disposing of Charity Land (CC28).

The requirements: Briefly, Trustees mustinstruct a qualified surveyor and must followthe advice given. Trustees must not sell land forless than the best price reasonably obtainable.To lease land for more than seven years, Trusteesmust follow the statutory procedure for sales,but there is a simpler procedure for some leasesfor seven years or less. If, in either case, Trusteesare unable to follow the statutory procedure, or they wish to sell land to a person connectedwith themselves, they must seek our prior consent.

Property subject to trusts: When the propertybeing sold or leased is subject to trusts requiringit to be used for charity’s specific purposes, the Trustees must normally give public notice of the disposal. They may also need to apply tous for a scheme to give them power to sell theproperty; this should be done before theproperty is marketed.

Sales between charities: Different considerationsmay apply to a sale by one charity to anothercharity. The trusts of the first charity may authorisethe disposal of the land to the other charity forless than the best price reasonably obtainable.

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G8. Can the charity borrow moneyon the security of its land?

The short answer

Generally, a charity can borrow money andgive a charge (i.e. a mortgage) on its landas security for the loan but its trustees mustcomply with certain conditions.

In more detail

Need for advice: Before they mortgage a charity'sproperty, Trustees must get advice from a personwith ability in, and experience of, financialmatters who has no personal interest in theproposed loan. This person can be a Trustee oremployee of the charity, and must advise onwhether the loan is necessary for the charity,whether the terms are reasonable, and whetherthe charity will be able to repay the loan onthose terms.

Unsecured borrowing: Trustees should seek advice in the same way even where the borrowing, such as a temporary overdraft, is unsecured. If Trustees do not seek advice on matters on which they are not themselvesexperts, they could be regarded as having actedimprudently. This may leave them personallyliable for the consequences.

More information: You can find more details on mortgages in Disposing of Charity Land (CC28).

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H1. What is the statutory duty of care?

The short answer

This general duty on Trustees means theymust give enough time, thought and energyto their duties as Trustees, and makereasonable use of their skills andexperience.

In more detail

The law says: The Trustee Act 2000 sets out whatit calls the "duty of care" – to exercise such careand skill as is reasonable in the circumstanceshaving particular regard to:

• any special knowledge or experience that theTrustee has or professes to have; and

• where a Trustee acts in the course of abusiness or profession, to any special knowledgeor experience that it is reasonable to expectof a person acting in the course of that kindof business or profession.

Application of duty of care: Narrowly speaking,the statutory duty of care only applies to Trusteesof unincorporated charities who are exercisingspecified powers conferred on them by the TrusteeAct 2000. It also applies when such Trusteesexercise the same type of powers derived froma source other than that Act. An example mightbe when they exercise investment powers setout in the governing document. More generally,legal precedent and good practice mean that theduty of care should be considered as applying toall aspects of Trustees’ work in making decisionsabout their charity. As noted above, Trusteesshould ensure that they know and understandhow the Trustee Act 2000 applies to them andtheir charity.

Incorporated charities: the Trustee Act 2000 doesnot apply, but the principles of general charitylaw impose similar duties and requirements onTrustee directors.

Trustees must:

• use reasonable care and skill in their work as Trustees, using their personal skillsand experience as needed to ensure that the charity is well-run and efficient

• consider getting external professional advice on all matters where there may bematerial risk to the charity, or where the Trustees may be in breach of their duties

HDuty of Care

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H2. How often do Trustees need to meet?

The short answer

They must meet as often as needed to dojustice to the affairs of the charity, and makewell-informed decisions. Trustees who donot meet often enough risk breaching theirduty of care.

In more detail

Need for regular meetings: Not every charityconducts all its business at meetings of theTrustees, but many do. If the charity does so, it cannot be administered properly unless theTrustees meet regularly. How often that needsto be will depend on the size and nature of thecharity, but requirements for meetings may beset out in the governing document.

Quorum of Trustees: The governing documentmay require a quorum for meetings of theTrustees. If so, the Trustees must ensure thattheir number does not fall below the minimumrequired for a quorum or, if it does, that it doesnot stay below that number. If there are nosuch requirements in the governing document,then the number of Trustees needs to be keptto an effective working strength. This numberwill depend on the charity’s administrativerequirements and the legal rule (if the governingdocument does not specify otherwise) that nodecision can be taken except by the agreementof all or a majority of the Trustees. Detailedguidance is in Charities and Meetings (CC48).

