OG45 A2 UNINCORPORATED CHARITIES

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OPERATIONAL GUIDANCE

UNINCORPORATED CHARITIES

CHANGING THE PURPOSES OF SMALL CHARITIES

OG 45 A2 – 18 March 2008

Purpose

This guidance explains how trustees of small unincorporated charities can use section 74C of the 1993 Act (inserted by section 41 of the 2006 Act) to change their charity’s purposes.

Functional responsibility

For action

Charity Services

For information

All operational divisions

Contents

1. Introduction
2. Which charities can use the power?
3. What legal requirements are involved?
4. The resolution process
5. Objections to resolutions
6. Authorised staff
Glossary of Terms used in this Guidance

Index to further related information


The Law	Refer to a lawyer	Refer to an accountant

1. Introduction
	Section 74C of the 1993 Act (inserted by section 41 of the 2006 Act) (the section 74C power) enables the trustees of small unincorporated charities to change some or all of the purposes of their charity by means of a resolution (section 74C resolution) which takes effect 60 days after we receive it, unless we object or ask for further information and/or require notices to be displayed. As with all our small charity casework our approach to this should be proportionate and light touch. In practice, this means that wherever possible, if we are satisfied that it is valid, we should accept the trustees’ resolution without asking for further information or publicity unless what it proposed will either:
	Result in purposes that are not exclusively charitable, which will mean that the organisation is no longer charitable; or
	Be such a significant departure from the existing purposes that either -
		existing beneficiaries are deprived or excluded from the benefits of the charity; or
		there is a significant risk of them being excluded due to the way the purposes are being changed, for example a very large increase in the charity’s area of benefit causing a similarly large increase in the number of potential beneficiaries.
	The purposes for which a charity’s assets can be used when it dissolves, often set out in a ‘dissolution’ clause are also purposes that can be changed by using the section 74C power.
	Where any proposed amendment is likely to affect the rights of existing or potential beneficiaries, we may require publication of specific notices as indicated in section 4.4.
	Trustees of small charities that already have a power to change their purposes in their governing document may still use the section 74C power if -
	it makes the process easier and it is in the charity’s interests to use it; and/or
	the change to be made is wider than the power the trustees already have.
	In all cases where we receive enquiries on this subject we should refer the enquirer to our information sheet New Purposes for Smaller Charities (CSD 1346A) and encourage charities to notify us of resolutions by using our declaration form CSD 1346B, which, if correctly completed, provides all the information we need to consider the resolution and minimises the amount of work involved for ourselves and trustees.

2. Which charities can use the power?
	The section 74C power can be used by a charity if -
	its gross income in its last financial year did not exceed £10,000*; and
	it does not hold any designated land; and
	it is not a [charitable] company or other body corporate.
	The income threshold may be altered by an order made by the Minister.
	*In all cases where the trustees have shortened the charity’s financial year to bring it within the financial threshold of the power to change purposes (under regulation 5 of the Charities (Accounts and Reports) Regulations 1995 a charity can have a financial year as short as six months) we should ask the trustees to explain why they have done this and, when this information has been provided the case should be referred to Legal Division for consideration. This will be a request for additional information. See section 4.5.

3. What legal requirements are involved?
	Where the trustees of a charity that meets the conditions in section 2 are satisfied that -
	(a)	"it is expedient in the interests of the charity for the purposes in question to be replaced"; and
	(b)	"that so far as is reasonably practicable, the new purposes consist of or include purposes that are similar in character to those that are to be replaced";
	they may use the section 74C power.
	Any resolution using the section 74C power must be passed by a majority of not less than two-thirds of the trustees of the charity and who vote on the resolution at a properly constituted meeting at which (if the charity’s governing document provides for one) a quorum is present.
	The trustees may use a postal vote if the charity’s governing document allows this but otherwise the majority should be of those trustees present and voting.
	Trustees who are present at the meeting and do not vote, or trustees that have not voted in a postal ballot, cannot be included in the calculation of the two-thirds majority. Section 4 of our public guidance CSD 1346A explains this process in detail.
	When they have passed a resolution the trustees must send us a copy together with a statement of their reasons for passing it. The resolution will not take effect until 60 days from the date on which it is received by us (the 60-day period).
	If, exceptionally, we direct the publication of a notice or notices, or require further information, the 60-day period stops running from the date of the letter giving that direction until the publication period is over or we receive the information. If we direct the publication of a notice or notices and ask for additional information the period stops running until both have been complied with, see section 4 for more detail.
	If the 60-day period is suspended for more than 120 days due to the trustees failing -
	to publish the notice or notices: or
	to tell us they have published them; or
	to provide us with information;
	we must treat the resolution as if it had never been passed.

