CONSULTATION PAPER
LEGAL STRUCTURES FOR CHARITIES
IRELAND
The
Law Reform Commission
35-39
Shelbourne Road, Ballsbridge, Dublin 4
© Copyright
The Law Reform Commission 2005
First Published December 2005
ISSN 1393 - 3140
THE LAW REFORM COMMISSION
Background
The Law Reform Commission is an independent statutory body
whose main aim is to keep the law under review and to make practical proposals
for its reform. It was established on 20 October 1975, pursuant to
section 3 of the Law Reform Commission Act 1975.
The Commission’s Second Programme for Law Reform, prepared
in consultation with the Attorney General, was approved by the Government and
copies were laid before both Houses of the Oireachtas in December 2000.
The Commission also works on matters which are referred to it on occasion by
the Attorney General under the terms of the Act.
To date the Commission has published 78
Reports containing proposals for reform of the law; 11 Working Papers; 37 Consultation Papers; a number of specialised Papers for
limited circulation; An Examination of the Law of Bail; and 26 Annual Reports
in accordance with section 6 of the 1975 Act.
Membership
The Law Reform Commission consists of a President, one
full-time Commissioner and three part-time Commissioners.
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President: |
The Hon Mrs Justice Catherine McGuinness, Supreme Court |
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Full-time Commissioner: |
Patricia T. Rickard-Clarke, Solicitor |
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Part-time Commissioner: |
Professor Finbarr McAuley |
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Jean Monnet Professor of European Criminal Justice, University College Dublin |
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Part-time Commissioner: |
Marian Shanley, Solicitor |
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Donal O’Donnell, Senior Counsel |
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Secretary/Head of Administration: |
John Quirke |
Research Staff
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Director of Research: |
Raymond Byrne BCL, LLM (NUI), Barrister-at-Law |
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Legal Researchers: |
Claire Bruton LLB, LLM (Lond), Barrister-at-Law |
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Roberta Guiry BCL, LLM (NUI) |
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Orla Joyce BCL, LLM (Cantab) |
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Claire McAvinchey BCL, LLM (Glasgow) |
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Aoife McCarthy BCL, LLM (NUI), Barrister-at-Law |
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Jane Mulcahy BCL (Law and German), LLM (NUI) |
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Catherine-Ellen O’Keeffe LLB, LLM (NUI) |
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Sinéad Ring BCL (Law and German), LLM (NUI) |
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Aisling Wall BCL, LLM (Cantab) |
Administration Staff
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Pearse Rayel |
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Executive Officer: |
Denis McKenna |
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Legal Information Manager: |
Conor Kennedy BA, H Dip LIS |
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Cataloguer: |
Eithne Boland BA (Hons), HDip Ed, HDip LIS |
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Information Technology |
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Officer: |
Liam Dargan |
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Clerical Officers: |
Alan Bonny |
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Debbie Murray |
Principal Legal Researcher on this Consultation
Paper
Rosemary Healy-Rae AITI, Barrister-at-Law
Contact Details
Further information can be obtained from:
The
Secretary/Head of Administration
The Law Reform
Commission
35-39 Shelbourne
Road Ballsbridge Dublin 4
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+353 1 637 7600 |
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+353 1 637 7601 |
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info@lawreform.ie |
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www.lawreform.ie |
CHAPTER 1 EXISTING LEGAL STRUCTURES FOR
CHARITIES
CHAPTER 2 REGULATION
OF EXISTING LEGAL STRUCTURES AND PROPOSALS FOR REFORM
A Current
Regulation of Charities
(2) Commissioners of
Charitable Donations and Bequests
(5) Director of Corporate
Enforcement
(9) Common Law / Statutory
Provisions
B Proposals
for a New Regulatory Body
(2) Private Action, Public
Benefit
(3) Charities
and Not-for-Profits: A Modern Legal Framework
CHAPTER 4 THE
NEED FOR A NEW LEGAL STRUCTURE FOR CHARITIES IN IRELAND
B Previous
Studies of Charity Law in Ireland
(2) Charity Law: The case
for reform
(4) Establishing
a Modern Statutory Framework for Charities
C Does
Ireland need a New Legal Structure for Charities?
D A proposed
CIO structure for Ireland
E Should the
proposed CIO structure be confined to charities?
F The form of
the proposed CIO structure
G Charities
and trading activities
H Should the
New Legal Structure be Mandatory?
CHAPTER 5 Summary of PROVISIONAL
recommendations
NOTE
The Law Reform Commission’s Second Programme for examination
of certain branches of the law with a view to their reform: 2000-2007
identified the law of trusts including the law of charities for examination.
Given the considerable interaction between general trust law
and the law relating to charitable trusts, the Commission published two
consultation papers in February 2005 - Trust Law: – General Proposals
(LRC CP 35-2005) and Charitable Trust Law: General Proposals (LRC CP
36-2005). The Consultation Papers examined some specific areas of the law
of trusts and the law of charities particularly in relation to the role, powers
and duties of trustees.
This Consultation Paper continues the Commission’s review of
charity law by examining the existing legal structures within which charities
operate and considers whether there is a need for an alternative new legal
structure tailored specifically to meet the needs of charities.
The Commission intends to publish in one Report its final
recommendations on this topic and on the earlier Consultation Paper Charitable
Trust Law: General Proposals.
1
The purpose of this Consultation Paper is to examine the existing legal
structures within which charities operate in Ireland and to consider whether
there is a need for an alternative new legal structure tailored specifically to
meet the needs of charities.
2
Apart from charities, many associations such as community groups and
social enterprise groups are also formed for public benefit and not-for-profit
purposes. It should be noted that this Consultation Paper deals only with
organisations set up for charitable purposes. The need for a separate
legal structure for other not-for-profit organisations may also require
consideration in the future and, in this regard, the Commission notes that the
Company Law Review Group has recommended that there should be a new legal
vehicle for bodies wishing to maintain clearly defined objects known as
designated activity companies (DACs).[1]
3
The Paper begins in Chapter 1 by looking at the existing legal
structures used by charities. These structures include the charitable
trust, the unincorporated association and the company – usually a company
limited by guarantee. The advantages and disadvantages of each of these
structures are summarised.
4
Chapter 2 reviews the current institutional arrangements for the
regulation of charities in Ireland and also looks at the proposals for the
introduction of a statutory body for the regulation of charities.
5
Chapter 3 examines developments in other jurisdictions in relation to
the design of an alternative new legal vehicle tailored exclusively for
charities.
6
Chapter 4 considers whether there is a need for a new legal structure
for charities in Ireland.
7
Chapter 5 summarises the provisional recommendations of the Commission.
8
The Commission usually publishes in two stages: first, a Consultation
Paper and then a Report. This Consultation Paper is intended to form the
basis for discussion and accordingly the recommendations, conclusions and
suggestions contained herein are provisional. The Commission will make
its final recommendations on this topic following further consideration of the
issues and consultation. Submissions on the provisional recommendations
included in this Paper are also welcome. In order that the Commission’s
Report may be made available as soon as possible, those who wish to make their
submissions are requested to do so in writing or by e-mail to the Commission by
31 March 2006.
1.01
The voluntary sector in Ireland is rich and diverse and has played a
significant role in the economic and social development of communities and
society as a whole. Charities comprise one part of the voluntary sector
and the value of the charity sector has been estimated to be worth €20 billion.[2]
1.02
Charities[3]
may be constituted in many different ways and all charitable activity requires
some form of legal structure within which to operate and, if relevant, within
which to hold charitable property. Charitable status is dependent on an
organisation having charitable purposes, rather than on the specific legal form
that is taken.[4]
The distinction between charitable status which relates to the existence of
charitable purposes and a charity’s legal structure should be noted. The
choice of structure lies with those who create the charity, or with those who
control it.
1.03
The importance of legal frameworks for voluntary organisations[5] in the European Community has been
recognised. In its 1997 Communication,[6] the European Commission emphasised that:
“The importance of having clear, positive legal and fiscal
frameworks for voluntary organisations and foundations to work in cannot be
underestimated. Organisations find it difficult to develop their work
when such frameworks do not exist, whether they be at national or European
levels.”
1.04
The European Commission has proposed certain measures such as the
creation of a European Association aimed at giving organisations a legal
personality in other countries within the European Union. This would be
an incorporated body established under Community law, which would ensure equal
recognition for associations in all Member States and allow them to operate
freely throughout the European Union.
1.05
Charities in Ireland currently operate under various different legal
structures and each of these structures has a separate body of law governing
its operation. The traditional legal structures used by charities are the
charitable trust, the unincorporated association or the company – usually a
company limited by guarantee.[7]
Charitable trusts are subject to general trust law, unincorporated associations
are subject to general contract law and charitable companies are subject to
company law. Each structure is also subject to the law in respect of
charities. This creates obvious difficulties in any attempt to regulate
and codify any set of rules to apply across all of the different legal
structures.[8]
Difficulties relating to the interaction of charity and trust and company law
have also been encountered in other jurisdictions.[9]
1.06
The nature of the existing legal structures for charities has been
covered in depth in existing literature[10]
and what follows therefore is just a brief analysis of the main legal
structures within which charities currently most commonly operate and how each
is governed. Each structure has its own advantages
and disadvantages and it is widely acknowledged that none of the existing
vehicles is ideally suited to facilitate the activities of modern charities.[11]
1.07
A trust is an arrangement whereby one or more persons hold property for
the benefit of another person or persons. A charitable trust is an
obligation imposed on one or more persons in equity to hold property for
charitable purposes. Charitable trusts are based on equitable principles
and the general law of trusts and have been used by charities for many years.
1.08
A charitable trust is normally established by way of a governing
instrument known as a trust deed or by way of a declaration of trust. The
trust deed sets out the objects of the trust and provides for the
administration of the trust. The trust deed will also normally provide
for the appointment or replacement of trustees whose purpose is to administer
the trust.[12]
1.09
The individuals involved in controlling and managing the administration
of a charity through the structure of a trust are known as trustees.
Trustees may be individuals or corporate bodies[13] or a combination of both. This is
a single-tier structure, with no members other than the trustees who perform
the dual roles of governing body and membership. The legal title to any
trust property is held in the names of individual trustees or in the company’s
name in the case of a corporate trustee.
1.10
In some cases, trustees are effectively self-perpetuating, with future
trustees appointed by the present ones. In other cases, the trust deed
will specify organisations or agencies which are entitled to nominate one or
more trustees, or detail some other procedure by which trustees are identified
and appointed. In default of such provision for the appointment of
trustees they may be appointed by the court or under existing legislation by
the Commissioners of Charitable Donations and Bequests.[14] The trust deed will usually make
provision for trustees’ meetings and the number of trustees required for a
quorum.[15]
1.11
Any contracts entered into by the trustees of a charitable trust are
entered into by them personally. Trustees have no limited liability and
can therefore be sued in their personal capacity for breach of trust even
though acting reasonably and honestly.[16]
1.12
There are no specific provisions in the Trustee Act 1893
or the Charities Acts 1961 and 1973 as to the minimum or maximum number
of trustees required. Section 56 of the Charities Act 1961
makes provision for a body corporate to act as sole trustee in certain
circumstances. However, for the purposes of granting charitable tax
exemption, the Revenue Commissioners specify that there should be a minimum of
three trustees, who are not related and the majority of whom must be resident
within the State.[17]
1.13
The trust deed will also normally contain provisions governing the
distribution of the assets of a charitable trust on termination of the
trust. If the trust deed does not contain such provisions a cy-près[18]
application may have to be made to the Commissioners of Charitable Donations
and Bequests under current legislation.