H3. How much time will be needed?

The short answer

This will depend entirely on the charity’ssize and activities. But many Trustees oflarger charities find that they need to givethe equivalent of about a day a month.

In more detail

Giving adequate time and energy:Being a Trustee will involve preparation for andattendance at Trustee meetings, and often alsoat other meetings and functions. It is essentialthat Trustees are able to devote enough time to these essential duties of being a Trustee. This means they should be aware of theirresponsibilities and duties and how much timethey will need to give.

H4. What else do Trustees need to think about?

The short answer

Running a charity can be complex andTrustees need to be up to date on theoperating environment for their charity. This may involve wider networking, taking uptraining opportunities, or reading the relevantnewsletters or specialist trade papers.

In more detail

Collaboration: Trustees should find out whatwork is being done by similar organisationsworking in the same area. In some cases theycan do this by joining an umbrella associationco-ordinating work in a particular field. Trusteesshould try to collaborate with other charitiesand avoid duplicating their efforts. We suggestthey also work with local authorities and otherstatutory bodies which provide services that aresimilar or complementary to the charity’s own.

NCVO’s Collaborative Working Unit providessupport and advice on all forms of collaborativeworking, from joint projects to full mergers. Youcan find detailed information about workingwith other charities in our report, CollaborativeWorking and Mergers (RS4).

Providing public services: Charities may enterinto agreements with government or localauthorities to provide public services whichthose authorities are responsible for providing.However, they must be able to meet thefollowing legal requirements:

• Trustees must only undertake activities thatare within the charity’s purposes and mustonly act in the interests of the charity and itsbeneficiaries.

• Trustees must act reasonably and makedecisions in accordance with their duty of careand duty to act prudently. This means theyshould seek full cost recovery for the servicethey provide unless this is not in thebeneficiaries’ interests.

• Trustees must also ensure that the charityremains independent.

You can find detailed information about the issues that trustees should consider whenproviding public services in the Decisions of the Commissioners area of our websitewww.charitycommission.gov.uk

Strategy and risk: Trustees are also responsiblefor setting the charity’s strategic aims, objectivesand direction. Identifying risks arising from itsactivities and managing those risks is importantin helping to ensure that the charity achievesits strategic aims and objectives. Trustees ofcharities with gross annual income in excess of£250,000 must make a statement in their annualreport as to whether they have considered themajor risks to which the charity is exposed andsystems designed to minimise those risks.Guidance on how to undertake risk managementis available via the Meeting our Requirementspage on our websitewww.charitycommission.gov.uk

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If things go wrong

The Charity Commission offers information and advice to charities to help themoperate as effectively as possible and to prevent problems arising. In the fewcases where serious problems have occurred, we have wide powers to lookinto these problems and to help resolve them. Trustees may also be personallyliable for any debts or losses that the charity faces as a result. This will dependon the circumstances and the charity’s governing document. However,personal liability of this kind rarely occurs and Trustees who have followed therequirements in this guidance will generally be protected.

I1. What are the liabilities of charity Trustees?

The short answer

As stated above, a conscientious andcommitted Trustee need have few worriesabout personal liability. But it is importantfor all Trustees to understand their position.

In more detail

The normal position: If Trustees act prudently,lawfully and in accordance with the governingdocument, then any liabilities (i.e. debts orfinancial obligations) that they incur as Trusteescan normally be met out of the charity’s resources.However, if Trustees incur liabilities or debtsthat amount in total to more than the value of the charity’s assets they may not be able to cover themselves in full out of the charity’sproperty, even if the liabilities have beenproperly incurred.

If Trustees act imprudently: If the Trustees actimprudently, or are otherwise in breach of thelaw or the governing document, the position isdifferent. Here, Trustees may be personallyresponsible for liabilities incurred by the charity,or for making good any loss to the charity. SinceTrustees act collectively in running a charity,they will usually be collectively responsible tomeet any such liability.

Our powers: We can take proceedings in court forthe recovery, from Trustees personally, of fundslost to charity as a result of a breach of trust bythe Trustees. However, there is only a smalllikelihood that Trustees will have to pay out oftheir own pocket towards a financial loss sufferedby the charity, or towards compensating a thirdparty who has suffered a financial loss as aresult of their dealings with the charity. Despitethis, we appreciate there are genuine concernsabout the risk of personal liability.