4. The resolution process
	4.1 Initial consideration 4.2 Should we object to the resolution? 4.3 Where we are not sure whether to object 4.4 Publication of notices 4.5 Directions to provide us with additional information

	4.1 Initial consideration
	The consideration of most section 74C resolutions will be straightforward and we should proceed on the basis that each one is valid unless there is evidence that this is not the case. Caseworkers dealing with these resolutions should first ask themselves the following questions in the following order:
	Is the charity able to use this procedure? (see section 3)
	Have the trustees followed the procedure correctly? (see section 3)
	Should we object to the resolution? (see section 4.2)

	4.2 Should we object to the resolution?
	We can only object to a resolution on the grounds that:
	the proper process has not been followed - an obligation imposed by or under section 74C has not been complied with; or
	the proposed objects are not exclusively charitable; or
	the proposed purposes do not, so far as reasonably practicable, consist of or include purposes that are similar in character to the existing purposes.
	Consequently, in determining whether two sets of purposes are similar in character, we should be at least as flexible and imaginative in our approach as we are in relation to a cy-près application (see OG 2), bearing in mind that this is a separate statutory provision with a different test that is in some respects wider than the cy-pres test. We should also recognise that the trustees, with their knowledge of the situation in which the charity is operating, are in the best position to decide what is "reasonably practicable". There are examples of circumstances when the proposed change to the purposes may lead us to object to a resolution in sections 1 and 5.
	If there is doubt about whether we should object to the change to the purposes we should first consider the trustees' statement of reasons for passing the resolution. If that does not resolve the doubt we should consider obtaining further information using the powers to publish notices or request additional information or explanations referred to in section 4.3.
	While we encourage trustees to follow the guidance in New Purposes for Smaller Charities (CSD 1346A) and use our standard declaration form CSD 1346B we should be flexible about how the required information is provided and, if the charity concerned is registered, it will usually be sufficient for the trustees to send us a letter or e-mail, the text of which includes the wording of the resolution, the statement of their reasons for passing it and confirmation that the requirements of the power to change purposes have been met. No formal certification is needed.
	Unless we still are considering objecting to the resolution, on receipt we should issue a standard letter of acknowledgement on the lines of the standard paragraphs in CSD 1346D, which -
	indicates that we have no objection to the resolution and the date on which it will come into force; and
	that, in cases where the charity is registered, we will change the charity’s entry in the Register of Charities to show the new purposes, when the 60-day period is over.

	4.3 Where we are considering objecting to a resolution
	If we are considering objecting to a resolution made under the section 74C power we should still acknowledge its receipt, so that the trustees know the date on which the 60-day period starts. Depending on the circumstances of the case, the acknowledgement may, if we need time to consider the case, simply do that and indicate that we may need to contact the trustees further, or can direct the trustees to take the action we require.
	We may give the trustees either or both of the following directions:
	To give public notice of the resolution in such manner as we think fit. Having given such a direction, we must take into account any representations made to us by "persons appearing…to be interested in the charity", where those representations are made within 28 days from the date on which the notice was first published by the trustees.
	To provide us with additional information or explanations relating to the circumstances in and by reference to which they have decided to use the powers, or their compliance with the obligations imposed on them by that section in connection with the resolution.
	The effect of requiring notices to be published and directions to provide us with additional information or explanations, on the procedure for section 74C resolutions and some possible circumstances when they may be needed are described in sections 4.4 and 4.5 respectively. Any responses to notices and additional information should be included in our consideration about whether to object to a resolution.
	There should only be a small minority of cases where our concerns may justify directing the publication of a notice or notices and/or the provision of additional information or explanation. The "de minimis" or materiality principle explained in section 6 of OG 200 A1 applies to our consideration of resolutions made under the power to change purposes. Consequently we should not consider requiring a notice to be published or requesting further information if the available evidence indicates that the assets of the charity are worth less than our current de minimis figure.

	4.4 Publication of notices
	Why should we ask for notices to be published?
	We should use public notices as a means of asking for comments on a resolution from people with an interest in the charity. These may include comments from:
	Existing or potential beneficiaries;
	Creditors, debtors or donors (including bodies that have made grants to the charity).
	Local authorities.
	If the charity has a membership, and we do not know if they have been consulted about the resolution, the members.
	The advice of Legal Division may be sought when considering whether to publish notices and the weight to give any comments, and should be sought if there is any doubt whether a person claiming to have a genuine interest actually does.
	When should we ask for notices to be published?
	Circumstances where we might have concerns about a resolution and require a notice, or notices, to be published include:
	Where the change in the purposes seems greater than would usually be regarded as "reasonably practical" and the comments we receive will help to inform our decision whether or not to object.
	Where it seems likely that the proposed change will harm the interests of the existing beneficiaries.
	Where there is a history of mismanagement or misappropriation of the charity’s assets and the comments of people with an interest in the charity on its current management will help us make a decision whether or not to object to the resolution.
	The charity has attracted a high level of public interest, (possibly even from Members of Parliament) expressing concern at the way it is run, even though the complaints are unsubstantiated.
	A direction to publish notices suspends the 60-day period (see section 3) from running from the date that we give our direction until a period of 42 days (exactly 6 weeks) has elapsed from the date the trustees first give public notice (the 42-day period). If we have also directed the trustees to provide us with additional information and we have not received that information at the end of the 42-day period the 60-day period will remain suspended. Model paragraphs that may be used when directing the publication of a notice or requiring further information can be found in CSD 1346D and a standard form of notice is at CSD 1346E. An example of how a case where we require notices to be published might run is shown in the chart at the end of this section.
	In most cases it will be sufficient to publish a single notice in a way chosen by the trustees using their local knowledge of the charity and, if it has one, the area of benefit, who should be able to confirm to us that the method of publication chosen is appropriate in the circumstances, ie the trustees should provide details of where the notice was publicised and give reasons why this was the best way to bring it to the attention of ‘interested persons’.
	If there is any doubt whether a person does have a genuine interest the advice of Legal Division should be sought.

