OG45 B3 - Unincorporated charities

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OPERATIONAL GUIDANCE

Unincorporated charities

How smaller non-company charities can transfer their assets to other charities

OG 45 B3 – 18 March 2008

Purpose

This OG reproduces the public guidance CSD 1348A1, which is also available on our web site in the Apply for it section.

Functional responsibility

For action

Charity Services

For information

All operational staff

Contents

1. What is this guidance for?
2. Some terms used in this guidance
3. What do trustees have to do before passing a transfer power resolution?
4. How do trustees pass a resolution?
5. What does the Charity Commission do when it receives a transfer power resolution?
6. What do the trustees have to do to bring the resolution into effect?
7. How can investments be transferred?
8. The Register of Mergers
9. Contacting us

Index to further related information

1. What is this guidance for?
	1.1 This guidance is for trustees of charities, especially those that have property that is permanent endowment, that:
	have a total yearly income from all sources of less than £10,000;
	do not have land that has to be used to achieve some or all of the charity’s purposes (designated land); and
	are not charitable companies or some other form of body corporate.
	1.2 Where a charity meets those requirements its trustees can decide to transfer all its property to one or more other charities, provided that they:
	believe that it is in the interests of promoting the purposes of their charity if all its property is transferred to another charity or other charities; and
	do not have a power in their governing document that lets them make the transfer.
	1.3 We strongly recommend that trustees regularly review the effectiveness of their charity. This includes considering whether their charity might achieve more by combining with another. For the trustees of charities for which this guidance is intended, it is usually straightforward for them to transfer their assets to one or more charities with similar purposes. This involves passing a resolution using the "transfer power" provided by the Charities Act 1993, as altered by the Charities Act 2006, and then passing the charity’s assets over to the receiving charity (or charities). This guidance provides answers the following questions:
	What do trustees have to do before passing a transfer power resolution? (see section 3)
	How do trustees pass a transfer power resolution? (see section 4)
	What does the Charity Commission do when it receives a transfer power resolution? (see section 5)
	What do the trustees have to do to bring the resolution into effect? (see section 6)
	1.4 We expect that most of the charities that use this procedure will have assets that represent permanent endowment (see section 2). Charities that are able to spend all their assets will probably be able to pass them to another charity or other charities as donations provided that the recipient charity uses them for the purposes of the donor charity. In these cases it may be helpful to register the transfer on our Register of Mergers (see section 8).
	1.5 If having read this guidance you think that you cannot use the transfer power but would like to transfer all the property of your charity to another charity or other charities we may still be able to help. Please see our publication Collaborative Working and Mergers (CC 34) for more information.
	1.6 All the publications referred to in this guidance, along with all our other publications, are available on our website at www.charitycommission.gov.uk or can be obtained by telephoning our Contact Centre.
	1.7 Please see section 9 for the telephone numbers for our Contact Centre and the postal and e-mail addresses you should use.

2. Some terms used in this guidance
	In this guidance:
	Must is used to refer to actions that trustees (or their agents or employees) have to take by law.
	Where we use terms such as the trustees should or we recommend we are referring to actions that the trustees (or their agents or employees) could take and we consider to be good practice, but are not legal requirements.
	A body is a charity if it is:
	set up under the law of England and Wales; and
	established for exclusively charitable purposes.
	This guidance does not apply to organisations set up under the laws of a foreign country, or in the Channel Islands, the Isle of Man, Northern Ireland or Scotland.
	Charitable company means a charity formed as a company and registered at Companies House with a memorandum and articles of association as its governing document.
	Designated land is land held upon trusts that require it to be used for any or all of the purposes of a charity. Common examples are land that is used to provide village halls or recreation grounds.
	Governing document means any document that sets out a charity's purposes and, usually, how it is to be run. It may be a trust deed, constitution, memorandum and articles of association, Scheme of the Commission, conveyance or will.
	Permanent endowment means assets (for example land, buildings, investments, or cash) that may not be spent by the trustees as if they were income. The term is explained in detail in our guidance Permanent endowment – What is it and when can it be spent? (CSD 1347A) (also reproduced as OG 44 A1), which is available in the Apply for it area of our website.
	Transfer power means the power provided by section 40 of the Charities Act 1993, as amended by the Charities Act 2006, that enables the trustees of the charities referred to in paragraph 1.1 to transfer all the assets of their charity to another charity or charities.
	Trustees means charity trustees. You are a charity trustee of an unincorporated charity if you are:
	a member of the committee that is responsible for running a charitable group such as a community association or a parent teacher association; or
	the trustee of a charitable trust (charitable trusts are usually created by a formal legal document, such as a declaration of trust or someone’s will).
	An unincorporated charity is a charity that is established as an unincorporated association or a trust. This means that they usually have a constitution, rules, or a formal legal document such as a trust deed or a will as their governing document.