Reducing risk: We strongly recommend thatTrustees are particularly careful when enteringinto substantial contracts or borrowings toensure that the charity has the means to meetits obligations. If Trustees are clear about all thepotential risks and identifying the areas, if any,where their charity might be exposed, Trusteescan take preventive action to lessen the possibilityof personal liability. For example, we recommendthat Trustees:

IIf things go wrong

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I1. Continued

• familiarise themselves with the governingdocument;

• establish effective induction procedures for new Trustees;

• take professional advice when needed or required by statute;

• take advice from the Commission or a professional expert when unsure about their duties;

• clarify what powers they have to delegateauthority either to an agent or employees;

• implement effective internal managementand financial controls;

• find out what areas of law might affect thecharity’s activities, such as employment,health and safety, human rights and dataprotection; and

• before they enter into a contract, satisfythemselves that the charity has the resourcesto meet its part of the contract andunderstand the consequences of breachingthe contract.

Incorporated charities: Different rules apply tothe directors of charitable companies, ascompany law also applies; this confers limitedliability on Trustee company directors. Thegeneral principles of prudence are, however, thesame.

I2. Can a charity insure Trusteesagainst personal liability?

The short answer

Where it is in the interests of the charity,Trustees can be insured by their charityagainst personal liability. Where theinsurance would be a personal benefit,Trustees must firstly make sure they have permission to take out the policy.Permission will either be explicitly given inthe charity’s governing document or obtaineddirectly from the Charity Commission.

In more detail

Insurance that is not a personal benefit:Where reasonable to do so, Trustees can insurethe charity out of the charity’s funds againstliabilities to third parties arising from actsproperly undertaken in the administration ofthe charity. This is not a Trustee benefit, andexplicit authority to buy this type of insurance isnot required.

Insurance that is a personal benefit: Insuranceagainst personal liability in other circumstancesis a personal benefit to the Trustees it insures.The benefit is that the insurance removes theTrustee’s obligation to meet a potential liabilityout of their own pocket. Like any other form ofpersonal benefit for Trustees, using the charity’sfunds to buy Trustee indemnity insurance mustbe explicitly authorised, either by the governingdocument or by us.

More information: You can get more detailsabout using the charity’s funds to purchase this type of insurance via the operationalguidance page on our websitewww.charitycommisison.gov.uk and in ourguidance Charities and Insurance (CC49).

Obtaining our permission: If you wish to applyto us for authority to buy Trustee indemnityinsurance, you can get application forms,together with an information sheet, from ourContact Centre on 0870 333 0123.

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I3. Can a charity be wound up?

The short answer

In certain situations, a charity can be wound up, or its assets transferred to anothercharity. This is a complex area of law, andTrustees must ensure that they act lawfully.We can advise, and may need to use ourstatutory powers.

In more detail

The law says: A charity can only be wound up if:

• all of its property is expendable and has beendisposed of; or

• the governing document contains a dissolutionor winding-up provision; or

• section 74 or 75 of the 1993 Act applies,allowing the Trustees of some small charitiesto wind up the charity by transferring itsproperty to one or more similar charities or by spending its permanent endowment.

Full details of eligibility and procedures are givenin Small Charities: Transfer of Property, Alterationof Trusts, Expenditure of Capital (CC44).

Remaining assets: The governing documentwill normally require the assets remaining ondissolution to be passed to a charity with similarpurposes. The Trustees must closely follow theprocedure stated in the document and sendcopies of all relevant resolutions to us.

Endowed charities with no dissolution power:If a charity is permanently endowed and thegoverning document contains no power ofdissolution, the charity cannot usually be woundup unless it fulfils the eligibility requirementsfor using section 74 or 75 of the 1993 Act.

However, we have the power under the 1993Act to make a Scheme to amalgamate thecharity with another or others, if the Trusteesare satisfied that:

• their charity no longer serves a usefulpurpose; or

• the purpose for which it was originallyestablished has been fulfilled by other means;or

• an amalgamation with another charity would enable the charity to use its propertymore effectively.

Applying for a scheme: In these circumstancesthe Trustees are under a duty to apply to us fora scheme to change the charity’s purposes. Youcan find guidance on the procedure inAmending Charities Governing Documents:Orders and Schemes (CC36).

After winding up: Whenever a registered charityis wound up or ceases to operate because all itsproperty has been spent or transferred to othercharities, the Trustees must send a copy of thefinal accounts (showing a nil balance and howthe remaining assets were distributed) to us,with a request to have the charity removedfrom the Register of Charities.

