Governance

What is a Social Enterprise? 

Social enterprises are businesses that put the interests of people and planet ahead of shareholder gain. These businesses are driven by a social/environmental mission and reinvest profits into creating positive social change. They aim to get most of the income they need from trade rather than from funding or donations.  

How are they structured legally?  

Social enterprises can take on many different legal structures. Some charities operate as social enterprises, so social enterprises can have a charity legal structure. 

A common legal structure for a non-charitable social enterprise is a Community Interest Company (CIC). A CIC is a special type of limited company which exists to benefit the community. It is not a charity. 

Other legal structures for a social enterprise include: 

• a private company limited by guarantee or shares 
• a co-operative society 
• a community benefit society 
• a charitable incorporated organisation (CIO) 
• a sole trader or business partnership 

Did you know that TOMS Shoes is a globally successful Social Enterprise alongside other examples of this structure such as The Big Issue and Divine chocolate? There are many examples of local social enterprises in the Northeast such as the Big River Bakery.  

If you require more information on these enterprises, please refer to the Gov.uk website here. The Social Enterprise UK website also has a range of useful guidance here.

Any further queries? VODA can offer support, advice and training to your VCSE group. Please contact VODA’s Core Services Team by telephone on 0191 643 2626 or by email on [email protected].  

The concept of unpaid trusteeship has been one of the defining characteristics of the charitable sector, contributing greatly to public confidence in charities. The basic principle is that trustees must not put themselves in a position where their personal interests conflict with their duty to act in the interests of the charity unless authorised to do so.

Key areas to consider are:

Expenses: However, trustees are entitled to have their expenses met from the funds of the charity. Expenses can include a wide range of costs including, for example, travel and other costs of attending meetings, specific telephone and broadband charges, travelling on trustee business, and providing childcare or care of other dependants while attending to trustee business.

Supplies of goods and services: In addition, Charities have a statutory power to pay a trustee, or a connected person, for the supply of goods or services in certain circumstances under section 185 of the Charity Act 2011, as amended. This power cannot be used if the governing document prohibits this type of payment.

Paying Charity Trustees: A charity trustee may only be paid for serving as a trustee where this is clearly in the interests of the charity and provides a significant and clear advantage over all other options. There is no general power in law for this type of payment – a charity would need a specific authority which may be found in its governing document, or be provided by the Charity Commission, or, more rarely, the courts.

Where a charity proposes to employ a trustee in some other role, or where a charity wishes to compensate a trustee for loss of earnings to enable them to attend meetings during working hours, it must firstly ensure that it has the necessary authority in its governing document. If it does not, the charity will need to approach the Commission or the courts.

In any case where a charity wishes to make a payment, but has no clear power to do so, the trustee board must apply to the Commission for authority before the payment is made.

Properly assessing any potential risks and managing conflicts of interest are important factors when a charity is proposing to pay a trustee. Trustee boards should be open and transparent about their decision to pay and be prepared to justify it if publicly challenged. For all charities, disclosing such payments in the charity accounts in accordance with Charity SORP guidelines is not only a legal requirement for companies and larger charities but will help charities of all sizes dispel any perception that payments might have been made in secret.

Charities should have clearly defined procedures for identifying and managing conflicts of interest. Ideally, these procedures should be set out in the charity’s governing document.

As good practice, a trustee board should regularly review the performance of each trustee (including the chair). This is particularly important where a trustee is receiving a payment from the charity.

Key takeaway: Ensuring that the opportunity to be a trustee is open to all is one of the keys to achieving strong, effective boards of trustees. Clear policies on payment of expenses can help with this. Other forms of payment, including compensating individuals for loss of earnings, can also be used as a tool to attract promising candidates who might otherwise be unable to afford to serve. If a trustee board is considering whether to make a payment to a trustee (as opposed to reimbursement of expenses) there are six key factors to consider:

• who will receive the payment – will it be a trustee, or a person or business connected with a trustee?
• what is the payment expected to cover?
• is the payment clearly in the best interests of the charity?
• is there a legal authority for it?
• what conditions must be met if the payment is to be made?
• how will any conflict of interest be managed?

