The prospective trustee

The prospective trustee

Key points

What is the issue?

Charity trusteeship should not be undertaken lightly. Although it may be very fulfilling, it can also be burdensome and give rise to unexpected personal liabilities.

What does it mean for me?

Provided one agrees to take on the role in the full knowledge of what is expected, involvement at this level can be immensely gratifying.

What can I take away?

Due diligence is essential to ensure one is confident accepting the role.

 

Taking on a charity trusteeship can be a deeply rewarding experience. In doing so, an individual can support a cause they feel strongly about, while also gaining new skills and experiences that may benefit them both personally and professionally. However, such a role should not be accepted lightly. In the light of recent and widely reported official enquiries into the actions of the trustees and former trustees of a number of high‑profile English and Welsh charities, it is vital that any prospective charity trustee conducts thorough due diligence on their chosen charity before accepting the role, to educate themselves and to mitigate personal risk, both financial and reputational.

In this article, the nature of that due diligence is considered, and the following issues should be reflected upon by prospective charity trustees.

What type of charity should I get involved in?

The level of risk involved in acting as a charity trustee will vary depending on whether it is a grant‑making or operational organisation. Grant‑making charities provide financial support to other organisations, such as not‑for‑profits overseas or other charities in England and Wales, while operational charities directly perform activities or provide services to beneficiaries (e.g., running a soup kitchen or providing disaster relief on the ground). Operational charities generally present a higher risk than grant‑making charities: being responsible for the day‑to‑day running of projects brings with it greater potential exposure to liability, particularly relating to beneficiary welfare and safety.

The legal form of the charity will also affect the level of risk involved. The most common legal structures for charities in England and Wales can be divided into two categories: incorporated charities and unincorporated charities.

Incorporated charities

Incorporated charities are generally structured as companies limited by guarantee or shares or charitable incorporated organisations (CIOs). Although companies limited by guarantee or shares are subject to both charity and company law regulation, a CIO is a corporate structure regulated solely by the Charity Commission for England and Wales (the Commission). Where a charity is structured as a company limited by guarantee, the trustees of the charity will also act as the directors of the company.

Unincorporated charities

Unincorporated charities generally take the form of charitable trusts or charitable unincorporated associations. Many sports clubs and community groups are structured as charitable unincorporated associations.

If a charity is incorporated, it will have its own legal personality and will carry out activities and enter into contracts in its own name, affording the trustees the significant (but not absolute) protection of limited liability. However, if a charity is structured as a charitable trust, it will have no legal personality of its own and will only be able to act in the names of its individual trustees. This means that the trustees enter into contracts themselves and are personally liable under those contracts if the charity’s assets are insufficient to meet any liabilities incurred. In these circumstances, prospective trustees should seek to protect themselves in any contractual terms and consider incorporation and/or trustee indemnity insurance if the activities extend beyond low‑risk grant making.

Understanding the activities of the relevant charity can also allow a prospective trustee to determine whether there are any potential conflicts of interest between their personal interests or loyalties, the aims and objectives of the charity and the manner in which these are achieved that could impact their ability to act as a trustee. An example might be where a charity provides emergency shelters for flood‑stricken areas and the prospective trustee manufactures such items of equipment. Although conflicts of interest can be managed in some circumstances, if a prospective trustee were likely to be subject to serious or frequent conflicts of interest, this could preclude them from accepting the role.

What are the ‘objects’ of the charity?

Being a charity trustee can be time‑consuming and, at times, challenging. It is highly beneficial if the trustee is striving to further a cause they wholeheartedly support and believe in.

The ‘objects’ of a charity are the charitable purposes that the charity has been established to promote. Understanding the objects of the charity will also help a prospective trustee to identify the key risks to the charity at the outset. This will help a prospective trustee to monitor and address any risks identified going forward. These could be investment risks, reputational risks, safeguarding risks or risks associated with overseas partners for instance. Further, a failure by trustees to apply a charity’s assets in accordance with its objects can cause the trustees to be personally liable for making good any loss caused to the charity. It is, therefore, imperative from the outset that anyone considering charity trusteeship clearly understands the relevant charity’s objects.

A prospective trustee should also request any key policy documents. For example, if the relevant charity’s activities involve working closely with vulnerable adults, a prospective trustee may wish to review and discuss the charity’s safeguarding policy. Equally, if the relevant charity is a grant‑making organisation, a prospective trustee may wish to review the charity’s grant‑making policy to establish the circumstances in which grants are provided.

Are the charity’s finances in good shape?

A prospective trustee should review the relevant charity’s accounts to gauge the charity’s general financial position, including its key assets and liabilities, its income streams and what level of reserves the charity has. The charity’s annual report, which must be submitted with the accounts, will also provide further insight into the activities of the charity and its strategy going forward.

Who are the personnel involved?

When deciding whether to accept a role, it is always worthwhile meeting with the existing trustees and other staff involved with the organisation to establish a sense of the culture of the charity and the personalities involved. Although a trustee board that is able to work comfortably and collaboratively together would be a pleasure to be involved with, clashing personalities or a domineering chair could prevent the effective running of the charity. In particular, the existing trustees’ reaction to questions may be telling. Although a willingness to discuss the charity’s governance and a clear understanding of the charity’s status would reflect positively, resistance about sharing information or a lack of knowledge about the charity could be a cause for concern.

Understanding why a particular trustee vacancy has arisen and whether the trustees were hoping to fill a particular skills gap will also be important.

Do I have the time, skills, knowledge and experience to properly carry out the role?

Charity trustees of English and Welsh charities have independent control over, and legal responsibility for, a charity’s management. In this role, trustees are required to ensure that the charity for which they are responsible remains solvent, compliant with legislation, accountable to stakeholders and able to fulfil the charitable objects for which it has been established for the benefit of the public. The role is fiduciary in nature, demanding the highest standards of trust and confidence.

In order to be clear about the scope of their responsibilities, a prospective trustee should review the guidance published by the Commission. They may also want to seek advice from colleagues and friends in existing trustee roles.

A prospective trustee should also realistically assess the necessary time commitment to the role. As trustees retain responsibility for the overall management of the charity even if they delegate their duties, a prospective trustee should understand where, when and how often the trustees meet and whether electronic participation is possible. The governing documents of the charity will provide information regarding the governance structure of the charity, including how trustees should make decisions, whether there are members and, if so, which decisions are reserved to them.

Once a prospective trustee’s due diligence is complete, they should feel confident accepting the role, knowing they have weighed up the risks and rewards and are ready to further a worthwhile cause.

For the vast majority of individuals who take on roles such as these, it is a hugely rewarding experience. Prospective charity trustees should embrace the opportunity wholeheartedly as, by following the rules, one can minimise any risk to oneself and the charity.