Incorporated charities: Different rules apply tothe winding up of charitable companies. Furtherinformation is available from Companies House.

There are many resources that charity Trustees can use to help them carry outtheir duties. This is not a definitive list of all the sources of information available,but it offers a good overview and a useful starting point. We encourage Trusteesto make use of the wide range of organisations that can help them run theircharity as effectively as possible. You can find details of other sources ofinformation in Useful links on the home page of our websitewww.charitycommission.gov.uk

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J1. External organisationsAction with Communities in RuralEngland (ACRE)

Provides advice, training and publishes leaflets.Has a special service for the managing Trusteesof village halls. Local ACREs assist charities andvoluntary organisations in their area.

Action with Communities in Rural EnglandSomerford CourtSomerford RoadCirencesterGloucestershire GL7 1TWTel: 01285 653477E mail: acre@acre.org.ukWebsite: www.acre.org.uk

British Association of Settlements and Social Actions Centres (BASSAC)

A membership network of multi-purposecommunity organisations. Bassac represents its members at a national level and offers themstrategic support.

BASSAC33 Corsham StreetLondon N1 6DRTel: 020 7735 1075E mail: info@bassac.org.ukWebsite: www.bassac.org.uk

Charity Finance Directors’ Group (CFDG)

A membership organisation which specialises in helping charities to manage their accounting,taxation, audit and other finance related functions.

Charity Finance Directors’ Group3rd FloorDownstream Building1 London BridgeLondon SE1 9BGTel: 0845 345 3192E mail: info@cfdg.org.ukWebsite: www.cfdg.org.uk

Charity Trustee Networks (CTN)

Offers Trustees mutual support by encouragingand developing self-help Trustee networkgroups providing consultancy and mentoring.

Charity Trustee NetworksPO Box 633GodalmingSurrey GU8 5ZXTel 01428 682252E mail: info@trusteenetworks.org.ukWebsite: www.trusteenetworks.org.uk

JFurther information and advice

Charities Aid Foundation (CAF)

Provides services to facilitate tax-efficient giving,and offers covenant administration services.Carries out research and publishes informationabout voluntary sector funding.

Charities Aid Foundation25 Kings Hill AvenueKings HillWest MallingKent ME19 4TATel: 01732 520000E mail: enquiries@cafonline.orgWebsite: www.cafonline.org.uk

Community Matters

Community Matters is the nationwide federation for community associations andsimilar organisations. It supports and developsthe capacity of community organisations andrepresents them at a national level.

Community Matters12-20 Baron Street London N1 9LLTel: 020 7837 7887E mail:communitymatters@communitymatters.org.ukWebsite: www.communitymatters.org.uk

Companies House

The incorporation authority for limited companies.Also runs seminars for newly appointed directorsand company secretaries.

Companies HouseCrown WayMaindyCardiff CF14 3UZTel: 0870 3333 636E mail: enquiries@companies-house.gov.ukWebsite: www.companieshouse.gov.uk

County Voluntary Councils in Wales (CVCs)

The role of the County Voluntary Councils is to provide advice and information to localvoluntary organisations on any issue that mayaffect them. They support voluntary action bysupporting volunteering, advising on goodpractice and providing information on fundingsources and a range of other issues. They alsorepresent the voluntary sector on cross-sectorpartnerships. Contact details for all CVCs can befound on the Wales Council for Voluntary Action(WCVA) website (for details see below).

Directory of Social Change (DSC)

The Directory of Social Change is an independentsource of information and support to thevoluntary sector. It provides practical trainingcourses, conferences and seminars and publishesreference guides, handbooks and journals.

Directory of Social Change24 Stephenson WayLondon NW1 2DPTel: 08450 77 77 07E mail: info@dsc.org.ukWebsite: www.dsc.org.uk

The Institute of Chartered Secretaries and Administrators (ICSA)

The professional body for chartered secretaries.Produces best practice guides and guidance.Also assists charities looking for new Trustees.

ICSA16 Park CrescentLondon W1B 1AHTel: 020 7580 4741Fax: 020 7323 1132E mail: info@icsa.co.ukWebsite: www.icsa.org.uk

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Institute of Fundraising

The professional body which represents andsupports fundraisers. The Institute works topromote the highest standards in fundraisingpractice and management.

