Good governance practices sit at the core of a charity, and regardless of a charity’s size or structure, there are four activities that help satisfy good governance, all of which benefit from the support of a company secretary: registering, record-keeping, reporting, and compliance – these areas will be explored below; but first, what is meant by governance?
Governance regarding charities: The NCVO definition
The National Council for Voluntary Organisations gives the definition of Governance as:
“The systems and processes concerned with ensuring the overall direction, effectiveness, supervision and accountability of an organisation. (The Governance of Voluntary Organisations, Cornforth 2003)”.
Indicating the importance of direction, effectiveness, supervision and accountability for the board of trustees and/or directors of a charity.
Charity governance structures
Charity is a status that derives from a body’s activities; it is not a legal form or a legal structure. There are seven legal structural types of charity, of which the most common types are:
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Charitable trust
A trust arrangement where assets are controlled by trustees for a recognised charitable purpose.
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Charitable company
A private limited company registered under the Companies Act 2006 most usually as a company limited by guarantee that qualifies for charitable status
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Charitable Incorporated Organisation
A corporate structure introduced in 2013 that is registered with and regulated by the Charity Commission.
The other four structures are an unincorporated association, an Act of Parliament charity, a Royal Charter body, and a charitable community benefit society – these structures are less common and are not discussed in this article.
The choice of legal structure is outside the scope of this article and specialist legal advice should be sought when forming or transitioning a charity; however, NCVO offers helpful guidance.
For information specific to your charity, please contact us.
Charities regulations requirements
Registered charities are regulated. For England and Wales, the Charity Commission acts as the regulator, and for Scotland, it is The Scottish Charity Regulator (OSCR).
The regulatory responsibilities of the charity commissions are set out here for the Charity Commission for England and Wales and here for the Scottish Charity Regulator.
“The commission has a statutory objective to ensure trustees comply with their legal obligations in managing charities and to promote public trust and confidence in charities more generally.
– Charity Commission (England and Wales)
The Scottish Charity Regulator will regulate in a way which builds trust and confidence in Scottish charities, holds charities to account and strengthens their ability to positively contribute to society.
– Mission statement for The Scottish Charity Regulator.”
When referencing compliance and promoting public trust and confidence, good governance practices are essential considerations for a charity and its trustees (and directors).
Do you know which regulations you need to follow? If you are unsure, contact us for more information.
Governing documents for charities
Concentrating on the three most common charity legal structures, and focusing on the requirements in England and Wales, the governing documents are:
Charitable Company
For a charitable company, the governing documents are the documents for a corporate body (i.e. a separate legal entity) stated in section 17 of the Companies Act 2006 as (a) the Articles of Association of the company, and (b) any resolutions and agreements affecting a company’s constitution (section 29). The majority of charitable companies are those limited by guarantee.
Charitable Trust
For a charitable trust, then the governing document for this unincorporated entity (i.e. no separate legal identity) is typically that which sets out the terms of the trust (e.g. a will, a deed of trust).
Charitable Incorporated Organisation
For a charitable incorporated organisation, its constitution (for which templates are available from the Charity Commission) must be registered with the Commission – a charitable incorporated organisation does not exist until it is entered into the register of charities.
Specific requirements as they relate to Scotland can be found here.
There are many considerations that occupy an organisation like a charity, and at MSP Company Secretarial we see these as four practical and inter-related mechanisms that achieve a strong governance regime and promote effective performance. These are:
- Charity registration,
- Charity record-keeping,
- Charity reporting, which together promote
- Charity compliance.
Ensuring your charity meets its governance obligations doesn’t have to be complicated. MSP Company Secretarial provides expert support, contact us today to learn more.
Registering a charity
Importantly, a charity’s governing documents set out its purpose, its form, and the administration the charity will adopt to govern itself. These documents are registrable and publicly available.
Register a charity with Companies House
A charitable company must register its articles with the registrar of companies, Companies House. As a private limited company, the charity needs to maintain statutory filings throughout its lifetime as required by the Companies Act 2006 that include its annual accounts, its directors, any decisions taken that require special member approval (i.e. special resolutions of members), and any amendments to its articles. Unless exempt or excepted,* a charitable company whose annual gross income exceeds £5,000 also needs to register with the Charity Commission.
Register a charity with the Charity Commission
A charitable trust is required to register with the Charity Commission where its gross annual income exceeds £5,000 unless exempt or excepted.*
A charitable incorporated organisation is one that must be registered with the Charity Commission and thereby incorporates. Such organisations typically adopt the model constitutions provided by the Commission.
Charities need to be mindful of their reporting obligations. The Charity Commission’s register holds a lot of publicly available information that includes: charity overview and purpose, its governance documents, its trustees, its financial history, its assets and liabilities, and its accounts and annual returns. These are all important steps that as a charity’s company/charity secretary, MSP Company Secretarial can assist with.
With registering the purpose and governance arrangements being an important first step, then maintaining these details through proper record-keeping and reporting are the essential follow-on activities.
[* Typically, exemption occurs where the body is supervised by a government department or other public authority; and exceptions occur where the body has been granted an exemption to register and its annual income is under £100,000.]