1.14
The advantages of charitable trusts may be summarised as follows:
· a
charitable trust truly reflects that trustees hold property in trust for its
charitable purposes;
· a
charitable trust is relatively easy to set up and can be an inexpensive
option;
· it
is suitable for smaller charities;
· the
regulatory requirements are minimal.
1.15
The disadvantages of charitable trusts may be summarised as follows:
· trust
law is not easily understood and therefore professionals must usually be
engaged to assist;
·
the trustees of a charitable trust are, to a large extent, confined by
the terms of the trust deed and difficulties may arise in relation to the
alteration of the trust deed;[19]
·
the absence of power to
alter the terms of the trust deed may mean that the trustees have to apply to
the High Court or the Commissioners of Charitable Donations and Bequests for
assistance;
·
problems may arise in relation to replacement or removal of
trustees;
· any
contracts entered into by the trustees are entered into by them personally;
· trustees
have no limited liability and may therefore find themselves personally liable
on such contracts or for breach of trust;
· breach
of trust may arise if trustees fail to discharge the duties of their office or
if they act in excess of the authority conferred by the trust deed;
· a
trust may be unsuitable for larger organisations holding significant assets and
engaging employees;
· accountability
may be minimal as there is no requirement to make any returns or to have accounts
audited;[20]
· on
the death of the last trustee it may be necessary to extract a grant of probate
to administer the assets of the trust.
1.16
Apart from charities, many unincorporated associations such as community
and social enterprise groups are formed for not-for-profit purposes. It
should be noted that this Consultation Paper deals only with unincorporated
associations set up for charitable purposes.
1.17
The use of an unincorporated association as a legal structure for
charities gained popularity in the 18th century with the rise of
voluntary societies and reflected the change from individual to associated
philanthropy.[21]
1.18
An unincorporated association involves a group of individuals working
together towards a common aim. The structure was defined by Slade L.J. in
Re Koepler’s Will Trusts[22]
as: “an association of persons bound together by identifiable rules and having
an identifiable membership”.
1.19
An unincorporated association is usually subject to a governing
instrument in the form of a constitution or a set of rules. The governing
instrument is essentially a contractual agreement between the members of the
association. The constitution sets out the objects of the association,
its membership and structure, and the powers it gives itself to carry out its
objects. An unincorporated association does not have a separate legal
identity distinct from its members. The members usually nominate or elect a
committee to manage the organisation.
1.20
The individuals involved in controlling and managing the administration
of a charity through the structure of an unincorporated association are
normally referred to as the “governing body”, “management committee”,
“committee” or “committee members”.
1.21
The structure is generally two-tier, with the committee accountable to a
wider membership. The constitution will generally make provision for the
election of a committee, meetings of the committee, quorum and chair.
Members will typically hold voting rights at general meetings and will elect
all or some of the committee.
1.22
An unincorporated association has no legal personality of its own.
The legal title to any property is usually vested in the members or, if there
are a large number of members, in the names of some of them. In this instance
the term “trustees” or “holding trustees” may be used to describe the members
in whose names the property is held. The property is effectively held on
a quasi-trust.
1.23
Sometimes the association’s constitution will provide expressly that its
assets are to be held on trust for its charitable objects, so that the
association combines both the concepts of trusts and contract. However as
Luxton points out “[e]ven in the absence of an express declaration of trust, it
is possible to infer a trust for the association’s purposes in its rules;
indeed, in modern times it appears that the assets of every charitable
unincorporated association are to be treated as being held on trust, whether
express or implied”. [23]
1.24
An unincorporated association does not afford the protection of limited
liability to its members. Members are therefore personally liable for
their actions including any debts of the association.
1.25
There are no specific provisions as to the minimum or maximum number of
members but, for the purposes of granting charitable tax exemption, the Revenue
Commissioners specify that there should be a minimum of three officers, who are
not related and the majority of whom must be resident within the State.
1.26
The advantages of unincorporated associations may be summarised as
follows:
· an
unincorporated association is relatively easy and inexpensive to set up;
· it
is suitable for smaller charities;
· it
is suitable for charities where activities are to be carried on in the short
term;
· the
regulatory requirements are minimal.
1.27
The disadvantages of unincorporated associations may be summarised as
follows:
· the
members of an unincorporated association do not have limited liability and may
therefore find themselves personally liable for their actions and any debts of
the association;
· where
the committee members enter into contracts they may be treated as contracting
on behalf of all the members or personally as trustees depending on the
circumstances;
· liability
under contracts will fall on members of the committee, individual members of
the association or individual members personally according to the general law
of agency;
· an
unincorporated association may be unsuitable for larger organisations holding
significant assets and engaging employees;
· on
the death of a member in whose name the charity property was held, it may be
necessary to extract a grant of probate to administer the assets of the
charity.
· there
is no requirement to make any returns or to have accounts audited.[24]
1.28
Companies are established under the Companies Acts 1963 to 2005.
A company is a separate legal entity with an existence independent from that of
its members. There are a number of different types of companies but the
structure most commonly used by charities is a company limited by guarantee and
not having a share capital.[25]
A charity may operate through a company limited by shares but this may not
prove satisfactory due to the possibility of change of ownership by way of the
transfer of shares.
1.29
In a company limited by guarantee each member guarantees to contribute a
specific sum of money, usually a nominal amount, to the company in the event of
it being wound-up. The sum is fixed at a nominal amount so there is no
possibility of profit by the members by means of selling their stake. The
maximum liability of the members is the amount of the guarantee.
1.30
In the case of a charity operating through the
medium of a company, the governing instruments are the memorandum and articles
of association. The memorandum of association sets out the objects of the
company which, in the case of a charity, must be exclusively charitable.
The articles of association set out the internal rules and regulations of the
company.
1.31
The individuals charged with the governance of a charity operating
through the structure of a company limited by guarantee are normally referred
to as members. This responsibility is then normally vested in the
directors or the board of directors of the company who are involved in
controlling and managing the administration of the company subject to the
overall direction of the members.
1.32
This is essentially a two-tier structure, with the board of directors
accountable to a wider membership. Members will typically hold voting
rights at general meetings and will elect the directors.
1.33
While technically charitable companies may have a separate membership
structure, in many cases the same people are both directors and members.
A single-tier structure may be used by simply stating that only directors may
be members and vice-versa. Thus, although these two roles will still exist
within the company, the same people will perform both. In this situation
there is no equivalent of the members (shareholders) to monitor the performance
of the directors.
1.34
In the case of charities operating through a company, the provisions of
the Companies Acts 1963 to 2005 apply. Every company must have at
least two directors.[26]
A body corporate cannot act as a director.[27] Except in certain specified
circumstances at least one of the directors must be resident in Ireland.[28] A company limited by guarantee can have
unlimited membership but must have a minimum of not less than seven[29] and it must have at least two directors. All companies
are required to have a secretary. This person may also be a member or director,
but need not be.
1.35
For the purposes of granting charitable tax exemption, the Revenue
Commissioners specify that there should be a minimum of three directors, who
are not related and the majority of whom must be resident within the State.
1.36
The advantages of using a company structure for charitable activities
may be summarised as follows:
· a
company structure is suited to larger charities with substantial assets and
employing staff;
· incorporation
affords the protection of limited liability to its members;
· incorporation
facilitates contractual relations with third parties;
· assets
can be held in the name of the company as opposed to the names of individuals;
· a
company is a separate legal entity from its members and continues in existence
despite changes in its membership;
· a
company’s memorandum and articles of association may be altered;
·
a company can bring and
defend court proceedings in its own name;
· incorporation
of a charity demonstrates that the charity is regulated and accountable to a
governing body and is required under statute to keep accounts;
· incorporation
may be required as a prerequisite to qualification for certain grants and
funding.
1.37
The disadvantages of using a company structure for charitable activities
may be summarised as follows:
· in
the case of a company, its assets are generally held for the benefit of its
shareholders or members. This concept does not sit easily with the ethos
of charities which exist to carry out a particular purpose and not for the
purposes of making a profit for its members;
· the
costs of forming and maintaining a company are generally higher than those
associated with other legal forms;
· compliance
with the legal requirements of the Companies Acts 1963 to 2005 can prove
onerous in terms of administrative and reporting requirements which are not
ideally suited to charities. Companies are obliged to file an annual
return including a profit and loss account and balance sheet;[30]
· companies
are subject to regulation by the Office of the Director of Corporate
Enforcement;
· incorporation
for the purposes of availing of grants and funding may be onerous and costly
for smaller charities with very few or no assets;
· because
of the regulatory requirements of company law, individuals may be fearful of
becoming involved in charitable companies.
1.38
A more practical view of the disadvantages of using the company vehicle
can be gleaned from The Wheel’s[31]
submission to the Company Law Review Group (based on a survey of its members)
which noted that:
· groups
feel that the duties in complying with company law can bite into time that
should be used for their ‘core activities’;
· groups
feel daunted by the paperwork involved. Additional costs associated with
preparation and filing of yearly accounts also adds to running costs. The
requirement for all submitted accounts to be audited causes groups to have to
pay an accountant to prepare the accounts as well as an auditor;
· prospective
directors are often frightened by and/or misunderstand their responsibilities.
This can make it very difficult to recruit new Board members;
· groups
face significant hidden costs in relation to the increasing responsibilities of
directors as they need to invest in appropriate training for board members
purely so that they know enough to fulfil their legal obligations;
· while
groups wishing to avail of the tax-exemption register and can get some help
from the Revenue Commissioners in drawing up articles and memoranda, the
language is often complex and confusing and professional services and therefore
fees are usually required.[32]
1.39
The Commission acknowledges the views advanced by organisations such as
the Wheel and notes that the increased responsibility may lead to formulaic
compliance with company legislation which may mean that charities miss out on
proper regulatory reporting appropriate to a charity.
1.40
Organisations such as friendly societies and industrial and provident
societies may also be used as structures for charities but are more usually
used as mutual benefit bodies rather than for the benefit of the public at
large.
1.41
Charities may also be formed by Royal Charter or directly by statute.
1.42
A charity can also apply to the Commissioners of Charitable Donations
and Bequests to be incorporated,[33]
that is, granted separate legal status.
1.43
There are currently a number of different legal structures available to
charities. Such structures are necessary to give effect to the charity’s
purpose. In the Commission’s view a major difficulty is that none of
these structures were specifically designed with charities in mind.
1.44
Each of the current legal structures available to charities comes with
its own advantages and disadvantages. The main distinction lies between
the incorporated (companies) and the unincorporated (trusts and associations)
forms of charities. Charitable companies sit somewhat uncomfortably between
charity law, based on trust law, and company law which was designed primarily
for commercial organisations. On the other hand, incorporation offers the
comfort of limited liability which is not available in the case of trusts and
unincorporated associations.