Institute of FundraisingPark Place12 Lawn LaneLondon SW8 1UDTel: 020 7840 1000E mail: enquiries@institute-of-fundraising.org.ukWebsite: www.institute-of-fundraising.org.uk

National Association of Councils for Voluntary Service (NACVS)

Local charities can use the NACVS website tofind their nearest Council for Voluntary Service(CVS). These Councils provide support and trainingfor local voluntary organisations on manypractical issues, including management issues,IT and volunteering.

NACVS177 Arundel StreetSheffield S1 2NUTel: 0114 278 6636E Mail: nacvs@nacvs.org.ukWebsite: www.nacvs.org.uk

The National Council for Voluntary Organisations (NCVO)

Produces a wide range of information andsupport services for those working in thevoluntary sector, including a publication oninducting and supporting Trustees.

The National Council for Voluntary Organisations Regents Wharf8 All Saints StreetLondon N1 9RLTel: 020 7713 6161Fax: 020 7713 6300Helpdesk: 08002 798 798E mail: ncvo@ncvo-vol.org.ukWebsite: www.ncvo-vol.org.uk

Wales Council for Voluntary Action(WCVA)

The voice of the voluntary sector in Wales. It represents the interests of, and campaignsfor, voluntary organisations, volunteers andcommunities in Wales. WCVA provides acomprehensive range of information, consultancy,funding, management and training services.Charities can use the WCVA website to find theirnearest County Voluntary Council (CVC).

Wales Council for Voluntary ActionBaltic HouseMount Stuart SquareCardiff BayCardiff CF10 5FHTel: 029 2043 1700Helpline: 0870 607 1666E mail: help@wcva.org.ukWebsite: www.wcva.org.uk

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J2. Key Charity Commission publicationsThe Charity Commission produces a wide rangeof publications and website guidance givinginformation and advice to charity trustees and the general public on issues relating to charitylaw, regulation and best practice. The full list of publications is on our website and in ourpublication CC1, but the list below is a selectionbased on the issues covered in this guidance.

Charity Commission Publications

CC8 Internal Financial Controls for Charities

CC11 Payment of Charity Trustees

CC14 Investment of Charitable Funds: Basic Principles

CC20 Charities and Fundraising

CC21 Registering as a Charity

CC24 Users on Board: Beneficiaries whobecome trustees

CC28 Disposing of Charity Land

CC30 Recruitment, selection and appointmentof charity trustees

CC33 Acquiring Land

CC36 Amending Charities’ GoverningDocuments: Orders and Schemes

CC42 Appointing Nominees and Custodians:Guidance under s.19(4) of the TrusteeAct 2000

CC44 Small Charities: Alteration of Trusts, Transferof property, Expenditure of Capital

CC48 Charities and Meetings

CC49 Charities and Insurance

CC61 Charity Accounts: The framework

CC64 Receipts and Payments Accounts Pack

CC65 Accrual Accounts Pack

RS2 Charities and Commercial Partners

RS4 Collaborative Working and Mergers

The Charity Commission and Regulation

SORP 2005

Website publications

Charities and Risk Management

Guidance on electronic banking

A Guide to Conflicts of Interest for Charity Trustees

To obtain copies of these or any of our publications you can:

• View and print them from our websitewww.charitycommission.gov.uk

• Order during office hours (0830 – 1800weekdays) by phoning us on 0870 333 0123;or

• Write to the Distribution Officer at Charity Commission, Woodfield House,Tangier, Taunton, Somerset TA1 4BL

To obtain copies of SORP 2005:

• View and print them from our websitewww.charitycommission.gov.uk

• Order from the publishers CCH at £15 per copy, by:

• calling them on 0870 777 2906(between 0830 – 1730 weekdays);

• emailing their customer services, quoting product code CCSORP, atcustomerservices@cch.co.uk or

– ordering online atwww.cch.co.uk/product319

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“Life’s most persistent and urgent question is:

What are you doing for others?”

Martin Luther King

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This publication can also be accessed at the CharityCommission's website: www.charitycommission.gov.uk

© Crown copyright 2005. This publication (excludingthe Royal Arms and departmental logos) may bereproduced free of charge in any format or mediumprovided that it is reproduced accurately and not usedin a misleading context. The material must beacknowledged as Crown copyright and the title of thepublication specified.

This publication is printed on paper obtained only from sustainable resources and is totally chlorine free.

Designed by bang-on.net

You can obtain large-print versionsof this publication from the CharityCommission on 0870 3330123

Charity Commission order reference: CC3 – The Essential Trustee: What you need to know. June 2005.