The guidance on trustee expenses and payments applies equally to charity trustees and persons or businesses connected with them.

If you require further information please refer to the Charity Commission guidance ‘CC11 Trustee expenses and Payments’ which can be found via this link.

In February 2022, the Charities Bill received Royal Assent and passed into law as the Charities Act 2022. The recommendations from the Law Commission formed the basis for the provisions of the new legislation and the Act is designed to give trustees more flexibility to manage charities effectively. They will not have a big impact on charities’ daily operations but simplify certain areas of regulation.

The Charity Commission entered a process of implementing the legislative changes gradually and certain changes are expected in Autumn 2023. These are detailed below:

New powers relating to the appointments of trustees

The Charity Commission will have a new power to make an order to ratify the appointment or election of a trustee where there is a defect in the process or uncertainty as to the validity of such an appointment.

Powers relating to the remuneration of charity trustees and the Charities Act

The Charity Commission will get a new power to authorise a charity trustee to retain a benefit which they have already received for work done for the charity or to order a charity to pay a trustee for work already done which was not a permitted benefit.  An order can only be issued if the Charity Commission considers that it would be inequitable for the person in question not to be paid the remuneration or be allowed to retain the benefit.

The granting of this power means it is no longer necessary to apply to court in this situation.

Amending the charity’s governing document more easily and increased consistency in tests applied for changing a charity’s purposes

Most charities will be able to amend their governing documents or Royal Charters more easily (however, they will remain subject to the Commission and the Privy Council’s approval in certain circumstances, such as where changes to the charity’s objects are proposed). This will give most charities greater flexibility to respond to changes in their environment and organisational needs and will clarify the steps that charities must take to amend their governing documents.

The new Act introduces more consistency to the factors considered by the Charity Commission when a charity wants to change its purposes. Regardless of whether the charity is a charitable incorporated organisation (CIO), charitable company or unincorporated charity, the Charity Commission will consider:

• the original purposes of the charity;
• the desirability of ensuring the proposed changed purposes are similar to the original ones; and
• the need for the purposes to be suitable and effective in the light of current social and economic circumstances.

Changes to the rules on charity mergers

When a charity merges with another charity or incorporates there is often a concern that any legacies left to the merging charity will be lost as that charity will cease to exist after the merger.  For this reason, following a merger, some charities chose to continue to run as a shell charity to receive legacies.  This is not ideal as it creates an administrative burden and can cause confusion for executors.

The Charities Act has now dealt with this issue.  If a charity named in a will is wound up and the merger is registered, the gift will be treated as a gift to the merged charity even if the Will states that the charity must still exist at the time of death.  This means that it should no longer be necessary to keep shell charities in order to deal with legacy issues.

These rules will apply for any deaths after the date the provision comes into force no matter when the Will was prepared or when the merger was registered.

Any further queries?

VODA can offer support, advice and training to your VCSE group. Please contact VODA’s Core Services Team by telephone on 0191 643 2626 or by email on [email protected].

Sometimes people assume that setting up a charity is the best or only option when they are setting up a new organisation which aims to help. However, sometimes this isn’t the case. Consider these points below to see whether a charity is the best option for you and your organisation. 

• Who you will help and how you will help them: If your organisation benefits the community, it does not mean that you can automatically set up a charity. This is because not everything that benefits the community is charitable. You must have specific aims (known as ‘charitable purposes’) to set up a charity. There are 13 purposes and these include the prevention or relief of poverty and the advancement of education.  
• Is another charity that is already set up to achieve your aims: if this is the case, it may be simpler to collaborate. This means you are not competing for resources.  
• Charity restrictions: check that being a charity will not stop you doing the things you want to do. For example, certain political activities like campaigning for a new government are not permitted nor can trustees receive any personal benefit unless it is ‘incidental’.  