1.45
Regardless of which legal structure is chosen it is imperative, in the
Commission’s view, that trustees or officers or directors need to be aware of
their legal responsibilities. In many instances, charities hold funds
which have been donated by the general public, who have no further scope for monitoring the use of the funds they
have given. Many charities also receive substantial tax benefits.
For these reasons, it is important that all charities are held accountable and
that regulation is applied uniformly regardless of the legal structure
used. With the advent of regulation in the form of a Charities
Regulator,[34]
the issue of legal responsibility will be emphasised. The Commission is
of the view that, regardless of what format it takes, a Charities Regulator[35] will have an important role to play in
educating and informing trustees or officers or directors on their legal
responsibilities.
2
2.01
There is currently no single body in Ireland charged with supervising
charities or ensuring their registration. This may be contrasted with the
situation in England and Wales where the Charity Commissioners, who were
initially established in 1853,[36]
oversee the regulation and registration of charities. There are a number
of organisations in Ireland which interact with charities and these bodies and
their role in relation to charities are discussed in the following
paragraphs.
2.02
The Commissioners of Charitable Donations and Bequests for Ireland, a
collegiate body established in the mid-19th Century,[37] have a wide role as an enabling body,
rather than as a regulatory body with investigative or punitive powers.
2.03
Under the diverse statutory powers currently conferred on
the Commissioners by the Oireachtas in the Charities Acts 1961
and 1973, they may assist charitable trustees where the trust deed
does not provide sufficient powers, for example, by the approval of voluntary
dispositions for less than market value, and by the approval of proposed
compromises of litigation, and also by giving approvals in respect of the
exercise of powers of sale[38]
and the application of the proceeds therefrom; and also giving approvals in
respect of the exchange of land when for the benefit of the charity. They
also have a wide power to frame a cy-près scheme (now without a
financial ceiling),[39]
thus giving a means at minimal cost of applying a gift to an alternative
charitable purpose. This function was exercised more usually by the
courts until 1961.
2.04
They are also empowered to approve a scheme for the establishment of a
common investment fund for charities[40],
which has been done and is of benefit to many small charities with limited
funds. They may also give trustees advice on difficult charity problems
and, where trustees act on this advice and in good faith, the trustees are
personally indemnified.[41]
The Commissioners may certify certain charity cases to the Attorney General for
his attention as the protector of charities.[42] The Commissioners also have a role
in relation to the appointment of trustees,[43] suing for the recovery of charitable
gifts,[44]
directing the institution of legal proceedings[45] and applying for conduct of
administration suits and suits for carrying out trusts of wills in case of
delay.[46]
2.05
The Revenue Commissioners have a role in establishing a charity’s
entitlement to certain tax exemptions under the Taxes Acts.[47] The Revenue Commissioners determine
applications for tax exemptions and maintain a list of organisations which have
been granted exemption from tax.[48]
Each charity which is granted approval is allocated a specific charity
reference number (a CHY number).
2.06
The Revenue Commissioners do not regulate the activities of
charities. However, tax exemption[49]
may be withdrawn (retrospectively if necessary) where the charity does not
comply with its charitable objects or the conditions associated with the tax
exemption.
2.07
A charity wishing to apply for tax exemption must submit a copy of its
governing instrument to the Revenue Commissioners and identify the charitable
activity in which it is involved. The charity must furnish a statement of
its activities to date and its proposed activities referring to the objects or
purposes set out in its governing instrument. Financial statements
including a statement of income and expenditure and a statement of assets and
liabilities must be furnished. Where the annual income exceeds €50,000,
the accounts must be audited. The Revenue Commissioners also stipulate
that there should be a minimum of three officers or trustees or directors and
that the officers or trustees or directors shall not receive any
remuneration. On the winding up of the trust, association or company any
remaining property must be transferred to some other charitable institution
having similar main objects.
2.08
All companies, including charitable companies, are obliged to register
with the Companies Office. A company is subject to rules such as the
keeping of a register of members and directors, annual general meetings,
minutes of meetings, annual returns and notification of any alteration to its
memorandum or articles of association, directors or secretary or in the name of
the company.
2.09
Companies limited by guarantee without a share capital must file an
annual return with the Register of Companies each year. These companies
do not qualify for audit exemption nor do they qualify to file abridged
accounts. They must file full accounts, director’s report and an
auditor’s report. They are also required to hold an annual general
meeting each year.
2.10
The normal requirement to file annual accounts with the Companies Office
does not apply to “a company, not having a share capital, which is formed for
an object that is charitable and is under the control of a religion recognised
by the State under Article 44 of the Constitution, and which exercises its
functions in accordance with the laws, canons and ordinances of the religion
concerned”.[50]
2.11
The Director of Corporate Enforcement also has a role where a charity
operates as a company. The
investigative and enforcement role of the Director is quite extensive.
The Director’s main legal powers arise in the following areas:
· the
initiation of fact-finding company investigations;
· the
prosecution of persons for suspected breaches of the Companies Acts 1963 to
2005;
· the
supervision of companies in official and voluntary liquidation and of
unliquidated insolvent companies;
· the
restriction and disqualification of directors and other company officers;
· the
supervision of liquidators and receivers and
· the
regulation of undischarged bankrupts acting as company officers.
2.12
The Director also has a role in encouraging compliance with company law.
2.13
The Attorney General has a role as the protector of charities. The
Attorney General may bring proceedings in defence of charities and also has a
role when proceedings are brought against charities. He is required to be
notified of any proceedings and may be joined to represent the interests of
beneficiaries or the public interest.
2.14
The Valuation Office has a role in establishing a charity’s eligibility
for rates exemption on charitable grounds.
2.15
The Gardaí investigate any breaches of criminal law by charities and
also have a role in authorising collection permits under the Street and
House to House Collections Act 1962. Authorisation is obtained from
the Garda Chief Superintendent for the locality in which the collection is to
take place. A Chief Superintendent may refuse to grant a collection
permit[51]
or may attach conditions[52]
to the permit. In practice however very few applications are refused.
2.16
Charitable trusts are governed and regulated by general trust law,
unincorporated associations are generally subject to contract law and charities
operating through a company are subject to the Companies Acts 1963 to 2005.
The principal legislation governing charities is contained in:
· the
Trustee Acts 1893 and 1931;
· the
Trustee (Authorised Investments) Act 1958;
· the
Charities Acts 1961 to 1973. [53]
2.17
In December 2003, the Department of Community, Rural and Gaeltacht
Affairs published a consultation paper entitled Establishing a Modern
Statutory Framework for Charities. This was followed by the
publication of a Report on the Public Consultation in September 2004.[54] The Department’s consultation
paper proposes a new independent statutory body for the regulation of
charities.[55]
It is envisaged that the statutory functions of the regulatory body might
include:
· determining
charitable status (with a right of appeal to the High Court);
· maintaining
a register of charities;
· ensuring
the public accountability of charities;
· regulating
and monitoring of charities, including their fund-raising activities, on an
ongoing basis including where necessary enforcing compliance with charities
legislation and in relation to charitable fund-raising activities;
· providing
authoritative guidance to trustees and directors of charities, particularly in
relation to compliance with registration, other legal requirements and good
practice generally;
· protecting
the public interest by monitoring and investigating possible abuses (including
in relation to charitable fund-raising activities);
· advising
the Minister on charity legislation, its own functions, and on matters relating
to charity generally; and informing the public as appropriate or necessary;
· determining
cy-près applications
(that is, by ensuring that all charitable donations, whether willed or
otherwise, are applied to charitable ends, even where the original charity no
longer exists or the aims of the charity have been changed);
· issuing
Codes of Conduct, Best Practice Guidelines and model Constitution documents;
· receiving
notifications of charitable bequests and follow-up monitoring as appropriate;
· issuing
performance reports on areas of the charities sector.[56]
2.18
If these proposals are implemented in legislation, Ireland would have a
regulatory body charged with supervising charities and ensuring their
registration. It is as yet unclear how, in the case of companies
registered under the Companies Acts, the role of a Charities Regulator would be
reconciled with that of the Registrar of Companies and the Director of
Corporate Enforcement who currently regulate the activities of charitable
companies.
2.19
A formal decision on the format of the new regulatory body has not yet been
taken but, in a response to a number of parliamentary questions, the Minister
for State at the Department of Community, Rural and Gaeltacht Affairs, Mr. Noel
Ahern T.D. stated that:
“The new legislation will introduce an integrated system of
mandatory registration, proportionate regulation and supervision. The
independent regulatory body, to be positioned as the centrepiece of the
regulatory regime, will be charged with setting up and maintaining a register
of charities.”[57]
2.20
The Minister also indicated that a Bill to give effect to this proposal
is likely to be published in 2006. The Commission would welcome the
establishment of such a regulatory framework whatever its precise form.
In the absence of a decision on the format of the proposed regulatory body, for
the purposes of this Consultation Paper, the proposed new regulatory body is
referred to as “the Charities Regulator”.
2.21
As can be seen from the above discussion, while there is currently no
regulatory body governing charities in Ireland, there exists a myriad of
organisations with which charities regularly interact. The advent of a
new regulatory body provides an ideal opportunity to integrate some of the
functions currently carried out by the existing bodies and to streamline
procedural requirements for charities. The development of a new legal
structure for charities must be seen as an integral part of the reform
process. A separate new structure would provide an opportunity to
streamline the registration and regulation of charities so that all charities
regardless of their legal status would be subject to the same form of
regulation. This issue will be discussed further in Chapter 4.
3
3.01
The existing forms of legal structures used by charities in Ireland, as
outlined in Chapter 1, are almost identical to those currently used in other
common law jurisdictions, most notably in England and Wales and in
Scotland. Following some major studies, reports and extensive
consultation processes, each of those jurisdictions has decided to introduce a
new legal structure for charities. More recently, in Northern Ireland, a
consultation paper issued by the Charities Branch Voluntary and Community Unit
of the Department for Social Development also proposes a new type of
organisation for charities.[58]
3.02
In considering the need or appropriateness of a new legal structure for
Irish charities it is helpful to review the developments which led these other
jurisdictions to introduce a new legal structure for charities and to consider
the format proposed for these new structures.
3.03 It should be noted that, unlike the situation pertaining in
Ireland, charities in England and Wales have been subject to regulation by the
Charity Commissioners for many years. The Charity Commissioners were
initially established in 1853 and their functions and powers are now contained
in the Charities Act 1993. The Charity Commission carries out
supervisory, policing and advisory functions. It maintains a register of
charities which is open to public inspection. All charities, including
charitable companies, are subject to regulation by the Charity Commission.
3.04 The
recommendation for a new legal form specifically for charities arose from the
Department for Trade and Industry’s Company Law Review.[59] In its earlier consultation, the
Department had stated:
“We believe that there is advantage in having a separate
vehicle for charitable companies which would be more specifically attuned to
their needs and to the public policy interest in the regulation of charities as
well as removing the burden of dual registration and reporting.”[60]
3.05 In
its response to the proposal for a new legal structure, the Charity Law
Association summed up the position by stating that:
“What is missing at present, as the research has shown, is a
form of incorporated charity with limited liability for its trustees which is
simple and inexpensive to administer and subject to the supervisory
jurisdiction only of the Charity Commission and the court.”[61]
3.06 The
proposal for a Charitable Incorporated Organisation (CIO) was subsequently
developed by an advisory group set up by the Charity Commission. The
report from the advisory group[62]
recommended the following basic requirements for CIOs:
·
the legislation should
provide for there to be a new form of legal entity to be known as a charitable
incorporated organisation (CIO);
·
it should provide for the CIO
to be a body corporate (with legal personality separate from that of its members)
which is formed by being incorporated under the legislation and which may sue
or be sued in its own registered name;
·
the members liability should
be limited to the making of a contribution to the settlement of the liabilities
of the CIO in the event of its being wound up, in the amount of the guarantee
(if any) contained in the constitution of the CIO;
·
the new structure should not
be mandatory.
