OG45 A1 UNINCORPORATED CHARITIES

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OPERATIONAL GUIDANCE

UNINCORPORATED CHARITIES

AMENDMENTS TO GOVERNING DOCUMENTS (including s74D of the Charities Act 1993)

OG 45 A1 – 12 November 2008

Purpose

This OG describes the action we should take when we are contacted by the trustees of unincorporated charities who have, or want to, amend their governing document. In particular it explains the effect of section 74D of the 1993 Act, which has been inserted by the 2006 Act.

Functional responsibility

For action

Charity Services

For information

Legal Division

Contents

1. Introduction
2. The key features of our approach
3. Advice to charities
4. The section 74D provision
5. Ways to amend governing documents
6. Content of papers
7. Case Handling
8. Authorised officers
Glossary of Terms used in this Guidance

Index to further related information


The Law	Refer to a lawyer	Refer to an accountant

1. Introduction
	This OG explains the approach to be applied to unincorporated charities when they contact us and indicate that either they have amended, or want to amend their governing document. It is primarily concerned with what trustees need to do to notify us of changes and links to, and should be read in conjunction with, our public guidance CSD1342A Amending governing documents: Unincorporated charities (Also available in Word, under File>New>CSD, or through the Apply for it area of our Website).
	It does not apply to charitable companies or other types of incorporated charities (such as those incorporated by Royal Charter).
	Section 4 explains the effect of section 74D of the 1993 Act, inserted by section 42 of the 2006 Act (the section 74D provision). OG45 A3 explains the provisions that enable small charities to transfer their assets to another charity or charities with similar purposes and OG45 A2 explains how small charities can change their purposes.
	The OG44 series explains the circumstances when property that is permanent endowment can be made expendable.
	In this guidance the provisions of sections 74, 74A, 74B, 74C, 74D 75, 75A and 75B of the 1993 Act, as amended by the 2006 Act, are referred to together as the statutory powers.

2. The key features of our approach
	2.1 General policy 2.2 Our approach to amendments 2.3 Small charities

	2.1 General policy
	When considering amendments to the governing documents of unincorporated charities our intention is to minimise the amount of work created for ourselves and charities consistent with:
	ensuring that their purposes remain charitable; and
	the maintenance of an accurate Register.
	Trustees are responsible for ensuring that when amending their charity’s governing document the procedures required by that document and/or the 1993 Act (as altered by the 2006 Act) have been carried out. Our role is to ensure that the trustees had the necessary power to carry out the amendment either through a provision in the governing document or the law.

	2.2 Our approach to amendments
	In applying of our general policy on this subject our approach includes:
	Using proportionality. Amendments to the governing documents of charities with an annual gross income of not more than £20,000 (small charities) are subject to less rigorous scrutiny. See section 2.3 (see also OG200 Small charities – Principles of Commission policy).
	The availability of optional (but preferred) declaration forms for trustees to complete.
	An assumption that, in the absence of a power of amendment in a charity’s governing document, a resolution that alters its administrative provisions has been passed in accordance with the requirements of the section 74D provision.
	Section 7 addresses case handling issues in detail. In summary when considering amendments to the governing document of an unincorporated charity we do:
	update the charity’s entry without further enquiry if the changes are only to administrative provisions of small charities;
	check that the charity has a suitable power of amendment, particularly if changes are being made to the purposes clause (which includes the future purposes in the dissolution clause) or provisions that might benefit the trustees personally (including remuneration);
	carry out the check required by OG18 C1 Names of charities: Identical and similar names, if an unincorporated charity wants to change its name, to ensure there are no charities with a similar name on the Register but no further checks;
	bounce the papers back to the charity without a case being opened where insufficient information is provided to enable the amendment to be recorded on the Register (it is our intention to minimise the number of instances when this happens) - see section 7.1; and
	reduce the risk of insufficient information being provided and simplify the administrative process of amendment by making available to the charity, in both hard copy and on our website, guidance notes CSD1342A and declaration forms CSD1342B, CSD1342C and CSD1342D.