Need help registering your charity? Contact us today for tailored advice.
Charity record keeping
The board of a charitable company, the board of trustees of a charitable trust or a charitable incorporated organisation are responsible for managing the charity on behalf of its stakeholders within the terms of the charity’s constitution and its governance structures, established at the time of registration (and updated during the charity’s lifetime, as appropriate). A central component to record-keeping is transparency and the recording of the Board’s decision-making.
Even though charities vary in their type, their purpose, and their available assets and resources, they all need to record the decisions taken and demonstrate proper governance behaviours – for example, boards of charities need to have a robust way of recording and managing conflicts of interests, how the charity intends to use its resources to support its purposes, and so on.
Like other bodies, charities need to keep accounting records and charities need to preserve these records for six years. Charities whose gross turnover exceeds £250,000, need to satisfy the accounting and reporting requirements of the Charities (Accounts and Reports) Regulations 2008, and, typically, the Statement of Recommended Practices for Accounting and Reporting by Charities (Charities’ SORP).
Charitable companies need to comply with the requirements of the Companies Act 2006 (and related statutes).
These are just some of the considerations a charity needs to be aware of and it is in a charity’s governance practices surrounding its board, trustee and leadership structures and practices where these obligations are managed. With a charity’s constitutional bodies – its board and committees, considering the charity’s responsibilities, their proper conduct and record-keeping regimes become an important governance practice.
Charity reporting
Good record keeping is important given the obligations on charities to report. As mentioned earlier, the Charity Commission registers extensive details about a charity, from its constitutional documents to its annual returns. For each charity registered, the Commission’s register displays prominently whether a charity’s reporting is up to date and on time, an indication of the importance that the Commission places on reporting.
Reporting obligations can have a somewhat reductive interpretation – they satisfy the prescriptive requirements of the regulator; but on the other hand, reporting can form the basis of engagement with a charity’s stakeholders. It can encompass reports on a charity’s activities, how its funds and assets were used, and its priorities are important to its stakeholders, and this consideration propagated through a well governed charity not only satisfies the regulator but can contribute to stakeholder engagement.
Charity compliance
The central theme of this article is governance matters. A practical approach of well-designed and well-practiced governance regimes encompassing proper up-to-date registrations combined together with:
- Attendant governance considerations
- Meaningful record-keeping, and
- Diligent reporting
Can achieve compliance with regulator requirements, and with stakeholders to build the required trust that regulators encourage.
Compliance is not a task but an ongoing practice that is supported by a company/charity secretary addressing registration, record-keeping, and reporting.
How MSP Company Secretarial can help
MSP Company Secretarial can provide charities and charitable organisations with the benefits of our significant experience in providing company secretarial services to private and public companies, together with sector specific specialist professional advice and support. Our services include:
- Board and trustee support
- Board and Trust meeting support, including AGMs
- Statutory and regulatory filing services for companies and charities, including TARs
- Board and Trustee effectiveness reviews
- Drafting and registering constitutional documents
- Managing and officiating at AGMs
Frequently Asked Questions About Governance of Charities
Is the charities governance code mandatory?
The Good Governance Steering Group publishes the Charity Governance Code, it is not mandatory, but its 7 principles represent good governance practice for charities. There are two versions of the Code, one for large charities and one for small charities – the Code can be downloaded here. The Code adopts an ‘apply or explain’ approach. The Steering Group has also produced a diagnostic tool to help charities apply the Code to maintain high standards of governance.
At what level do charity accounts need to be audited?
Notwithstanding any specific auditing practices required by a charity’s constitution or its funders, then, in England and Wales, for charities whose annual income exceeds £25,000, then the trustees of the charity are required to have the accounts independently examined by an appropriate person or firm (e.g. an accountant).
Conditions requiring an audit are given here. In outline, an audit is required where gross income is over £1 million or where gross income in a financial year is over £250,000 and gross assets (fixed assets + current assets) exceed £3.26 million. There are other considerations and conditions that apply, and requirements can seem confusing when it comes to independent examination and audit, and so you should check here to get a summary of requirements.
Note: that for an NHS charity, different rules relating to independent examination and audit apply – see here.
What is the role of Company Secretary in a Charity?
Often referred to as a Charity Secretary, their role varies from charity to charity, however, the role covers many of the responsibilities of a traditional company secretary. A Charity Secretary advises the board of trustees on charity governance requirements and practices, addressing compliance and effectiveness. General matters of legal (with laws) and regulatory (with Charity Commission) compliance, e.g. filing and reporting. Administering the board, from agreeing the annual meeting and reporting schedules to taking minutes and preparing and officiating at the charity’s AGM.
Does a company secretary have to be a trustee?
No. Regulatory requirements for charities do not specify that company secretaries have to be trustees.
How long do you have to keep charity minutes?
A charity’s constitutional documents may specify a longer period of retention, however, for a Charitable Incorporated Organisation, minutes need to be kept for 6 years from the date of the meeting. Charitable company minutes must be retained for 10 years from the date of the meeting. For charity trustee minutes it is a recommendation of the Charity Commission that they be retained for 6 years (in line with the requirement for retaining accounting records).
Governance of charities: Related topics