3.07
A comprehensive review of the legal and regulatory framework governing
charities and other not-for-profit organisations was subsequently published in
September 2002. The report Private Action, Public Benefit,
prepared by the Prime Minister’s Strategy Unit, made a series of
recommendations intended to modernise charity law, including recommendations
aimed at improving the range of available legal forms enabling organisations to
be more effective.
3.08
Following an extensive consultation process, in July 2003, the
Government published its response to the Strategy Unit’s proposals – Charities
and Not-for-Profits: A Modern Legal Framework.[63] In its response, the Government
accepted most of the main recommendations in the report. Amongst the
recommendations accepted was one in relation to the creation of a separate
legal form for charities.
3.09
The Charities Bill 2004 was introduced into the House of Lords on
20 December 2004[64]
to give effect to many of the proposals including those made by the Company Law
Review Group. For the purposes of this paper only the proposals relating
to the introduction of a new legal form for charitable organisations, the
Charitable Incorporated Organisation (CIO), will be considered. These
provisions are discussed in detail at 3.17 below.
3.10
The report Private Action, Public Benefit noted that there
were no corporate forms designed to meet the specific needs of charities.
It then listed the difficulties which this may cause:
·
Charitable companies
face a burden of dual registration, regulation and reporting between the
Charity Commission and Companies House;
·
The company corporate
governance regime is not tailored to fit the trustee governance structure;
·
The role for members of
a company limited by guarantee is based on the underlying assumption of a
financial interest in the company, which is not the case for charities;
·
Anyone who is a board
member of a charitable company is both a company director and a charity
trustee. It is unclear exactly how the duties imposed on directors by company
law overlap with the duties imposed on trustees by charity law and, where there
is a conflict, which takes precedence;
·
The company limited by
guarantee is unwieldy for charities in which the directors are the same people
as the members since they have to make some decisions in one capacity and other
decisions in the other capacity.[65]
3.11
The report then went on to recommend:
“That a new
legal form designed specifically for charities, the Charitable Incorporated
Organisation (CIO), be introduced, which will only be available to charitable
organisations.”[66]
3.12
The report outlined the main characteristics of the CIO as follows:
· Incorporated
legal form;
· Members’
liability limited;
· Foundation
and membership formats, so that it is appropriate for charities with and
without a membership structure;
· Flexible
administrative powers, to reflect the diversity of the sector in terms of size
and purpose;
· Model
constitutions prepared by co-ordinating bodies, tailor-made for particular
parts of the sector;
· Requirement
for constitutions to be complete and written in plain English;
· Explicit
statement of trustees’ duty of care, consistent with the Trustee Act 2000;
· Default
provisions for new and existing charities to convert to a CIO by special
resolution or by unanimous written resolution;
· Transfer mechanisms to ease conversion from other
incorporated forms.
3.13
The report recommended
that, to begin with the CIO should be an additional legal form for charities
but that the Government should consider, three years after the introduction of
the CIO, whether or not other corporate forms should continue to be
available for charities.
3.14 Following
the publication of the report Private Action, Public Benefit, the
UK Government sought the views of organisations and people interested in the
law and regulation of not-for-profit organisations through an open public consultation.
There were 1,087 responses from people and organisations including 124 from
umbrella bodies including, for example, the National
Council for Voluntary Organisations (NCVO).[67] Organisations such as the Charity
Law Association[68]
also gave detailed responses.
3.15
The UK Government’s response Charities and Not-for-Profits: A Modern
Legal Framework noted that there was a high degree of support for the
proposal on a new legal form
for charities. However, many respondents believed that that the
three year review period was too short to allow a proper assessment of the
CIO’s prospects. There was also significant support for the view that the
CIO form should be an addition to the existing range of forms, not a
replacement for any of them. In other words, that it should not become
the compulsory form for charities wanting to establish themselves in a
corporate form.
3.16
The Government accepted the recommendation that a new legal form be
introduced for charities and indicated that it would include provisions for the
introduction of the CIO in its Charities Bill. It proposed to review the
need for other legal forms five years after the introduction of the CIO.
3.17
Clause 34 and Schedule 7 of the Charities
Bill 2004 make provision for a CIO. The CIO is the first legal form
to be created specifically to meet the needs of charities. Its purpose is
to avoid the need for charities which wish to benefit from incorporation to
register as companies and be liable to dual regulation by Companies House as
well as the Charity Commission.
3.18
The Bill contains provisions dealing with:
· the
nature and constitution of the CIO;
· its
registration as a charity;
· the
conversion of a charitable company or registered industrial and provident
society into a CIO;
· the
amalgamation of CIOs, the transfer of a CIO's property, rights and liabilities
to another CIO;
· the
Secretary of State's power to make regulations about the winding up, insolvency
and dissolution of CIOs, and about their administration.
3.19
The main features are as follows:
· a
CIO must be a body corporate with a constitution (in a specified form) and one
or more members with no or limited liability;
· any
one or more persons may apply to the Charity Commission for a CIO to be
constituted and registered as a charity;
· a
charitable company or a registered industrial and provident society (except for
a company or society which has a share capital not fully paid up, or which is
an exempt charity) may apply to the Charity Commission for conversion to a CIO;
· two
or more CIOs may apply to the Charity Commission to be amalgamated;
· one
CIO may, subject to approval by the Charity Commission, transfer all its
properties, rights and liabilities to another;
· the
Secretary of State may make regulations about the winding up, insolvency,
dissolution, and revival and restoration to the register following dissolution,
of CIOs.
3.20
There are further provisions:
· that
a CIO may do anything which is calculated to further its purposes and gives the
CIO's charity trustees the responsibility of managing its affairs;
· concerning
the validity of acts done by the CIO and provide that, in general but with some
limitations, the validity of those acts may not be called into question on the
ground that the CIO lacked constitutional capacity;
· that
require members of a CIO and CIO charity trustees, subject to regulations made
by the Secretary of State, to act in the way most likely to further the
purposes of the CIO and, in the case of trustees, to exercise reasonable care
and skill;
· that
prevent CIO charity trustees from benefiting personally in certain
circumstances from arrangements or transactions entered into by the CIO;
· that
allow a CIO to amend its constitution and specifies the circumstances in which
it may do so. The CIO must send the Charity Commission a copy of the
amendment and the Commission may refuse to register it in certain
circumstances.
3.21
At the time of writing the Charities
Bill 2004 has been passed by the House of Lords and and is currently under
consideration in the House of Commons.
3.22
In Scotland, charity law was, until recently, governed by the Law
Reform (Miscellaneous Provisions) (Scotland) Act 1990.
3.23
Since the enactment of the 1990 Act there were a number of reviews of
charity law in Scotland culminating in the Scottish Charity Law Review
Commission’s Report (the Mc Fadden Report) in 2001.[69] As in the UK, this report
recommended, inter alia, the introduction of a new form of incorporation
for charities called Charitable Incorporated Organisations (CIO’s). The
report recommended that the CIO should be optional for charities and that
existing charities incorporated under other regimes should have the option to
convert to the new structure.
3.24
A lengthy public consultation process took place on the proposals
regarding charities. There were 201
responses to the consultation. Respondents represented a broad range of
organisations. The responses came mainly from local and national
charitable organisations, churches, professional associations and interested
individuals, with smaller numbers from public bodies and various umbrella
organisations[70],
including professionals, lawyers and chartered accountants.
3.25
Following the consultation process, the Charities and Trustee
Investment (Scotland) Act 2005 was enacted on 14 July 2005.[71] The 2005 Act contains provisions
for Scottish Charitable Incorporated Organisations (SCIOs). These
provisions are similar to the proposals for a Charitable Incorporated
Organisation (CIO) to be introduced in England and Wales. The SCIOs are
an optional new structure and will be regulated by the Office of the Scottish
Charity Regulator (OSCR).
3.26
The main provisions regarding SCIOs are as follows:
· a
SCIO must be a corporate body with a constitution with more than one member;
· the
members of a SCIO will have no liability to contribute to the assets if it is
wound up;
· the
SCIO must apply for registration to the Charity Register;
· a
charity that is a company or an industrial and provident (or friendly) society
may apply for conversion to a SCIO;
· the
OSCR will consider the application for conversion and may only allow conversion
if the charity when converted can continue to meet the charity test;
· a
number of SCIOs can amalgamate with the consent of the OSCR;
· a
third party dealing with a SCIO is entitled to assume that the SCIO has
sufficient powers under its constitution to act in the way it is attempting or
proposing to act.
· the
Scottish Ministers may make regulations setting out further provisions on
SCIOs.
3.27
In Northern Ireland, the Charities Branch Voluntary & Community Unit
of the Department for Social Development has recently published a Consultation
on the Review of Charities
Administration and Legislation in Northern Ireland in 2005.[72]
3.28
The Department proposes to set up a new type of organisation, equivalent
to the Charitable Incorporated Organisation (CIO) to be introduced in England
and Wales. This would be similar in some ways to a limited company but
would not need to be formally constituted as such, and would have the following
characteristics:
· it
would have legal personality;
· it
would protect trustees from personal liability for the charity's debts;
· it
would avoid the disadvantage of dual regulation under both company and charity
law;
· it
would have to be established for charitable purposes;
· it
would be able to change its purposes as long as the new purposes remained charitable
and the Northern Ireland Charity Commission[73] consented to the change;
· it
would have to apply its income only for charitable purposes;
· on
winding up, all its assets would have to be applied for appropriate alternative
charitable purposes;
· it
would have to be registered by the Northern Ireland Charity Commission in the
register of charities before it could become a CIO;
· it
would be regulated by the Northern Ireland Charity Commission;
· an
existing charitable company could convert easily to CIO form, without having to
make any change to its purposes.
3.29
The importance to the European economy and society of co-operatives,
mutual societies, associations, foundations and social enterprises (which
together are sometimes referred to as the social economy) is now receiving
greater recognition in Member States and at European level. A draft
proposal for a Regulation on the Statute for a European Association (EA)[74] has been advanced to enable associations
to take advantage of the single market in the same way as companies can.
Once constituted, it is proposed that an EA may carry out any activity
necessary for the achievement of its aims in a Member State, whilst remaining
subject to local legal and administrative rules governing the conditions under
which the activity in question may be exercised. It is hoped that the EA
would simplify the rules for organisations that operate across borders and
eliminate administrative difficulties in relation to cross border transactions.
3.30
The European Commission has also emphasised the need for higher
standards of transparency and accountability on the part of non-profit
organisations. It is particularly concerned about the vulnerability of
the non-profit sector to terrorist financing and other criminal abuse.