	2.3 Small charities
	When considering amendments to small charities’ governing documents we use a light touch and (unless we have reason to be concerned about the administration of a charity) do not scrutinise changes to administrative provisions.

3. Advice to charities
	Enquiries from unincorporated charities about the procedures involved in amending their governing document should be answered following the advice contained in CSD1342A. A hard copy of the guidance can be sent to charities together with one of the declaration forms: CSD1342B, CSD1342C and CSD1342D or they can be referred to the availability of the guidance and the forms in the 'Apply for it' area of our website.
	The CSD1342 series declaration forms should be used as follows:
	CSD1342B can be used by registered unincorporated charities that have amended their governing document either by using a power of amendment in their governing document or the section 74D provision to tell us they have made an amendment.
	CSD1342C can be used by all unincorporated charities that want to amend their governing document, but are required by that document to get our approval to the amendment. If the amendment is acceptable to us, we endorse our approval in section 3 of the form.
	CSD1342D can be used by all unincorporated charities that want to amend their governing document but do not have the necessary power either in that document or by using the statutory powers.
	Trustees should be advised to:
	look at their charity’s governing document to see whether it contains a suitable power of amendment (see section 7.2). If the governing document does not include such a power they should then be advised of the other options that might apply and are referred to in section 5; and
	look at our website for guidance in relation to the particular administrative powers they plan to amend; for example, our guidance on:
		Names (CC21 Registering as a charity and CSD1342A);
		Trading (CC35 Trustees, trading and tax);
		Investment (CC14 Investment of charitable funds: Basic principles);
		Governance (CC48 Charities and meetings and CC10 The Hallmarks of an Effective Charity).

4. The section 74D provision
	4.1 Introduction to the section 4.2 Changes to governing documents that cannot be made using the section 74D provision 4.3 Conditional power to pay trustees or removal of an express prohibition to pay trustees 4.4 Examples of changes to administrative powers that can be made 4.5 Examples of changes to procedures that can be made 4.6 The process for making amendments using the section 74D provision

	4.1 Introduction to the section
	The guidance in this section reflects our understanding and interpretation of the effect of the section 74D provision. Our view takes into consideration the general law. Any amendment to a governing document purporting to be made under this provision that appears to be outside this understanding and interpretation must be referred for legal advice in case the trustees’ action is ultra vires.
	The section 74D provision enables the trustees of all unincorporated charities to modify (see Note 1 to 4.2 below) any of the provisions of the trusts of the charity that relate to the powers exercisable by the trustees in the administration of the charity or that regulate the procedure to be followed in any respect in connection with its administration without approval from us or any other organisation. Put simply, it gives the trustees of these charities power to alter the administrative powers in their governing document. This brings the statutory power of amendment for unincorporated charities broadly into line with that for charitable companies.
	Trustees can choose to use the section 74D provision to alter administrative powers instead of using a power of amendment in the charity’s governing document. In cases where the general power of amendment in the governing document requires the approval of another body to all amendments, such as ourselves, that approval may not be required if the section 74D provision is used to make the amendment.
	There may however be cases where the relationship between the charity and the body that gives approval to changes is such that it may not be in the interests of the charity to proceed without that approval. This is a matter between the charity and the body concerned and, unless there are unusual circumstances (in which case legal advice must be sought), we should not intervene or express views on such cases.
	In cases where the governing document requires our approval to all amendments we should encourage the trustees to use the statutory provision to alter their administrative powers to reduce the administrative burden on themselves and us (paragraph 3.5 of CSD1342A encourages trustees to do this).
	The only requirement that involves us is the duty in section 3(7) of the 1993 Act. This means that in these cases our role is limited to any necessary checks of the information and updating the Register when we are told about this type of change.