3. What do trustees have to do before passing a transfer power resolution?
	3.1 Trustees can only use the transfer power if they are satisfied that it is ‘expedient in the interests of furthering the purposes for which the property is held for it to be transferred in the way which is proposed’.
	3.2 If some of the assets to be transferred represent permanent endowment requirements for the receiving charities vary depending on whether the transfer is to a single charity or more than one charity. If the transfer is:
	to a single charity the purposes of the receiving charity must be substantially similar to the purposes of the transferring charity;
	to more than one charity:
	the purposes of the receiving charities, taken together, must be substantially similar to those of the transferring charity; and
	o each of the receiving charities must have purposes that are substantially similar to one or more purposes of the transferring charity.
	3.3 This means that overall the receiving charities must have purposes that are substantially similar to the transferring charity but can each have narrower purposes than the transferring charity. For example, a charity that has purposes to relieve need and promote education in a particular area can transfer its assets to a charity that only relieves need and a charity that only promotes education in that area.
	3.4 If none of the assets to be transferred are permanent endowment, the requirements are less rigorous as the purposes (or any of the purposes) of the receiving charity, or each of the receiving charities, only have to be substantially similar to the purposes or any of the purposes of the transferring charity.
	3.5 We will usually accept the receiving charity having wider purposes that include those of, the transferring charity. However if the effect of the resolution will be to exclude beneficiaries of the transferring charity, this may provide grounds for us to object to the resolution.
	3.6 When deciding whether the purposes of the charities referred to in a resolution are "substantially similar" we will consider the proposals flexibly and include both the circumstances of the charities and the reasons for the transfer put forward by the trustees in the statement of reasons for passing the resolution that must be enclosed with the copy of the trustees resolution in that consideration.
	3.7 The trustees should also check with the trustees of the receiving charity or charities that they are:
	prepared to accept the assets of the transferring charity;
	aware that any assets of the transferring charity that represent permanent endowment will continue to be permanent endowment after the transfer; and
	aware that, as far as is reasonably practicable, they must use those assets for purposes that are similar to those of the transferring charity, unless they consider that to do so will not result in a suitable and effective method of using them.
	3.8 As with the term "substantially similar", what is "reasonably practical" will depend on the circumstances of the receiving charity. For example, if the property has been transferred because the number of beneficiaries is dwindling, possibly because they have to have a connection to a particular event, such as a war or disaster, it will be necessary for the receiving charity to find alternative uses for the property that is surplus to that needed to help the original beneficiaries.
	3.9 If a receiving charity is a charitable company it cannot hold property that is permanent endowment as part of its general or corporate assets. This is because all the assets of a company can be spent generally for its purposes while permanent endowment is held upon a trust that prevents it being spent. We recommend that any charitable company that receives property that represents permanent endowment should make it subject to written trusts to distinguish it from the assets that can be spent, unless there are already written trusts that apply to the property.
	3.10 Having satisfied themselves that:
	the transfer is ‘expedient in the interests of furthering the purposes for which the property is held for it to be transferred in the way which is proposed’ and
	the receiving charity or charities are suitable; and
	all the other requirements are met;
	the trustees must pass a formal resolution to enable the transfer. We recommend that the wording of the resolution makes it clear that the trustees are using the power provided by section 74 (and section 74B, if some of the assets represent permanent endowment) of the Charities Act 1993, as altered by the Charities Act 2006.