If a charity is not going to be the best option, then you could think about setting up a social enterprise or a trust fund.  A social enterprise is a business that has social, environmental or community-based objectives. The rules on ‘charitable purposes’ do not apply. A Trust fund can be set up if you want to raise money for a certain cause. This saves the time and effort of setting up and running a charity. 

Any further queries? VODA can offer support, advice and training to your VCSE group. Please contact VODA’s Core Services Team by telephone on 0191 643 2626 or by email on [email protected].  

How trusteeship can help provide great experience for junior staff members looking to build their leadership skills

There is a myth that becoming a charity trustee is just for those people who’ve been there, and done that. A retired professional or businessperson comes to mind as an ideal candidate. Whilst it’s true that a Board of Trustees will benefit immensely from trustees with this type of background, younger trustees are in high demand as they are integral to the diversity offering of a Board, bringing different skills, experience and perspectives. But what’s in it for any young would-be trustee, and their employer?

It can be difficult for a busy professional to justify the time and energy to volunteer for a charity when their focus is on their own career. However, when younger people take on these roles they will be richly rewarded. Put simply, it could help younger people get a leg up the career ladder.

Young trustees can develop their management and leadership skills and gain experience that can help them progress in their professional careers. In addition, they will meet some fascinating people who they wouldn’t necessarily come across in other circumstances and be able to attend events and develop working relationships with other professionals. Through trusteeship, professionals can develop transferable skills that make interesting differentiators on their CVs.

There are advantages for the employers too. Encouraging staff to take up a trustee role supports their own desire to give back and helps them develop their skills and expand their networks which can often reap rewards within their full-time role.

One in four of the UK’s smaller charities and one in five larger charities are struggling to recruit enough trustees. They need the experience and support of capable, well-connected people who can help guide the work they do and to guide and manage the organisation. There is, therefore, no better time to consider becoming a trustee and you can access a list of available trustee positions in North Tyneside on the VODA website here.

The Charity Commission has launched a new quiz which tests Trustee’s knowledge of their duties and responsibilities and aims to increase awareness of the Commission’s 5-minute guides.

There are 10 multiple choice questions on topics such as conflicts of interest and a charity’s reserves policy. There is a feedback section for each question and links to further guidance on each topic.

This is a really useful resource to help Trustees identify the areas where they may need to increase their knowledge base. The quiz can be found here: Take the trustee quiz here.

If you require further information on your role as a trustee, please refer to the ‘Support for Trustees’ section of our website, or contact VODA’s Core Services Team on 0191 643 2626 or email [email protected].

Background

If you rent or lease the place where your organisation conducts their work, then you are a business tenant. The Landlord and Tenant Act 1954 (Part 2) gives business tenants an important legal protection, called ‘security of tenure’ – the right to renew the tenancy when it comes to an end.

This right to renew will be applicable if the tenant has not ‘contracted out’ which means they have effectively agreed that they will not benefit from the automatic right. In addition, Landlords can oppose renewal of the tenancy for certain limited, specific reasons. Some are to do with the tenant’s own conduct – for example, failure to pay rent. Others are to do with the landlord’s needs – for example, where landlords want to redevelop the premises or get them back for their own use.

Costs-who is responsible?

Unless the parties agree otherwise in writing, one party to a lease cannot require the other to pay its legal costs in connection with the grant of the lease. This is set out in a specific piece of legislation: section 1, Costs of Leases Act 1958. Where there has been no express agreement between the parties, case law (see below) has also shown that the courts will not be prepared to insert a term into a renewal lease requiring the tenant to pay the landlord’s costs of preparing and executing the new lease, even if the previous lease contained such a provision (Cairnplace v CBL (Property Investment) Co [1984] 1 W.L.R. 696).

In summary, each party should pay their own legal costs unless they have agreed differently, and this agreement has been documented in writing.

Reminder

As a reminder, tenants should get professional advice when carrying out property dealings as this is a very specialised area. A chartered surveyor will be able to advise on the best sort of deal for your organisation. A solicitor will be able to advise on legal points arising from the lease.