	4.2 Changes to governing documents that cannot be made using the section 74D provision
	The section 74D provision is limited by the general law. Examples of changes to governing documents it cannot be used to make include:
	the purposes of the charity;
	the charitable purposes that the charity’s property is to be used for when it dissolves;
	a power for a third party to appoint trustees;
	a power, eg a power of investment, the exercise of which by the trustees requires the consent of a third party may not be amended so as to remove the requirement for consent unless the agreement of the third party is obtained or the third party has ceased to exist;
	any benefit for the charity’s trustees, including any payment other than out of pocket expenses (see note 3 below);
	making property of the charity that is permanent endowment expendable;
	changing a power of amendment to include power to change parts of a governing document that the section 74D provision cannot be used to change, for example the purposes/objects or the application of the charity’s property on dissolution.

	Note 1
	The statutory provision confers power to "modify" "any provisions of the trusts of the charity". This enables trustees both to amend existing provisions and to introduce totally new provisions provided that they are either provisions relating to the powers of the trustees exercisable in the administration of the charity or provisions relating to procedures to be followed in its administration.

	Note 2
	Legal advice should be sought in any cases where there is doubt about whether the trustees have acted in the best interests of the charity.

	Note 3
	Charities cannot with this power add a clause to their governing document that will allow some or all of their Trustees to be paid more than reasonable out-of-pocket expense for carrying out their duties. Unless the governing document expressly prohibits trustee benefits, however, they can rely on the statutory power to pay trustees for goods or services provided to the charity – see below and also section 4.3.
	The addition of any other clause involving trustee remuneration must be authorised by us, as trustees cannot use a power to confer a benefit upon themselves.

	4.3 Conditional power to pay trustees or removal of an express prohibition to pay trustees
	Section 73A of the 1993 Act provides for charities to pay trustees or connected persons for goods or services provided to the charity. It is necessary to be aware of this power when an amendment allowing some form of trustee benefit is requested, particularly in the following two circumstances.

	Conditional power to pay trustees
	Where there is conditional power to pay trustees, dependent on our written approval, we do not consider this is an express prohibition. This means that charities with a conditional power in their governing document are free to make use of the statutory power in s73A to pay trustees for goods and services they provide to the charity and can disregard the requirement in their governing document for our prior authority. They will need to be sure they comply with all the conditions attached to the power – see section E of Trustee expenses and payments (CC11) and also OG92. No amendment to the governing document is needed.

	Prohibition for paying trustees
	Where there is an express prohibition to pay trustees, this must first be removed before the trustees can use the s73A power. This cannot be achieved by use of section 74D because of the rule that trustees cannot use a power to confer a benefit on themselves (see above).
	See also the relevant parts of the flowchart at OG45 F1.

	4.4 Examples of changes to administrative powers that can be made
	Trustees may use the section 74D provision to amend, vary or add to any existing administrative powers that they have under the charity’s governing document or that are available to them under general law.
	Examples of the sort of powers that the trustees may wish to alter or add are:
	the power to change the charity’s name (trustees can also change the name of the charity using the statutory power to do so);
	their power of investment;
	their power to buy and sell land and property: although the statutory power for charities to deal with land and any new power adopted using the section 74D provision does not allow the purposes for which the land is held to be changed; or
	the power to borrow money.

	4.5 Changes to procedures that can be made
	Trustees may also decide to alter any of the parts of the charity’s governing document that regulate the procedures by which the charity is administered. They may amend the existing procedures, or they may introduce new ones.
	These include:
	holding trustees’ and/or members’ meetings;
	the quorum needed for meetings;
	how the chair should be appointed;
	whether the chair can use a second or casting vote when the votes on a resolution are equal;
	how the trustees’ officers, such as the secretary or treasurer, should be appointed; or
	accepting people into membership of the charity.