4. How do trustees pass a resolution?
	4.1 To pass a transfer power resolution the trustees must call a meeting or otherwise act in the way required by the charity’s governing document for their proposals to be voted on. If the governing document sets a quorum for trustees’ meetings then at least that number of trustees must be present at the meeting. A postal vote of the trustees may be used if the governing document allows it.
	4.2 If the transferring charity is closely connected to a charity with a membership we recommend that the members are consulted about the transfer.
	4.3 A resolution under the transfer power must be passed by a majority of two-thirds of the trustees of the transferring charity who actually vote on it. This means that:
	trustees who are present at the meeting where the resolution is passed and do not vote; or
	trustees who have not voted in a postal ballot;
	cannot be included in the calculation of the majority.
	4.4 For example, if there are four trustees present at a properly constituted meeting:
	two vote in favour of the resolution;
	one votes against the resolution; and
	one does not vote;
	the resolution is validly passed because two thirds of the trustees voting on the resolution have voted in its favour, despite the fact that only half those present have voted for it.
	4.5 If the transferring charity is passing its assets to two or more charities, the resolution should make it clear how those assets are to be divided between the receiving charities. We expect that in most cases the property will be divided equally between the receiving charities. If it is not divided equally the trustees should explain why they have done this in their statement of reasons for passing the resolution (see paragraph 4.9).
	4.6 In cases where:
	the property to be transferred represents permanent endowment; and
	the trustees propose to transfer it to two or more charities; and
	they have asked for our advice about how to divide the property;
	they must take account of that advice when passing the resolution.
	4.7 When they have passed the resolution the trustees must:
	send us a copy together with a statement of their reasons for passing it; and
	confirm that all the requirements for passing the resolution have been met.
	4.8 The copy and statement of reasons can be sent to us either by post or e-mail using the respective addresses given in section 9.
	4.9 The statement of reasons is very important to us and should explain why the trustees believe that the transfer is expedient in the interests of furthering the purposes for which the property is held and, if there are unusual circumstances, for example the assets are not being divided equally between two or more receiving charities, also indicate why that decision has been made.
	4.10 If any of the charities named in the resolution are not registered with us, the trustees should also send us a copy of their governing document (which we are unlikely to have) so that we can check that their purposes are sufficiently similar.
	4.11 We strongly recommend that when sending us a copy of a resolution trustees use our form CSD 1348B, (also available as OG 45 B5) which can either be downloaded from our website or obtained by telephoning our Contact Centre on the number given in section 9. The completed form (together with copies of the governing documents of any of the charities referred to in the resolution that are not registered) should provide all the detail we need to consider the resolution and reduce the risk of us having to ask for more information, which will delay the transfer.

