Whilst in the process of analysing the responses to its 300 page
consultation paper into technical issues in charity law which was
published last year, the Law Commission has decided to publish a
(shorter) supplementary consultation paper looking at two issues
which were not originally covered by the consultation: how
charities can change their purposes and how trust corporation
status can be obtained.
Changing a charity's purposes
Charity law has evolved through a variety of statues which has
led to a divergence of the rules governing charities established as
a charitable company and unincorporated charities (such as trusts
or associations). With the Charity Commission's prior consent,
charitable companies can, under company law, change their purposes
by a members' resolution. Unincorporated charities have no
equivalent statutory power – they can only amend their
purposes if there is an express provision allowing them to do so in
their governing document or they are a small charity and meet the
requirements of s275 Charities Act 2011. If neither apply, an
unincorporated charity must seek a cy-près scheme from the
Charity Commission which can only be made in limited
There is no underlying public purpose for such differences and,
with the aim of creating better and simpler law, arguably the Law
Commission should work to align the two regimes. The Law Commission
has proposed that unincorporated charities should also have a power
to change their purposes (with the Charity Commission's
consent) and suggests that factors the Charity Commission must
consider in relation to applications for a cy-près scheme
should apply when considering whether to given consent to a change
of purposes for incorporated and unincorporated charities.
Trust corporation status
As a principle of trust law, a sole trustee (other than a trust
corporation) cannot give a valid receipt for the proceeds of sale
arising under a trust of land. In order to give a valid receipt,
there must be either two trustees or a trust corporation (an entity
with a special status). Trust law developed this rule to protect
individual beneficiaries and charitable purposes as a sole trustee
was not trusted to deal with the proceeds of sale properly.
The need for two trustees or a trust corporation can cause
problems for charities which incorporate (change from being a trust
or unincorporated association to a company) or merge. Currently,
there are three ways to obtain trust corporation status: apply to
the Lord Chancellor, request a scheme from the Charity Commission
(we often include trust corporation status in schemes we draft for
charities in relation to other matters), or, in certain
circumstances, make a vesting declaration under s310 Charities Act
The Law Commission has proposed that the trustees of all
charitable companies and CIOs should be able to pass a resolution
to acquire trust corporation status in relation to any charitable
trust of which the corporate charity is a trustee.
The consultation is open until 31 October 2016 and full details
are available here.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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