	4.6 The process for making amendments using the section 74D provision
	There is no required format for section 74D resolutions and they must be passed by trustees in accordance with the requirements for passing other resolutions in their governing document. They can use a postal vote, if the governing document allows it. If the charity has a membership that is separate from the trustees (which is most likely to occur in cases where the charity is an unincorporated association) the resolution must be confirmed by a further resolution passed at a general meeting by either:
	a majority of not less than two-thirds of the members entitled to attend and vote on the resolution; or
	a decision taken without a vote and without any disagreement with the resolution being expressed by those members present at the meeting.
	CSD1342A recommends that the wording of the resolution makes it clear that it has been passed using the section 74D provision, to ensure that it is clear in the charity’s records what power has been used to make the amendment.
	The resolution should also specify the date on which the change to the governing document comes into force. If the charity does not have a membership, this will usually be the day on which it is passed unless a later date is set out in the resolution. If the charity has members other than the trustees, the resolution will come into force on the date on which the resolution is approved by the membership, if that is later than the date stated in the resolution or such other later date as is specified in the resolution.

5. Ways to amend governing documents
	The governing documents of unincorporated charities can usually be amended in one of four ways, and the initial consideration of a case should consider the options in the following order:
	Does the charity have a power of amendment in its governing document that enables the trustees to make the changes they want? If it does, you should process the information following the guidance at section 7. If it does not:
	Do the changes only concern the way the charity is administered so that the section 74D provision be used? If it does, you should process the information following the guidance in section 4. If it does not:
	Can they use any other statutory powers? If so, you should refer to the guidance in OG45 A3 Transfer of property for small charities, OG45 A2 Changing the purposes of small charities or OG44 B1 Permanent endowment – when it can be spent and when our approval is needed.
	If none of the above possibilities is available, the option of making a Scheme under section 16 of the 1993 Act should be considered, in which case you should consult OG1 Orders and Schemes and OG2 Application of property cy près.
	This process is illustrated by the flowchart in the annex to CSD1342A Amending Governing Documents: Small Charities.

6. Content of papers
	6.1 Considering information 6.2 Declaration forms CSD1342B, C and D 6.3 Other information that may be provided

	6.1 Considering information
	When considering information from the trustees of charities that have amended their governing document we must satisfy ourselves that:
	no change has been made that affects charitable status; and
	if the charity is not a small charity, that the charity has a power of amendment, either through its governing document or the law, that enables them to make the changes.
	We are not concerned:
	with purely administrative provisions, such as the minimum number of meetings the trustees hold each year, or the month in which the charity’s annual general meeting is to be held; or
	that the amendment procedure has complied with the requirements of the governing document; this is the trustees’ responsibility.

	6.2 Declaration forms CSD1342B, C and D
	Unincorporated charities that have amended, or want to amend, their governing document and need our approval or a Scheme, can notify us by completing and sending to us a declaration using the appropriate CSD1342 form, referred to in section 3 above, which will:
	identify the power of amendment being relied on; and
	include a list of all the changes made, or intended to be made, to the governing document.
	The CSD1342 declaration forms are intended to simplify the process for charities and ourselves. The use of these forms also has the advantage of placing the responsibility for the information provided clearly on the trustees, and charities should be encouraged to use them.
	Forms in the CSD1342 series may be accepted even if they are not signed by a trustee, provided the signatory indicates in what capacity they sign and they have a reasonable knowledge of the charity and its administration.
	The forms include a warning for the signatories that knowingly or recklessly providing false or misleading information to us is an offence.

	6.3 Other information that may be provided
	We can also update the Register entry for such charities on receipt of:
	copies of the relevant resolutions, the minutes of the meeting at which the resolution was passed and the revised governing document; or
	in the case of charities that are governed by a formal legal document, such as a trust deed or a declaration of trust, that specifies it can be only be amended by a further legal document, a copy of the amending document.
	If a small charity does not provide us with a copy of the resolution by which the amendment was made, but does have a power to make the amendment in its governing document, we should still enter the change on the Register if we have a copy of the amended governing document.
	Similarly if we do not receive a copy of the revised governing document of a small charity we need not pursue it (in some cases the charity itself may not have produced one for its own use) unless the amendments are substantial and complex and:
	it is not clear what they are and how they fit into the governing document; or
	they are otherwise difficult to follow.
	This is a matter for the judgement of the individual case officer, remembering that the CR file is available to the public.