The Commission has issued a Draft Recommendation to Member States regarding
a Code of Conduct for Non-Profit Organisations to promote transparency and
accountability best practices.[75]
The recommendation is designed to implement the Financial Action Task Force
Recommendation VIII in relation to non-profit organisations. This
recommendation states that countries should review the adequacy
of laws and regulations that relate to entities that can be abused for the
financing of terrorism. Non-profit organisations are particularly vulnerable,
and countries should ensure that they cannot be misused:
· by
terrorist organisations posing as legitimate entities;
· to
exploit legitimate entities as conduits for terrorist financing, including for
the purpose of escaping asset freezing measures; and
·
to conceal or obscure the clandestine diversion of funds intended for
legitimate purposes to terrorist organisations.
3.31
Apart from these developments, it should be noted that there are
continuing doubts about whether EU Company Law Directives apply to charitable
companies or might do so in the future.[76]
Article 48 of the EC Treaty provides that Company Law Directives should not
apply to not-for-profit bodies, but there is unresolved ambiguity about whether
not-for-profit bodies, incorporated under a regime which also allows for the
incorporation of commercial bodies, and has no lock on their re-constituting as
commercial bodies, are exempt from the provisions of Company Law
Directives. These type of ambiguities lend further support to the need
for a separate legal structure for charities.
3.32
While developments in Northern Ireland are at an early stage, it is
clear that in England and Wales and in Scotland the need for a separate legal
structure for charities has been on the agenda for a number of years and has
been the subject of extensive consultation and legislative action which will
lead to a new legal structure specifically for charities. The involvement
of charities themselves in this process should be noted. For example, the members of the advisory
group to the Charity Commission in relation to the proposals for a CIO were
drawn from charities, umbrella bodies and professional bodies advising
charities and with a wide experience of the charity sector.
3.33
As noted above, an overwhelming number of the respondents to the public
consultations welcomed the proposals in relation to the CIO. This is
obviously evidenced by the fact that both jurisdictions have seen fit to make
provision for CIOs in their recent enacted legislation.
3.34
Given that the existing legal structures being used by charities in
Ireland are similar to those in England and Scotland, the experience and
developments in those jurisdictions has to carry weight and be of some
assistance in informing the current Irish position. The need for a
similar type structure in Ireland will be considered in detail in Chapter 4.
4
4.01
As noted earlier, there
is no legal structure specifically designed to cater for charities. Having
looked at the existing legal structures for charities, the advantages and
disadvantages associated with each and the current and proposed regulatory
frameworks, the question arises as to whether there is there any real need for
a new legal structure for charities operating in Ireland.
4.02
A number of studies and reports have already been undertaken in relation
to charity law in Ireland. While none of these studies focused
exclusively on
the issue of legal structures for charities, many contain useful insights and
suggestions into the topic which are summarised hereunder.
4.03
The White Paper on a Framework for Supporting Voluntary Activity and
for Developing the Relationship between the State and the Community and
Voluntary Sector[77]
published by the Government in 2000 contained a wide range of practical
measures to ensure better support for community and voluntary groups.
This paper stated that:
“It is strongly recommended that Community and Voluntary
organisations should adopt an appropriate legal framework; in most cases this
will – under the legal arrangements at present available – involve registering
as companies limited by guarantee. For this purpose it is proposed that
the Companies Office would provide guidelines for registration.
In this regard the Government accepts the need for a more
modern legal framework of law governing the sector. It welcomes the
review of charity legislation being carried out at present by the Law Society
and looks forward to publication of that report in due course …”
Tipping
the Balance[78]
was a response by the voluntary sector to the White Paper. It noted that:
“It is acknowledged that many volunteers now work in a
management role with responsibilities as employers and financial managers.
There can be a fear of the legal responsibilities involved, especially for
directors.”
4.04
The Law Society’s Report Charity Law: The case for reform[79] published in 2002 (and mentioned
in the Government’s White Paper) represented a comprehensive review of charity
law in Ireland. In its review of the legal structures for charitable
organisations,[80]
it summarised the discussions in the UK over the previous decade on the
question of a new incorporated structure for charities including the
consultation paper in 2000 from the Department of Trade and Industry (DTI)
Company Law Review Steering Group, that there should be a new corporate
structure for charities.[81]
4.05
The report indicated that there was an advantage in having a separate
vehicle for charities, which would be more specifically attuned to their needs
and to the public policy interest of charities, as well as removing the burden
of dual registration and regulation.
4.06
The report recommended that the proposals of the DTI be considered,
notably:
· that
a new form of incorporation called Charitable Incorporated Organisation (CIO)
should be made available to Irish charities;
· that
the CIO should be restricted to charities, and
· that
the CIO should be optional not mandatory for charities.
4.07
It also recommended that the proposals of the UK Charity Commission in
relation to CIOs be considered, specifically as those proposals had been made
as a result of their experience and consultation with the charity sector and
added that any development of a new legal structure for charities along these
lines should take into account developments in the UK and the wider European
Community.
4.08
In formulating its proposals it is clear that the Law Society consulted
widely with charities and also drew on the experiences of the legal profession
in dealing with charities over the years.
4.09
In its review of company law[82],
the Company Law Review Group (CLRG) recommended, inter alia, that there
would be “a new legal vehicle for bodies wishing to maintain clearly identified
objects – they would become known as designated activity companies (DACs) ”
4.10
The Wheel[83]
has made a submission to the CLRG suggesting that:
“There is a need for a wider examination of the existing
legal entities Charities and Community/Voluntary Groups operate under.
The Wheel would welcome a submission by the CLRG to the Department of
Community, Rural, and Gaeltacht affairs encouraging it to avail of the
learnings from best international practise in this area.”
4.11
The Company Law Review Group’s work on a new Companies Bill is
ongoing and its proposals in relation to DACs are not yet known. However,
it is clear that the DACs will come within the remit of the Companies Acts
regulatory system.
4.12
In 2003, the Department of Community, Rural and Gaeltacht Affairs issued
a public consultation on the modernisation of charity law.[84]
In relation to a new form of incorporation for charities the paper stated that:
“ … there could now be a window of opportunity for the
charities sector to liaise with the Department of Enterprise, Trade and
Employment in the development of a new legal structure for charities and
designed with their requirements in mind: That Department has begun work
on the preparation of legislation in response to the recommendations in the
2002 Company Law Review Group report.”
The Group recommended, inter alia, that there would be
a new legal vehicle for bodies wishing to maintain clearly identified objects –
they would become known as designated activity companies (DACs). It might
be possible for a special form of DAC – a charitable designated activity
company (CDAC) – to be created specifically and exclusively for charities; and
existing charities could have the option of converting to this new legal
structure.” [85]
4.13
Out of a total of 85 submissions, including a number of joint
submissions, received by the Department in response to the public consultation,
11 contained reference to the question of a legal structure for charities.
4.14
The external Report on the public consultation[86], which was published by the Department
of Community, Rural and Gaeltacht Affairs in September 2004, addressed comments
made in submissions on the question of a CDAC as follows:
“The submissions received voiced strong support for the
incorporation into company law reform legislation, currently under review by
the Department of Enterprise, Trade and Employment, of a legal vehicle tailored
to the specific needs of the charity sector.”[87] As to how concrete effect could be
given to this support, in terms of shaping the content of this legislation, a
number of respondents felt that the Department or Caradas [a suggested name for
the Charities Regulator] should lead the way on the development of the CDAC on
behalf of the charity sector. One rationale offered for this viewpoint
was that, given the absence of a representative sectoral voice, the sector
lacked the capacity to avail of the window of opportunity now existing to
engage with the Department of Enterprise, Trade and Employment. Other
respondents made a similar request of the Department but were silent as to
their reasons.”
4.15
The report noted that:
“There was broad consensus on the Consultation Paper’s
proposal to avoid dual reporting obligations for registered charities. However,
opinions diverged on how this objective could be best achieved. Some
respondents considered that the Companies Registration Office should continue
to receive charitable company annual returns, which Caradas [a suggested name
for the Charities Regulator] would then recognise as satisfying its standards
without requiring further filing by charities; others believed it would be
better for Caradas to be the lead body with regard to all charity returns such
that submission to Caradas would fulfil the requirements of the Companies
Registration Office as regards the filing of returns.”[88]
4.16
CORI[89]
offered the following proposals regarding the new legal structure for
charities, to the effect that it should:
· be
a corporate body, with separate legal personality distinct from its members;
· provide
limited liability for those running and involved in the charity;
· remove
the burden of dual registration and regulation with the Companies office, the
Revenue Commissioners and the proposed Charities Regulator;
· provide
a cheap and efficient mechanism to allow charitable companies limited by
guarantee convert to this new legal structure by special resolution of its
members.
4.17
In its response to the Department, PLANET[90] stated that:
“Many groups have to go down the road of becoming a company
limited by guarantee with all the necessary paperwork to go with it. Many
individuals involved, do not have the time or capacity to fulfil the
requirements needed. There has to be a simple legal and administrative
structure for voluntary groups to work within that would fulfil the objectives
of the state’s concerns but also those of the charity/voluntary body.”[91]
4.18
FLAC[92]
agreed that the establishment of a new form of incorporation solely for
charities should be considered. They were of the view that all existing
charities whether unincorporated associations, trusts or companies limited by
guarantee, could convert to this form of legal structure, if they wished, and
all new charities which wished to avail of the advantages of
incorporation would in future be required to adopt this legal structure.
They considered that the registration body for this new form of incorporation
should be the proposed new regulatory body and not the Companies Registration
Office.
4.19
FLAC outlined the advantages of a separate legal vehicle specifically
geared towards the non-commercial needs and aims of charities and operated by
the new regulatory body as follows:
· It
would do away with the need for multiple registrations, regulation and
reporting for charities (to the Companies Registration Office/Director of
Corporate Enforcement, Revenue Commissioners and the proposed new body) thereby
cutting costs and administration;
· All
trustees/directors etc of bodies adopting this form of legal structure
would be subject to the same statutory standard;
· All
charities incorporated under the new vehicle would have separate legal
personality;
· All
trustees/directors would have limited liability.[93]
4.20
The Wheel pointed out that:
“…the current legal structures for charities are not suited
to the nature of charitable entities and that for future development the new
regulatory body could explore changes to the legal structures with the
Department of Enterprise, Trade and Employment.”[94]
4.21
In the Commission’s view, these extracts indicate that within the
voluntary sector there is a perceived need for a new legal structure for
charities.
4.22
It is generally recognised that none of the existing legal structures is
ideally suited to the nature of charitable entities and none were devised with
charities in mind. Each structure has a number of different requirements
and obligations and each has its own advantages and disadvantages.[95]
4.23
The advantages of having a separate legal structure for charities are
most acutely highlighted by considering and contrasting a possible new
structure with the main corporate format currently used by charities, that is,
the company limited by guarantee. As noted earlier, the principal reason
why charities opt for incorporation are to avail of the protection provided by
limited liability. In other cases incorporation proves necessary because
certain grants are only available to incorporated organisations.
4.24
In the Commission’s view, it is clear that companies were not designed
to cater for not-for-profit organisations, in fact, quite the opposite is the case.
