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Starting a charity necessitates some level of planning and understanding of what it will accomplish, how it will be supported, and who it will serve.
Understanding the legal and regulatory landscape is critical for the founder(s) and trustee(s) to ensure good governance. This knowledge assures compliance, which is critical to the organisation's integrity and sustainability, while also protecting board trustees from any litigation that may hold them personally liable.
Here's a focused overview to the essential legal frameworks and documentation requirements that UK charities must follow.
What are the Regulatory Bodies for Charities?
Charities Act 2022
The Charities Act 2022 makes significant improvements to the regulatory framework for charities in England and Wales. This Act amends and expands on the Charities Act of 2011, strengthening the legal framework for charity operations.
Key obligations under the Charity Act of 2022
Registration
"A charity must be registered with the Commission if its gross annual income exceeds £5,000, unless it is an exempt charity or an excepted charity." (Charities Act 2022, Section 30)
Public Benefit Requirement
Governance
Reporting and Accountability
Did you know that the CEO and management of a charity are not held liable for the financial reporting of a UK charity? Trustees are. Along with any financial problems.
More precisely, trustees are responsible for maintaining adequate accounting records and preparing and submitting annual accounts to the Charity Commission as required by law. This involves ensuring that the financial accounts accurately reflect the charity's financial activity.
Furthermore, trustees must ensure that the charity follows all applicable rules and regulations, particularly those governing financial reporting and management.
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Companies Act 2006
The Companies Act 2006 applies to charities structured as companies, setting out the legal requirements for company formation, administration, and dissolution. Remember, some sorts of companies include:
A Charitable Company Limited by Guarantee (CLG) is a frequent form for charities. Instead of shareholders, it has members who serve as guarantors. This means that members agree to contribute a nominal amount (usually £1) if the company is wound up.
A Charitable Incorporated Organisation (CIO) is a newer type of legal structure designed specifically for charities. It provides the benefits of incorporation without the need to register with Companies House.
A Community Interest Company (CIC) can be established to benefit the community rather than private shareholders. While not all CICs are charities, those that are must meet charity law requirements.
Key Requirements of the Companies Act 2006
Directors' Duties
"A director must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole." (Companies Act 2006, Section 172)
Financial Reporting
Transparency and Disclosure
The Charity Commission for England and Wales
The Charity Commission is England and Wales' regulatory authority for charities, offering direction and monitoring to ensure that they meet legal requirements and operate efficiently.
Key Guidance Documents
The Essential Trustee: What You Need to Know, What You Need to Do: This paper offers a complete review of trustee roles and responsibilities, including compliance, governance, and risk management.
Extract: "Trustees must comply with the charity’s governing document and the law. They must act in the charity’s best interests, manage the charity’s resources responsibly, and act with reasonable care and skill." (The Essential Trustee, CC3)
Public Benefit Guidance: Educates charities on meeting the public benefit requirement, which is a crucial component of their operations and reporting.
Extract: "To be a charity in England and Wales, an organisation must have only charitable purposes and must be able to demonstrate that its purposes are for the public benefit." (Public Benefit Guidance, PB1)
Financial Management and Reporting: Guidelines for financial management and reporting, including accounting standards, risk management, and annual reports.
Extract: "Trustees must keep proper accounting records from which the financial position of the charity can be ascertained with reasonable accuracy at any time." (Charity Commission, Financial Management, CC8)
What Legal and Governance Documentation are Required?
What is not written does not exist! Maintaining complete and correct paperwork is crucial for meeting legal and regulatory requirements. Proper documentation promotes openness, accountability, and good governance practices.
Regulatory Records
Keep copies of the charity's registration certificate from the Charity Commission and any incorporation documentation from Companies House.
Maintain records of all submitted yearly returns, financial statements, and reports. These should be easily available for audits and regulatory reviews.
Document trustee appointments, resignations, conflicts of interest, and mitigation efforts.
Governance Documentation
Verify that the charity's constitution, articles of association, or trust deed are up-to-date and in compliance with current legislation and best practices.
Policy and Procedures: Create thorough governance policies, including conflict of interest, financial management, and safeguarding policies. Regularly evaluate and update these policies to reflect changes in laws or organisational practices.
Meeting minutes: Keep detailed minutes of all board and committee meetings, including major topics, decisions made, and dissenting perspectives. These minutes should be legally authorised and kept as part of the official records.
Compliance Checklists and Audits
Create a compliance checklist for the charity's legal and regulatory requirements. The checklist should include filing deadlines, policy review dates, and training plans.
Conduct frequent internal audits to ensure compliance with governance policies and regulations. Document the results, corrective actions, and follow-up steps to address any identified gaps or issues. For instance, you can explore with us how we can help.
Training and Education Records
Record trustee training meetings, including subjects addressed and attendance. This ensures that trustees understand their roles and current best practices in governance.
Provide staff and volunteer training on governance policies and processes to ensure compliance with the charity's operational requirements.
Charities can provide the groundwork for efficient administration by familiarising themselves with applicable UK legislation and regulations and maintaining detailed documentation. This not only aids in compliance with legal standards, but also improves the organisation's credibility with potential funders and operational efficiency. Finally, it will protect trustees from potential personal liabilities.
Not sure your charity's governance and risk management is mature enough to protect you? Take our free charity risk and governance maturity assessment.
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