5. What does the Charity Commission do when it receives a transfer power resolution?
	5.1 When we receive a copy of a transfer power resolution, together with a statement of the reasons for passing it and any other documents we may need, we will first check that all the requirements for passing such a resolution have been met. We are allowed 60 days to do this from the date we receive the resolution (the 60-day period), although we will aim to respond within 15 working days.
	5.2 If we are satisfied that the requirements have been met we will acknowledge the resolution advising the trustees of the date when it will come into effect. We expect that we will be able to do this in the large majority of cases, particularly if the trustees use our model declaration form (CSD 1348B).
	5.3 If we are not satisfied that all the legal requirements have been met we will write to the trustees telling them we object to the resolution and the reasons why. Our objection prevents the trustees from bringing the resolution into effect. As the resolution process is relatively straightforward, we do not expect to object to transfer power resolutions very often.
	5.4 If we are not sure that the requirements have been met we can ask the trustees to:
	give public notice of the resolution;
	provide us with more information or an explanation about the circumstances in which they have decided to act and their compliance with any of the requirements connected with the resolution;
	if some of the assets to be transferred represent permanent endowment and the transfer is to two or more charities, explain why the property is to be divided in the way proposed, if this is not included in the statement of reasons.
	5.5 The circumstances when we may ask for public notice and/or more information include where we are not certain that:
	the transferring charity can use the transfer power;
	the purposes of the receiving charity or charities are sufficiently similar to the purposes of the transferring charity; or
	the procedural requirements have been followed.
	5.6 If we require notices to be published, 28 days are allowed from the date the trustees first publish them for people with an interest in the charity to contact us with their comments on the resolution. Examples of people who might have an interest in a charity include beneficiaries or potential beneficiaries, donors or someone who is owed money by the charity.
	5.7 In most cases we will ask the trustees to publish a single notice in a way they choose using their knowledge of the charity and its beneficiaries. We will ask the trustees to:
	provide details of where the notice was published;
	confirm to us that the method of publication chosen is appropriate in the circumstances; and
	explain why this was the best way to publicise the resolution.
	5.8 Where we require:
	the publication of a notice (or notices), the 60-day period is suspended for a period starting on the date on which we give the direction until 42 days (the 42-day period) from the date on which the trustees first publish the notice(s).
	further information, the 60-day period is suspended from the date we ask for the information until we receive it (effectively this only applies where we ask for the information in writing rather than telephoning the correspondent).
	5.9 If we have required both the publication of notices and further information the 60-day period is suspended until the end of the 42-day period or we receive the required information, whichever is the later.
	5.10 If the 60-day period is suspended for a period of more than 120 days because the trustees have not published the required notice or notices or provided the required information we will treat the resolution as if it had never been passed and it cannot come into effect.
	5.11 In cases where we require the publication of notices and/or further information and the outcome of the publication and/or the information provided:
	satisfies us that all the legal requirements have been met, we will then write to the trustees indicating we have no objection to the resolution and tell them the date on which the resolution will come into effect.
	does not satisfy us that all the legal requirements have been met we will write to the trustees telling them we object to the resolution and the reasons why. As indicated in paragraph 5.3, our objection prevents the resolution from coming into effect.

6. What do the trustees have to do to bring the resolution into effect?
	6.1 If we do not object to the resolution, it takes effect at the end of the 60-day period and the trustees of the transferring charity are responsible for arranging for all its assets to be transferred to the receiving charity or charities on a date agreed with the trustees of the receiving charity or charities.
	6.2 It is also likely that they will need to consult the trustees of the receiving charity or charities about how the transfer should be completed, particularly if the assets to be transferred include land or investments. Our guidance Transfers of land following a small charities transfer resolution (CSD 1348A2) (also available as OG 45 B4) explains what must be done if land is being transferred and section 7 of this guidance explains what must be done if investments are being transferred.
	6.3 The trustees of the transferring charity must arrange for its books, records and statements of account to be kept for at least seven years after the year to which they apply. We recommend that these documents, together with a copy of the transfer resolution and our letter indicating we have no objection to it, are handed over to be kept by the trustees of the receiving charity (or one of the receiving charities).
	6.4 If the charity is registered with us, when the transfer of the property is complete the trustees of the transferring charity must tell us that this has happened. They can do this by sending us a copy of the statement of assets given to the receiving charity or charities. We will then remove the charity from the Register of Charities.