Companies were designed as structures to cater for entrepreneurial activity and
to meet the needs of commercial businesses. They generally operate to
earn profits for their shareholders. By contrast, the ethos of charities
is radically different. Charities exist to carry out a particular purpose
and not to make a profit for their members.
4.25
Companies must currently register with the Register of Companies.
With the proposed advent of a Charities Regulator[96], it is envisaged that all charitable
organisations would have to register with a regulatory body. This could
lead to the possibility of dual requirements in the case of charities operating
as companies. Apart from registration, other administrative requirements
such as reporting and the filing of accounts that are currently required of
companies may also be a feature of the new charity regulation regime. A
separate legal structure for charities would eliminate the burden of dual
registration and administrative requirements.
4.26
Under existing legislation every company must have at least two
directors.[97]
However, the Company Law Review Group (CLRG) has recommended that private companies
limited by shares (the new model company envisaged by the group) need only have
one director.[98]
This recommendation has been incorporated into the general scheme of the CLRG’s
draft Companies Bill.[99]
It is not yet clear whether companies limited by guarantee will also be able to
operate as single member companies. As noted earlier, the Revenue
Commissioners require a minimum of three trustees or officers or directors if a
charity is to be granted charitable status and related tax exemptions. The
Commission has also provisionally recommended that there be a minimum of three
trustees or officers or directors.[100]
4.27
At present, charity trustees may be personally liable for losses
incurred by the charity even though they are acting as volunteers. The
Revenue Commissioners do not regard the provision of insurance as a charitable
object.[101]
The lack of indemnity insurance for personal liability may act as a deterrent
to volunteering as a charitable trustee. By contrast, a company may
purchase and maintain for any of its officers or auditors insurance in respect
of liability.[102]
4.28
As company law becomes more complex, it is becoming increasingly
difficult for organisations to be confident that they are compliant. The
directors of a charitable company may be personally liable under the fraudulent
or reckless trading provisions of the Companies Acts 1963 to 2005[103]
even though acting in a purely voluntary capacity. If the Charities
Regulator is responsible for the regulation of all charities this will lead to
dual regulation in the case of charities operating through companies.
Alternatively, there may be two different regulatory regimes
4.29
The current corporate governance scheme is not necessarily tailored to
fit the “trustee” nature involved in the governance of charities. There
is legal uncertainty as to how the fiduciary duties of directors (now to be put
on a statutory footing in the CLRG’s draft Companies Bill) interact with
the fiduciary duties of charity trustees. While the duties of a director
may in some ways be analogous to those of the trustees of a charity, they are
by no means identical.
4.30
Some charities do not have a membership structure and the trustees are
both directors and members. This can lead to some “artificial” decision
making where the trustees have to act in different capacities merely to
facilitate the requirements of the Companies Acts. A further
difficulty, in the Commission’s view, is that there is confusion as to whether
a company holds its property as trustee. A charitable company may hold
particular property, as distinct from the general property of the company, on
trust for specific charitable purposes.
4.31
Apart from providing an alternative to incorporation as a company, a new
legal structure may also compare favourably with the other main structures
currently in use, that is, the charitable trust and the unincorporated
association. Neither of these structures confers limited liability and
while, in some circumstances, trustees or committee members may be absolved for
breaches of duty, there is no guarantee of such an outcome and trustees or
committee members may find themselves personally liable to the charitable fund.
4.32
Charitable trusts are subject to the general law of trusts. Trust
law is a body of law which has generally derived from case law as developed by
the courts over many centuries. Such law is generally not easily
accessible to members of the public who must therefore invariably engage
professionals to assist them. Many charities have no - or only limited
funds - available to spend on professional advice and therefore it is important
that the law relating to them is as clear and readily understandable as
possible.
4.33
The Commission is also conscious that, since there are no formal
requirements for unincorporated associations, such groups may frequently
develop in a casual and unorganised fashion. Difficulties may arise when
such an organisation grows in size without having in place rules for the
organisation’s proper administration and operation. Where assets are
being held for public benefit, the Commission is strongly of the view that such
organisations should be subject to regulation based on transparency and
accountability.
4.34
As noted in Chapter 3, Charitable Incorporated Organisations (CIOs) are
being introduced in England and Wales and in Scotland and are also being
recommended in Northern Ireland. From a cross-jurisdictional point of
view there may be benefits to having a similar type structure in Ireland.
This would facilitate the mutual recognition of charities and assist charities
which are currently operating in a number of different jurisdictions.
This would also facilitate the concerns expressed at EU level concerning the
potential for misuse of charitable and voluntary organisations, in particular
in terms of money laundering.[104]
4.35 On
the other hand, it could be argued that the range of currently available legal
forms is adequate and that adding to it would simply cause confusion among
charities. But from the point of new charities wishing to establish, the
Commission considers that the option of a tailor-made structure would suit them
unless they had some specific reason for opting for one of the other
structures. As regards existing charities, the Commission is confident
that any confusion between existing structures and the new structure could be
easily remedied by way of appropriate guidelines which could be issued by the
Charities Regulator.
4.36
The fact that there is currently no statutory body for the regulation of
charities in Ireland means that some of the problems which became apparent in
England such as dual registration, reporting and regulation have not yet
surfaced in Ireland. But, as noted in Chapter 2, the advent of a
Charities Regulator appears to be imminent and this may give rise to precisely
the same set of problems experienced in England.
4.37
While there has been no comprehensive study undertaken on the
appropriateness of the existing legal structures for charities, the
Commission’s survey of the available literature as outlined in this Paper
indicates a broad view that there is a need for a structure tailored to fit the
needs of charities. One of the difficulties is that the charity sector in
Ireland has lacked the ability to undertake capacity-building initiatives on
behalf of the sector. This can be contrasted with the situation in other
countries where one finds many umbrella bodies for the charity sector for
example in Northern Ireland, Scotland, England and elsewhere.
4.38
The Charities Regulation Study Group[105] was of the view that this shortcoming
in relation to representation for charities could jeopardise the sector’s
ability to respond to the current initiatives in relation to charity law.
The study group noted that:
“The Consultation Paper[106] observes that the preparation of new
company law by the Department of Enterprise, Trade and Employment “could now be
a window of opportunity for the charities sector”. The study group is
concerned about the capacity of the charity sector to avail of this window of
opportunity given the absence of representative structures to speak on behalf
of the sector. The absence of a representative structure for the charity
sector in Ireland has been noted elsewhere in this submission and we regard it
as an issue which needs to be addressed urgently.
The study group considers that Caradas [a suggested name for
the Charities Regulator] should have a key role in preparing a legal vehicle
for all charities, taking the views of all key stakeholders into account.
This would be consistent with one of its proposed statutory functions
namely: “(g) advising the Minister on charity legislation, its own functions,
and on matters relating to charity generally; and informing the public as
appropriate or necessary”. In England and Wales, the Charity Commission
is playing this role where the concept of a Charitable Incorporated
Organisation is being considered as the legal template for all charities.” [107]
4.39
The Commission agrees
with the view that the lack of a comprehensive umbrella body[108] representing the charity sector should
not disadvantage the sector as a whole and that, in the absence of such
representation, it may be appropriate for the Charities Regulator to take the
lead in relation to consulting with the sector regarding the format of a new
legal structure for charities.
4.40
In relation to
charities operating through companies, the Department’s 2003
Consultation Paper did not directly address the question of who the appropriate
Regulator for such charities should be or precisely how the new regulatory body
would interact with existing regulatory bodies.[109] The Department’s 2004 Report on
the Public Consultation refers to submissions which raised issues lying outside
the competence of the Department of Community, Rural and Gaeltacht Affairs.[110]
The question of a new Charitable Designated Activity Company (CDAC) is listed
as one such area and it would seem that any submissions made on this issue were
passed to the Department of Enterprise, Trade and Employment. As already
noted,[111]
it seems clear therefore that even if a CDAC were to be introduced, it would
form part of company law and would be subject to regulation under the Companies
Acts. The Commission is concerned that, as a result of this reality,
it seems that the discussion of a new legal structure for charities may to some
extent fall outside the remit of the Department’s consultation process on the
regulation of charities. The Commission has concluded that it would be
preferable if the issue of the appropriate legal structure for charities was
dealt with in tandem with the proposed legislation on the regulation of
charities. In light of the general consensus on the need for a structure
tailored for the charity sector as outlined in this Paper the Commission
provisionally recommends that such a structure should be established.
4.41
The Commission
provisionally recommends the introduction of a new form of legal structure for
charities, to be called the Charitable Incorporated Organisation (CIO).
4.42
Apart from charities, the not-for-profit sector includes many other
community and social enterprise groups. These bodies may also suffer the
same problems as charities in relation to the suitability of current corporate
structures. The question therefore arises as to whether any new legal
structure for charities should also be available to other not-for-profit
bodies.
4.43
The UK Company Law Review Steering Group considered whether charities
and other not-for-profit bodies should both be in a position to avail of the
new corporate vehicle. The group was of the view that there should be
legislation for a distinct form of incorporation for charities but not for
other third sector bodies.[112]
They considered that public interest groups did not face the same problem of
dual regulation which charities did. The other main difficulty with
providing the same legal structure for charities and public interest groups was
the danger that it might cause a blurring in the public mind of important
conceptual distinctions between charitable and non-charitable bodies. The
Commission is equally concerned at the potential risk of confusion in the minds
of the public if the new legal structure was also made available to
non-charitable bodies.
4.44 A
separate vehicle, the Community Interest Company (CIC), has now been made
available to community and other social enterprises in the UK.[113]
The CICs will be easy to set up, with all the
flexibility and certainty of the company form, but with some special features
to ensure they are working for the benefit of the community. CICs will
report to an independent regulator on how they are delivering for the community
and how they are involving their stakeholders in their activities. An organisation cannot be both a CIC and a charity.
CICs will be more lightly regulated than charities but will not have the
benefits of charitable status, even if their objects are entirely charitable in
nature. The Commission sees the general merits in this approach but, for
present purposes, has not considered this wider issue and has confined itself
to consideration of the appropriate legal structures for charities.
4.45
The Commission provisionally recommends that the need for a separate
legal vehicle for community interest groups in Ireland requires further
consideration.
4.46
The Commission’s proposed Charitable Incorporated Organisation (CIO)
should be designed specifically to meet the needs of charities and to
counteract the disadvantages associated with the existing legal
structures. It is clear that there has been a great deal of agreement in
the form of the proposals emanating from considerable public consultation which
has taken place in other jurisdictions and which is set to produce legislative
reform in the near future.[114]
In the Commission’s view, those proposals should form the basis for reform in
this jurisdiction.
4.47
The proposed CIO structure should provide:
· A
separate legal entity for its members and
· There
should be a minimum number of 3 charity trustees;
· There
should be limited liability for members;
· The
proposed CIO structure may be one-tier, where the members act as charity
trustees, or two tier for charities with charity trustees and members;
· A
model constitution should be designed in consultation with the charity sector;
· The
charity trustee’s duty of care should be consistent with that contained in the
proposed legislation on the regulation of charities.
4.48
The Commission also provisionally recommends that the proposed
legislation on the regulation of charities should also contain provisions
relating to:
· the
simple conversion of existing charities to the new format;
· the
amalgamation of charities;
· the
transfer of property, rights and liabilities to another similar organisation;
· winding-up,
insolvency or dissolution;
· the
amendment of the constitution of a charity.
