Charities Act 2022: amending governing documents
11 April 2022
This is the first in our series of articles designed to provide you with practical guidance on the key changes under the Charities Act 2022 and, crucially, how they will affect you in practice.
In this article, we focus on changes to the procedures for amending governing documents of incorporated charities (i.e. charitable companies and Charitable Incorporated Organisations (CIOs)) and unincorporated charities (i.e. charitable trusts and unincorporated associations).
For a general introduction to the Act, please see our article Charities Act 2022: a practical introduction for charity trustees.
Amending charitable purposes
Under current law, there are different procedures for amending charitable purposes depending on your charity’s legal form. It is considerably more difficult to make changes to the purposes of an unincorporated charity (i.e. a charitable trust or unincorporated association) than those of an incorporated charity (i.e. a charitable company or CIO). There are also different rules that apply to Royal Charter charities and other types of legal form, but those are outside the scope of this article.
The new regime seeks to harmonise the requirements and put incorporated and unincorporated charities on a similar footing. In summary, the new process for both incorporated and unincorporated charities will be as follows:
1. Identify whether or not a substantive amendment to the charitable purposes is proposed
Charity Commission consent is required before any substantive changes are made to the charitable purposes of the charity. This means that, in practice, you need to carefully consider whether any of the changes you propose to make will substantively alter the purposes for which the charity is formed.
Importantly, this means that there might be circumstances in which a proposed amendment to another provision in your charity’s governing documents is caught by the requirements because it has the effect of changing the substance of the charitable purposes.
If in doubt about the impact of a proposed amendment on your charitable purposes, we would recommend that consent is sought. The explanatory notes to the Charities Bill make it clear that “trustees should think very carefully about whether even a small drafting change might affect the substance in even the most subtle of ways”.
2. Apply to the Charity Commission for consent to the proposed amendment
Where you are proposing to make a substantive change to the charitable purposes, you will need to apply to the Charity Commission for consent.
We do not yet know the process that will be implemented by the Commission for this, but we anticipate that this will be via the digital services platform (as it the case for incorporated charities making applications for consent to regulated alterations now). It is likely that you will need to explain the reasons for the proposed change.
3. The Charity Commission will apply the new “similarity considerations” in assessing the application
In respect of all applications from incorporated and unincorporated charities, the Commission will apply the new “similarity considerations” set out in the Act. In summary, the Commission will be required to consider:
- the original purposes of the charity
- the desirability for any new purposes to be similar to the original purposes
- the need for the charity to have purposes which are suitable and effective in light of prevailing social and economic circumstances.
4. Once Charity Commission consent is received, resolve to amend governing documents
The Act also introduces some new provisions to streamline the process for adopting changes to governing documents, which are explained in more detail below.
At present, both incorporated and unincorporated charities have the power to make administrative changes to their governing documents. Incorporated charities may also make “regulated alterations” with the prior written consent of the Charity Commission. In contrast, there are certain types of amendments that cannot currently be made by unincorporated charities whose governing documents do not contain an express power of amendment. In that case, they need to apply to the Charity Commission for an administrative scheme, which is disproportionately burdensome.
The Act will introduce a wide new power of amendment to allow unincorporated charities to amend their governing documents in a similar way to that available to incorporated charities. Under the new power, unincorporated charities will be able to make any changes to their governing documents, provided that the prior written consent of the Commission is obtained for any of the following types of amendments:
- Alterations to the charitable purposes.
- Providing authorisation for benefits to trustees, members and connected persons.
- Amending dissolution provisions.
- Amending restrictions that create permanent endowment.
- Amendments affecting third party rights under the governing document.
The first three of the above are identical to the “regulated alterations” regime that currently applies to incorporated charities.
Process to make amendments
Adopting the changes
The process for adopting amendments to governing documents remains unchanged for charitable companies and CIOs. However, the Act introduces a new process for unincorporated charities, which means that the process will be very similar for incorporated and unincorporated charities, with a few subtle differences in respect of decisions taken outside of meetings for charities with a membership.
Charitable trusts may use the statutory power of amendment by passing a resolution approved by a majority of 75% of the trustees. For charitable companies, CIOs and unincorporated associations, the trustees should approve the proposals in the usual way (i.e. by simple majority) but it is also necessary to obtain formal member approval to effect the changes. The process for this depends on whether the decision is put to the members in a general meeting or taken outside of a meeting:
|Legal form||Approval of members in general meeting||Approval of members outside meeting|
|Charitable company||Special resolution (75% majority) of members present at general meeting in person or by proxy||Written special resolution|
(75% majority) of all members
|CIO||Members resolution by 75% majority of those present at general meeting in person or by proxy||Unanimous members written resolution|
|Charitable unincorporated association||Approval by members in a meeting either by 75% majority or by decision without a vote with no dissent in response to question being put to the meeting||Unanimous members approval|
Effective date of changes
Another key change, which primarily helps CIOs, is that in respect of all types of charities within the scope of this article, all changes made to governing documents take effect at the time the resolution is passed, except where:
- the resolution itself specifies a later date for the changes to become effective
- the resolution is passed conditional upon Charity Commission consent, in which case the changes are effective once consent is obtained; and
- in respect of amendments to the charitable purposes of an incorporated charity, the new charitable purposes are only effective once registered by Companies House (for charitable companies) or the Charity Commission (for CIOs).
Public notice of proposed amendments
The Act introduces a new power for the Charity Commission to, at its discretion, give public notice (or require the charity trustees to do so) of any proposed changes to the governing documents of a charity where the prior written consent of Charity Commission is required. This new power applies both to incorporated and unincorporated charities.
You might, therefore, find that there are some delays to the process of obtaining consent where the Commission determines that there is sufficient public interest in the proposed changes that notice should be given before a decision is taken regarding whether or not to provide consent to the proposals.
The changes to be implemented under the Charities Act 2022 will result in greater alignment of the regime for amending the governing documents of incorporated and unincorporated charities, and therefore simplify the process for all. Whilst this will not entirely eliminate the need for professional advice, the changes will reduce the circumstances in which professional advice is required, and also reduce the cost of professional advice where it is sought.
It will remain important under the new regime for charity trustees to ensure that their governing documents comply with all applicable legal requirements and remain fit for purpose. At Birketts, our dedicated Charities Team is available to support you with updating your governing documents, both under the current rules and once the changes under the Charities Act 2022 come into force. Please get in touch with Liz Brownsell (Partner and Head of Charities) or another member of the Birketts Charities Team to discuss your requirements.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at April 2022.