7. Case Handling
	7.1 Bounce back 7.2 General considerations 7.3 When our approval to changes is necessary 7.4 Name changes 7.5 Amendments to purposes 7.6 Recording the change on the Register

	7.1 Bounce back
	Before a case is opened for a charity that has amended its governing document the papers should be checked to see that we have sufficient of the information referred to in section 6 to amend the charity’s entry on the Register. If further action by, or information from, the trustees is required the papers should be returned (bounced back) to them without a case being opened.
	Wherever possible bounce back should be avoided and emphasis placed on accepting the evidence provided. It should not be used if:
	the amendment is only concerned with a change in the charity’s name, in which case follow the guidance in section 7.4; or
	the amendments are outside the scope both of the power of amendment in the governing document and the statutory powers (see OG45 A3 Transfer of property for small charities, OG45 A2 Changing the purposes of small charities or OG44 B1 Permanent endowment – when it can be spent and when our approval is needed); such cases should be treated as potential Scheme cases (see OG1 Orders and Schemes); or
	the amendment will enable the property of the charity to be used for non-charitable purposes or affect charitable status (this can extend to provisions such as those relating to dissolution) - see section 7.5.
	Bounce back may be used in the following two situations:
	the charity has no power of amendment in its governing document, but may use the statutory powers; or
	the charity has a suitable power of amendment in its governing document or has used the section 74D provision but we are not certain whether the amendments are acceptable.
	Where the first situation applies, issue a copy of whichever of the following information sheets is appropriate together with the relevant declaration forms (available in Word under File > New > CSD), or on our website in the Apply for it section that will enable the charity to make the amendment it seeks:
	CSD1346A New purposes for smaller charities: How to change the purposes of non-company charities with incomes of under £10,000;
	CSD1348A Transfer of property for smaller charities: How smaller non-company charities can transfer their assets to other charities;
	CSD1349A Permanent endowment: What is it and when can it be spent?
	Where the second situation applies, issue a copy of the guidance notes CSD1342A and the appropriate declaration form from the CSD1342 series.

	7.2 General considerations
	While CSD1342A advises trustees to send us copies of the resolution by which the amendments were made we do not require a copy from small charities if it is not supplied.
	Apart from changes to a small charity’s name, we also do not check changes to purely administrative provisions, such as the way that the trustees meet or the procedures for annual general meetings. Again this is the responsibility of the trustees.
	If when considering amendments to a governing document of a small charity it is found that changes have previously been made of which we were not advised, we should not make enquiries about them. The exception to this is if they allow charity property to be applied for non-charitable purposes or they involve trustee benefit (and trustee remuneration).

	7.3 When our approval to changes is necessary
	In cases where the governing document requires our approval to changes, we should place the emphasis on giving that approval either by endorsing the change on a declaration form CSD1342C that has been completed, or by letter, and only withhold it if the changes are unacceptable, for example changes to purposes that are clearly outside the test referred to in section 7.5.

	7.4 Name changes
	As with other amendments to administrative provisions, an unincorporated charity’s name can be changed either by using a power of amendment in its governing document or the section 74D provision. If a charity advises us that it has changed its name we do not need to check that either the requirements of the governing document or the section 74D provision have been complied with; this is the responsibility of the trustees.
	The check required by OG18 C1 - Names of charities: Identical and similar names should still be carried out to ensure that there are no charities with a name that, in our opinion, is too similar to another name on the Register.