4.49
The Commission provisionally recommends the following features for
the CIO:
· The
proposed CIO structure should provide a separate legal entity for its members;
· There
should be a minimum number of 3 charity trustees;
· There
should be limited liability for members;
· The
proposed CIO structure may be one-tier, where the members act as charity
trustees, or two tier for charities with charity trustees and members;
· A
model constitution should be designed in consultation with the charity sector;
· The
charity trustee’s duty of care should be consistent with that contained in the
proposed legislation on the regulation of charities.
4.50
The Commission provisionally recommends that the proposed legislation
on the regulation of charities should also contain provisions relating to:
· the
simple conversion of existing charities to the new format;
· the
amalgamation of charities;
· the
transfer of property, rights and liabilities to another similar organisation;
· winding-up,
insolvency or dissolution;
· the
amendment of the constitution of a charity.
4.51
A further question arises as to whether charities carrying on trading
activities should be able to avail of the proposed CIO structure.
Currently, a charity can avail of exemption from tax on trading activities if
they satisfy the following Revenue Commissioner conditions.
4.52
The main requirement is that the profit of the trade must be applied
solely for the purposes of the charity. In addition, one or other of the
following conditions must also be satisfied:
· the
trade must be exercised in the actual carrying out of a primary purpose of the
charity (an example would be a religious organisation selling religious books
or magazines to facilitate the main object of the organisation).
or
· the
trade must be carried on by the beneficiaries of the charity (an example would
be the sale of goods produced by people with disability through a shop or mail
order catalogue.)[115]
4.53
The Commission considers that any charity which carries on trading
activities which satisfy these requirements should be allowed to avail of the
proposed CIO structure. But where a charity sets up a company for trading
purposes which does not satisfy these requirements it should not be in a
position to avail of the proposed CIO structure and would be obliged to
register as a company under the Companies Acts.
4.54
As already noted[116]
one of the functions of the proposed Charities Regulator would be to ensure the
public accountability of charities. Charities established under the
Commission’s proposed CIO structure should not be subject to less rigorous
standards than would apply if they were established as companies. It is
envisaged that under the monitoring programme of the Charities Regulator, each
charity will be obliged to prepare an annual report and to make an annual
return to the Charities Regulator.[117] The submission of an annual
return will give the general public a greater insight into the charity’s
activities and will thereby enhance the public accountability of
charities. This annual return should include both financial information
and an activity statement. Given the diversity in terms of the size of
charities and the activities they undertake, it may be appropriate for the
Charity Regulator to set different annual return and audit requirements
depending on the size of the charity involved.[118] Many charities undertake
different activities under separate structures or may operate in various
jurisdictions. Where a charity is operating through a number of subsidiary
undertakings the Commission would envisage that consolidated accounts should be
submitted in addition to the individual charity’s accounts.
4.55
The Commission provisionally recommends that charities carrying on
trading activities directly related to their charitable purposes should be
allowed to avail of the proposed CIO structure.
4.56
The Commission has also
considered whether the new legal structure should be available as an additional
option to existing methods of incorporation or be mandatory.
4.57
The Commission acknowledges that it would not be feasible to prevent
charities from setting up as trusts or unincorporated associations. This
is particularly so in view of Article 40.6 of the Constitution which guarantees
the right of citizens to form associations and unions. Of course such
entities could be denied charitable status and related tax exemptions but this
might lead to a category of “unofficial charities” which would remain outside
the regulatory regime. This would clearly be undesirable in an era where
the aim is to ensure public confidence by the proper supervision of charities.
4.58
Many existing charities constituted as trusts or unincorporated
associations might benefit from a more structured constitution, and more
certainty about the powers and duties of their trustees and members in addition
to the protection afforded by limited liability status. In many instances
trusts and unincorporated associations are compelled into a corporate structure
if they wish to avail of grants and funding. The Commission has concluded
that it would be preferable, certainly in the immediate future, that the
proposed CIO structure should be available as an optional structure for
existing charities.
4.59
The Commission provisionally recommends that existing trusts and
unincorporated associations should be given the option of converting to the
proposed CIO structure and that conversion should be capable of being achieved
in a simple, cost effective, manner.
4.60
With regard to
charities registered as companies under the Companies Acts three
scenarios may be envisaged:
·
All existing
incorporated charities would be obliged to convert to the new structure and new
charities wishing to incorporate would only be allowed to use the new
structure;
·
Existing incorporated
charities would be given the option of converting to the new structure
but the new structure would be mandatory for new charities wishing to
incorporate;
·
Existing incorporated
charities would be given the option of converting to the new structure and new
charities would also have the option of choosing the new structure or other
legal status.
4.61
As regards the first option, while it might be legally possible to
prevent new charities from incorporating under the Companies Acts, it
might prove more difficult to require conversion of existing companies.
Requiring existing charities to convert to the new structure might entail
some additional costs and upheaval for charities which are well established in
their existing categories. However, as noted above the Commission is of
the view that conversion should be capable of being achieved in a simple cost
effective manner.
4.62
As regards the second option, it could be regarded as inequitable to
allow existing charities the option of converting to the new structure while
denying new charities the option of using existing structures. Again the
spectre of some form of “unofficial charities” would be unacceptable.
4.63
It appears to the Commission that, at least at the outset, the third
option would be the most appropriate course of action. As with any new
legal entity it may take some time for the new type of structure to “settle
down” and some adjustments may be required before a final workable format is in
operation. Until public confidence in the proposed CIO structure is
established, the idea of an exclusive regime might meet with resistance.
For this reason the Commission has concluded that it would not be appropriate
to insist from the beginning that all incorporated charities adopt the new
format.
4.64
The Commission provisionally recommends that the proposed CIO
structure should be an additional option for incorporated charities and that
the other existing methods of incorporation should continue to be available.
4.65
As noted earlier,[119]
in England it is proposed that a review of the situation will take place after
5 years following the introduction of the CIO, at which stage consideration
will be given to whether other forms of incorporation should continue to be
available for charities.
4.66
In its Consultation Paper, the Department of Community, Rural and
Gaeltacht Affairs has recommended that the reforms to be introduced in its
proposed charity legislation would be subject to review after 5 years in
operation. In the Commission’s view this would also appear to be a
reasonable period for the review of the operation of the proposed CIO
structure.
4.67
The Commission provisionally recommends that the operation of the
proposed CIO structure should be reviewed after a period of 5 years from its
introduction, at which point consideration may be given to whether other
methods of incorporation for charities should continue to be available.
5
5.01
The Commission
provisionally recommends the introduction of a new form of legal structure for
charities, to be called the Charitable Incorporated Organisation (CIO). [Paragraph
4.41]
5.02
The Commission provisionally recommends that the need for a separate
legal vehicle for community interest groups in Ireland requires further
consideration. [Paragraph 4.45]
5.03
The Commission provisionally recommends the following features for the
CIO:
· The
proposed CIO structure should provide a separate legal entity for its members;
· There
should be a minimum number of 3 charity trustees;
· There
should be limited liability for members;
· The
proposed CIO structure may be one-tier, where the members act as charity
trustees, or two tier for charities with charity trustees and members;
· A
model constitution should be designed in consultation with the charity sector;
· The
charity trustee’s duty of care should be consistent with that contained in the
proposed legislation on the regulation of charities. [Paragraph 4.49]
5.04
The Commission provisionally recommends that the proposed legislation on
the regulation of charities should also contain provisions relating to:
· the
simple conversion of existing charities to the new format;
· the
amalgamation of charities;
· the
transfer of property, rights and liabilities to another similar organisation;
· winding-up,
insolvency or dissolution;
· the
amendment of the constitution of a charity.
[Paragraph 4.50]
5.05
The Commission provisionally recommends that charities carrying on
trading activities directly related to their charitable purposes should be
allowed to avail of the proposed CIO structure. [Paragraph 4.55]
5.06
The Commission provisionally recommends that existing trusts and
unincorporated associations should be given the option of converting to the
proposed CIO structure and that conversion should be capable of being achieved
in a simple, cost effective, manner. [Paragraph 4.59]
5.07
The Commission provisionally recommends that the proposed CIO structure
should be an additional option for incorporated charities and that the other
existing methods of incorporation should continue to be available. [Paragraph
4.64]
5.08
The Commission provisionally recommends that the operation of the
proposed CIO structure should be reviewed after a period of 5 years from its
introduction, at which point consideration may be given to whether other
methods of incorporation for charities should continue to be available.
[Paragraph 4.67]
[1]
Company Law Review
Group Second Report 2002-2003.
[2] See Submission from the Charities Regulation Study Group
to the Department of Community, Rural and Gaeltacht Affairs on the Consultation
Paper on Establishing a Modern Statutory Framework for Charities, May 2004. For a number of reasons, including the lack
of an agreed definition of charity and the lack of a charities registration
system, this figure can only be taken as a guide.
[3]
There is no definition of a ‘charity’ as such. Charities are identified
and defined by reference to their ‘charitable purposes’. In Commissioners
for Special Purposes of Income Tax v Pemsel [1891] AC 531, four categories of charitable
purposes (the ‘Pemsel’ categories) were identified: the relief of poverty; the
advancement of education; the advancement of religion and other purposes
beneficial to the community.
[4]
Certain charities are recognised by the Revenue
Commissioners as qualifying for charitable exemption from tax liability.
However, it should be noted that not all charities apply for tax exemptions and
this does not affect their status as a “charity”. The fact that a body
may not have an exemption from tax may not necessarily mean that that body is
not a charity.
[5]
Including both
charitable and other not-for-profit organisations.
[6]
Promoting the Role of
Voluntary Organisations and Foundations in Europe – COM (1997) 241 Final, 6
June 1997.
[7]
There are also other charitable bodies such as
societies incorporated by charter (for example, the Royal College of Surgeons
in Ireland), or created by statute or under other legislation (such as the
industrial and provident societies legislation).
[8]
In its Consultation Paper, Establishing a Modern Statutory Framework for
Charities December 2003, p 16 the Department of Community, Rural and
Gaeltacht Affairs proposed that the law should be codified so that the role,
duty of care, responsibilities and duties of charity trustees/officers/directors
would be confirmed as being the same no matter what form of legal structure or
governing instrument was used.
[9]
In England, the Trustee Act 2000
does not apply to charitable companies. The Law Commission of England and
Wales (whose recommendations formed the basis for the Act of 2000) had
concluded that “it had become apparent in finalising the recommendations that
there would be considerable technical difficulties in doing so… [c]haritable
corporations are not necessarily subject to all the rules applicable to
trustees, and it is by no means clear that it would be appropriate for some of
the proposed provisions (such as those relating to powers of delegation) to be
applied to them” see Law Commission Report Trustees’ Powers and Duties
(no 260 1999) at paragraph 1.20.
[10]
See for example
O’Halloran Charity Law (Round Hall Sweet & Maxwell 2000); Luxton The
Law of Charities (Oxford Univeristy Press 2001); Picarda The Law and
Practice Relating to Charities (3rd ed Butterworths 1999); Law
Society of Ireland Charity Law: The case for reform 2002 .