7. How can investments be transferred?
	7.1 Where investments are held in the names of individual trustees and are to be held in the name of the receiving charity or its trustees, a stock transfer form will have to be completed by the trustees of the transferring charity for each security and lodged with the registrar for the investment concerned (usually shown on the stock certificate).
	7.2 Stock transfer forms can be downloaded free from the Internet (we suggest the website of the registrar named on the stock certificate is tried first) and can also be obtained from banks or law stationers.
	7.3 Before the trustees of the transferring charity can complete the stock transfer form they must ask the trustees of the receiving charity to tell them the full names and postal addresses of those trustees to whom the stock is to be transferred (these details will be shown on the new stock certificate). If the receiving charity is a company or some other form of corporate charity or the transfer is to a body corporate entitled to act as custodian trustee, the stock transfer form must show the full corporate name and the address of its registered office together with any other description the registrar may ask for.
	What if the stockholders cannot complete the transfer?
	7.4 If it is not possible for all the named stockholders to complete the transfer forms because some of them have died, certified copies of the death certificates should be sent to the registrar together with the stock certificates and transfer forms. This is not necessary if the death has already been notified to the registrar and the stock certificates amended accordingly.
	7.5 If all the stockholders have died, the legal representative of the last surviving stockholder (often this will be the executor of the will) may execute the stock transfer forms, which should be lodged with the grant of probate (or a certified copy of it), certified copies of all the death certificates of the stockholders and the stock certificate.
	7.6 If all the death certificates cannot be found or the trustees experience other problems (perhaps because some of the stockholders cannot be traced), they should contact us so that we can make an order vesting the property in the names of the new trustees. The order will not itself transfer the investments, but it will enable the body corporate or persons it names to ask the registrar to transfer the investments into other names (which do not have to be the same as the persons calling for the transfer), such as holding trustees, a custodian trustee, or a nominee.
	7.7 Holding and custodian trustees and nominees have similar roles. Depending on the circumstances may be individuals or corporate bodies (such as a companies), normally appointed by the trustees of a charity, who hold the legal title to the charity’s property or investments on their behalf. They have no role in the charity’s management and must act on the lawful instructions of the trustees.
	What if the investments include uncertified securities?
	7.8 These include shares in Common Investment Funds (CIFs), such as the COIF Charities Investment Fund. In their case a letter from the transferring trustees should be sent to the Fund Managers instructing them to change the name and other details on the account to those of the receiving charity. A certified copy of the resolution should be supplied and a dividend mandate will be required.
	7.9 If both the transferring and receiving charity hold some of the shares the instruction to the Fund Managers should be to amalgamate the accounts under the details of the receiving charity. This is because CIF shares cannot be transferred from one charity to another - it must be shown that the holding charity is now a new legal entity. No stock transfer form exists for CIFs.
	What if the trustees of the receiving charity want to sell the investments being transferred?
	7.10 The trustees of the receiving charity may wish to sell the existing investments and reinvest the proceeds. If this is the case, the trustees of the transferring charity should instruct a stockbroker or other agent to sell and either send the cash to the trustees of the receiving charity for investment by them, or reinvest as instructed by them. Before deciding how to handle investments, trustees should always get advice from someone whom they have reason to believe is qualified to give advice on financial matters.

8. The Register of Mergers
	8.1 The trustees of any charity that has transferred all its assets to another charity or charities, using the transfer powers, may apply for the transfer to be entered on our Register of Mergers. This will provide a permanent record of the transfer in case the transferring charity receives any further property, for example, through a legacy or a covenant. Entry on the Register of Mergers enables such property to be passed to the receiving charity or charities automatically.
	8.2 You will need to complete and send us a notification form, which can downloaded from the Apply for it page of our website. Alternatively you can ask Charity Commission Direct for a copy by phone or post. Before completing the form you should read the notes that accompany it and also our Operational Guidance The Register of Mergers (OG 60).

9. Contacting us
	If you have a query about this guidance or need further advice about using the transfer power or some of the other publications or forms referred to in this guidance please telephone our Contact Centre on 0845 3000 218 (minicom 0845 3000 219) or write to or e-mail us at the following addresses .

Postal address:

Charity Commission Direct
PO Box 1227
Liverpool
L69 3UG

E-mail address:

enquiries@charitycommission.gsi.gov.uk

Index to further related information