	7.5 Amendments to purposes
	The power to change a charity’s purposes does not only affect the 'objects clause' of the governing document. Such a power (and the need to get our approval to changes to purposes, if required) may also extend to other directions that affect how the property of a charity may be used. For example:
	a dissolution clause that directs how the property of the charity may be used when the charity is wound up, is effectively a secondary or future ‘objects clause’; and
	a clause that directs how the proceeds of sale of land and buildings used for the purposes of the charity can be applied if they are not directly replaced.
	The extent to which the trustees of an unincorporated charity may change its purposes depends on the wording of the power of amendment clause in the governing document. If it states that the purposes may be changed to any other charitable purposes then that is the extent of the power. Power of amendment clauses worded in this way are rare.
	If the power enables the trustees to change the purposes but does not specify the extent of the power and does not require our consent to the change, the trustees only need to notify us of the change so that we can update the Register. Consequently we can accept any change so long as the purposes remain exclusively charitable.
	Where a charity has a general power that requires our consent without specifically saying how the purposes may be amended, and the proposed change materially affects those purposes, the test we need to apply before giving that consent is that:
	the new wording expresses exclusively charitable purposes; and
	the change is not a proposal which no body of reasonable trustees could make;
		(If you consider the proposal is completely unreasonable, take legal advice.)
	and
	the change does not undermine or work against the previous purposes of the charity.
	Where charities have very little property, or very low levels of income reserves, we should exercise greater flexibility in consenting to changes to purposes. This is because in such cases there is very little property for which it could be said that the original purposes are still relevant.
	If a charity has secondary purposes that apply if the primary purposes either partially or completely fail (for example a local charity for the relief of poverty having a secondary purpose of applying its assets for any charitable purpose for the general benefit of the inhabitants of the locality) we still accept changes to the primary purposes, provided the power of amendment in the governing document is sufficiently wide to enable the trustees to do this, either with or without our approval. In cases where the power of amendment does not enable the primary purposes to be changed we may be able to make a Scheme to amend them. OG2 B2 explains the use of cy-près where there are secondary trusts.
	If the opportunity arises, trustees should be reminded that before the charity’s purposes are changed, it is advisable for them to consider consulting other people and bodies with an interest in the charity, such as donors, grant-makers, parent bodies and beneficiaries about the changes. This is not usually a legal requirement unless there is a contractual obligation, for example as part of the terms of a grant or donation, or a specification in the governing document.
	It the power of amendment is not wide enough then the trustees will need to either use the small charities provisions if they can, or apply for a cy-près Scheme.

	7.6 Recording the change on the Register
	We have a legal obligation to keep the Register up-to-date.
	Declarations made using form CSD1342B and copies of amended governing documents and relevant resolutions should be placed on the CR file. Any approval letter and meeting minutes should be placed on the Key Documents file unless, in the case of the meeting minutes, they are the only information we have about the change, in which case they should be placed on the CR file.
	The entry of the charity on the Register must be amended to record the date on which an amendment was made and where the name or purposes have changed, the new wording should replace the existing text. The caseworker is responsible for ensuring that changes are made.
	Similarly, if we have approved a change using form CSD1342C for a registered charity we should retain a copy on the Key Documents file. We should only place it on the CR file if we receive a copy of the minutes of the meeting at which the change is adopted rather than a certified copy of the revised governing document and the minutes do not set out the changes as clearly as the form.

8. Authorised officers
	Officers in Charity Services who are authorised to do so may:
	approve amendments to purposes, area of benefit, amendment or dissolution clauses in small charities cases where the governing document includes a power of amendment that requires our approval to the change;
	enter amendments where our approval is not required for the purposes of updating charities' entries on the Register and maintaining its accuracy;
	approve amendments to purposes, area of benefit, amendment or dissolution clauses in other cases where the governing document includes a power of amendment that requires our approval to the change.

Glossary of Terms used in this Guidance
	1993 Act
	2006 Act
	Cy-près
	Ex gratia payments
	Ex officio trustee
	Governing document
	Gross Income
	Order
	Scheme
	Trustees
	Ultra vires

Index to further related information