The possible progress of a case where we have required a notice to be published
Day 1	We receive a copy of a resolution. This starts the 60-day period.
Day 12	We tell the trustees to publicise the resolution in a way that we direct. This suspends the 60-day period.
Day 25	The trustees publish the notice. This starts the 42-day period.
Day 67	The trustees have told us that the notice has been published two weeks ago but the 42-day period continues to run until today. The 60-day period now starts again (there are 48 days left).
Day 115	The 60-day period ends, we have not objected and the resolution comes into force.

	4.5 Directions to provide us with additional information
	We can also direct the trustees to provide us with additional information or explanations about the circumstances in, and by reference to which, they have resolved to change the purposes of their charity, or their compliance with the requirements imposed on them by the section 74C power. There are standard form letter paragraphs that may be used for this purpose in CSD 1346D.
	Where we give such a direction the 60-day period stops running from the date on which the direction is given to the trustees and does not start running again until we receive the information we have requested, or later if we have directed that notices should be published and the 42-day period has not expired. The way that this suspension of the 60-day period might work in a case is shown in the chart at the end of this section.
	An example of a situation where we might ask for further information, is where the -
	trustees have not used our standard declaration form; and
	the charity is not registered with us and we do not know exactly what the existing purposes of the charity are because we do not have a copy of the governing document.
	In these cases we should ask for a copy of the current governing document (and a copy of its latest accounts), unless the information that is available indicates that the charity’s assets are worth less than our current de minimis figure.
	We may also have concerns -
	if the charity’s income has fallen substantially, bringing it within the income threshold, and we do not know the reason; or
	we do not have confirmation that the procedure for passing the resolution has been properly complied with, for example, have we been informed that it was passed by a two-thirds majority of the voting trustees at a properly constituted meeting.
	The first of these concerns may indicate a significant problem and we should ask the trustees for a written explanation, ie additional information, before considering how we will proceed.
	If the concern relates to the procedure for passing the resolution this should, where possible, be resolved by a telephone call asking for confirmation that the procedure has been followed correctly. A record of the call must be made and filed with the copy of the resolution. If the information provided indicates that the procedure has not been followed correctly the resolution is invalid and we should advise the trustees that they cannot proceed with the transfer until they have passed a valid resolution.

The possible progress of a case where we have asked for more information
Day 1	We receive a copy of a resolution. This starts the 60-day period.
Day 14	We ask for information to help us consider the resolution because it has not been confirmed that it was passed at a properly constituted meeting of the trustees. This suspends the 60-day period.
Day 133	We receive the information we need. The restarts the 60-day period with 46 days left. The 60-day period has been suspended for 119 days. If it had been suspended for more than 120 days it would be as if the resolution had never been passed.
Day 179	The 60-day period ends, we have not objected and the resolution comes into force. It is worth noting that the case has been open for nearly six months.

5. Objections to resolutions
	We do not approve resolutions made under the section 74C power, but we can object to them either on procedural grounds or on the merits of the proposals contained in the resolution.
	Any objection must be made before the end of the 60-day period (including any period during which the 60-day period has been suspended due to the publication of notices or a direction to provide additional information). The objection will prevent the resolution from coming into effect.
	Circumstances where we must object to resolutions to prevent them from coming into effect include:
	if we are not satisfied that the procedural requirements of the section have been met (in which case the resolution will be invalid (see section 4 above)) – this might be either because we have received a complaint or we have not received satisfactory responses to our queries; or
	the proposed purposes are not charitable in English and Welsh law; or
	on the basis that the resolution lacks merit, ie that the change is not similar in character to the purposes being replaced.
	Examples of situations where the resolution could lack merit include:
	the proposed purposes exclude all or part of the existing beneficiary class; or
	the proposed purposes are too much of a departure from the existing purposes, for example a local charity for the relief of people who are poor intending to extend its purposes to a completely different charitable purpose, for example, the advancement of a particular religion or the relief of sickness overseas.

6. Authorised staff
	Staff in Charity Services who have been authorised to do so, may -
	sign acknowledgements indicating that we have no objection to a resolution and may, with appropriate advice, if needed, require notices to be published and/or request further information; or
	sign letters objecting to resolutions.

Glossary of Terms used in this Guidance
	1993 Act
	2006 Act
	accounts
	body corporate
	charitable company
	charity trustees
	cy-près
	de minimis
	designated land
	governing document

Index to further related information