[11]
See Law
Society of Ireland Charity Law: The
case for reform 2002 at 204; Luxton The Law of
Charities (Oxford University Press 2001) at 17; O’Halloran Charity Law
Review in Ireland and O’Halloran ‘Challenges for the State/Third
Sector Partnership’ International Journal of Not-for-Profit Law (2002) 5.
[12]
Where the trust deed is silent
on the appointment of trustees the Trustee Act 1893 is relevant.
See Law Reform Commission Consultation Paper on Charitable Trust Law:
General Proposals (LRC CP 36-2005), chapter 1.
[13]
This arises where the charity
is set up by deed of trust but the trustee is a corporate entity. In such
circumstances, the governing instrument is the trust deed and not the
memorandum and articles of the company.
[14]
Section 43 of the Charities
Act 1961 as substituted by section 14 of the Charities Act 1973.
[15]
If the trust deed is silent on
this, then the trustees must act unanimously.
[16]
For a full discussion of the
liability of trustees see Law Reform Commission, Consultation Paper on Trust
Law – General Proposals (LRC CP 35-2005), chapter 7.
[17]
See Law Reform Commission, Consultation
Paper on Charitable Trust Law – General Proposals (LRC CP
36-2005), paragraph 1.24.
[18]
Cy-près means “as near
as possible” to the spirit of the original gift. The doctrine allows the
High Court, or the Commissioners of Charitable Donations and Bequests to give
effect to a donor’s charitable intention where it is impossible or
impracticable to give effect to the donor’s wishes in the precise terms
intended, for example, where the gift can be better used in conjunction with
other property and can suitably, regard being had to the spirit of the original
gift, be made applicable to common purposes.
[19]
Trust deeds are usually stated
to be irrevocable and it is difficult at the outset to envisage all of the
functions which may be required.
[20]
Other than the Revenue
Commissioners requirements for those charities which seek tax exemptions.
[21]
See Owen, English
Philanthropy 1660-1960 (Harvard University Press, 1965) at 71.
[22]
[1985] 2 All ER 869 at 874.
[23]
Luxton The Law of Charities
(Oxford Univeristy Press 2001) at 261.
[24]
Other than the Revenue
Commissioners requirements for those charities which seek tax exemptions.
[25] 44% of the 6,700 charities granted tax-exempt status by
the Revenue Commissioners are constituted as companies limited by guarantee
without a share capital.
[26] Section 174
Companies Act 1963.
[27]
Section 176 of the 1963 Act.
[28]
Section 43 Companies
Amendment (No.2) Act 1999.
[29]
Section 5 Companies Act
1963.
[30]
But see section 128(4) Companies
Act 1963 and section 2(1) Companies (Amendment) Act 1986 which
provides an exemption for religious charities.
[31]
The Wheel is a network of organisations and individuals working in the
Community and Voluntary sector.
[32]
See www.wheel.ie.
[33] Section 2 Charities
Act 1973.
[34]
See paragraph 2.17.
[35]
See paragraph 2.20.
[36]
Commissioners were appointed
on an ad hoc basis to inquire into impropriety in the administration of
charities under the Statute of Charitable Uses 1601. That practice
died out in 1803. The Charity Commissioners were established on a
permanent basis by the Charitable Trusts Act 1853. The
Commissioners functions and powers are now contained in the Charities Act
1993.
[37]
The Commissioners of
Charitable Donations and Bequests were originally established under the Charitable
Donations and Bequests (Ireland) Act 1844.
[38]
A total of 141 sales
were sanctioned in 2004: see Annual Report of the Commissioners of
Charitable Donations and Bequests for Ireland 2004.
[39]
See section 16 and Part
2 of the Schedule to the Social Welfare (Miscellaneous Provisions) Act 2002,
which repealed the previous financial ceiling on the Commissioners’ powers in cy-près
schemes. This ceiling had been progressively increased over the
previous 50 years by the Oireachtas. A total of 40 cy-près schemes
were dealt with during 2004, of which 10 were sealed.
[40]
Section 46 Charities
Act 1961. The Common Investment Fund was established in April 1985
under a scheme pursuant to section 46.
[41]
Section 21 Charities
Act 1961. 7 such cases were dealt with and sealed in 2004.
[42]
Section 26 Charities
Act 1961.
[43]
Section 43 Charities
Act 1961 as amended by section 14 Charities Act 1973. 68 such
orders were made during 2004.
[44]
Sections 23 and 24 Charities
Act 1961.
[45]
Section 25 Charities Act
1961.
[46]
Section 27 Charities Act
1961.
[47] The Taxes
Consolidation Act 1997, the Stamp Duty Consolidation Act 1999 and
the Capital Acquisitions Tax Consolidation Act 2003.
[48]
At present a total of 6,689
bodies have been granted charitable tax exemption by the Revenue Commissioners.
[49]
Including exemption from
income tax, corporation tax, capital gains tax, capital gains tax or stamp
duty.
[50]
Section 128(4) Companies
Act 1963 and section 2(1) Companies (Amendment) Act 1986.
[51]
For example if he or she is of
the opinion that the proceeds of the collection would benefit an unlawful
object, an object contrary to public morality or benefit an illegal operation.
[52]
For example limiting the areas
where the collection may be held or limiting the number of collectors.
[53] As amended
by the Courts and Court Officers Act 1995 and the Social Welfare
(Miscellaneous Provisions) Act 2002.
[54]
Both papers are available from
the Department’s website www.pobail.ie/en/Charities
Regulation/.
[55]
Establishing a Modern Statutory Framework for Charities at 9.
[56]
Establishing a Modern Statutory Framework for Charities at 10.
[57]
Volume 16 Dáil Debates col. 1166 (26 October 2005).
[58]
Consultation on the Review of Charities Administration
and Legislation in Northern Ireland in 2005 see www.dsdni.gov.uk/charities_consultation.doc.
[59]
Modern Company Law
for a Competitive Economy: Final Report paragraph 4.63 ff. 26 July 2001.
[60]
Modern Company Law
for a Competitive Economy: Developing the Framework March 2000 at 9.19.
[61]
Charity Law Association
Response to the DTI proposals for a new Charitable Vehicle – July 2000.
[62]
Charitable
Incorporated Organisation – Report from the Advisory Group to the Charity
Commission – Spring 2001.
[63]
http://www.homeoffice.gov.uk/
[64]
The Charities Bill 2004
has passed through the House of Lords and and at the time of writing is under
consideration in the House of Commons.
[65]
At 57. The proposal for a CIO was originally made by the Department of
Trade and Industry’s Modern Company Law for a Competitive Economy: Final
Report 2001, para. 4.63 ff.
[66]
At 58.
[67]
The umbrella body for the voluntary sector in
England.
[68]
This Association
currently has over 760 members including many of the UK’s largest charities and
most leading charity lawyers.
[69]
Charity Scotland – The
Report of Scottish Charity Law Review Commission, May 2001.
[70]
Including the Scottish Council of Voluntary Organisations.
[71]
Before the main provisions of the Act can come
into force there are several preparatory steps to be taken, including a section
104 order under the Scotland Act 1998. It is intended that the order
will be approved by the UK Parliament and come into force in February 2006.
[72]
http://www.dsdni.gov.uk/charities_consultation.doc
[73]
The Department proposes that a Northern
Ireland Charity Commission should be established to operate the Northern
Ireland Register of Charities and act as a charities regulator for all
charities operating in Northern Ireland.
[74] In 1992 the
Commission presented 3 proposals for Statutes for the creation of a European
Co-operative, European Mutual Society and European Association (Official
Journal no. C 99 of 21/04/92). They were amended in 1993 in the light of
opinions of the Parliament and Economic and Social Committee (OJ no. C 236 of
31/08/93, pp. 1-56). The Statute for a European Association is currently
under discussion in the European Council working groups.
[75]
22 July 2005.
[76]
See Private Action, Public Benefit: Charitable Incorporated Organisation
Prime Minister’s Strategy Unit September 2002.
[77]
Published in September 2000. This paper was preceded by: Supporting
Voluntary Activity: A Green Paper on the Community and Voluntary Sector and its
Relationship with the State published in 1997.
[78]
Report of the
National Committee on Volunteering – October 2002.
[79]
The Law Society - July 2002.
[80]
Chapter 4.
[81]
See paragraph 3.04, above.
[82]
Company Law Review
Group Second Report 2002-2003.
[83]
The
Wheel is a network of organisations and individuals working in the Community
and Voluntary sector.
[84]
Establishing a Modern Statutory Framework for Charities
Department of Community, Rural and Gaeltacht Affairs – December 2003.
[85]
At Section 8,
Governance, p 17.
[86]
Department of Community, Rural and Gaeltacht Affairs – September 2004.
[87] At Appendix 5, Issues raised in submissions falling
within the Statutory Functions of Other Government Departments, p 37.
(Both the Consultation Paper and the External Report are available at http://www.pobail.ie/en/CharitiesRegulation/)
[88]
At p 24.
[89]
Conference of Religious of
Ireland – see www.cori.ie.
[90]
PLANET
- The Partnerships Network, is the representative
voice of the 38 area-based Partnerships in Ireland, who work to promote social
inclusion through the development of disadvantaged areas and communities.
[91]
See www.planet.ie
[92]
Free Legal Advice Centres, see
www.flac.ie.
[93]
http://www.pobail.ie/en/CharitiesRegulation/SubmissionsonConsultationPaperonChar
itiesRegulation/ Free%20Legal%20Advice%20Centres.pdf.
[94]
www.wheel.ie
[95]
See Chapter 1.
[96]
See paragraphs 2.17 to 2.20
above.
[97]
Section 174 of the Companies
Act 1963.
[98]
Company Law Review Group
First Report (31 December 2001) at paragraph 11.8.11.
[99]
See www.clrg.ie.
[100]
See Law Reform Commission Consultation Paper on Charitable
Trust Law: General Proposals (LRC CP 36-2005), paragraphs 1.24 and 1.25.
[101]
See Revenue Commissioners’ precedent number APP 11332 – 2 February 1995
which states that “the provision of insurance is not
a charitable object”.
[102]
Section 56 Companies (Auditing and Accounting) Act 2003.
[103]
These regulatory oversight provisions are mainly
geared towards commercial activity. For example, section 150(3) Companies
Act 1990 provides that a restricted person may act as a director of a
company where the nominal value of the allotted share capital of the company is
(i) in the case of a public limited company, at least £250,000 or (ii) in the case of any other company, at least
£50,000.
[104]
See paragraphs 3.29 - 3.31,
above.
[105]
This group was formed in early 2004 for the purpose of preparing a
submission to the Department of Community, Rural and Gaeltacht Affairs on the
Department’s 2003 Consultation Paper Establishing a Modern Statutory
Framework for Charities: Consultation Paper see paragraph 2.17ff, above.
[106]
Establishing a Modern Statutory Framework for Charities.
[107]
http://www.pobail.ie/en/CharitiesRegulation/SubmissionsonConsultationPaperonChar
itiesRegulation/Charities%20Regulation%20Study%20Group.pdf.
[108]
There
are, of course, numerous umbrella bodies
serving particular sub-sectors or shared concerns within the charity
sector. These include, for example, the Irish Charities Tax Reform Group,
Dochas, The Wheel, Disability Federation of Ireland, National Youth Council of
Ireland and the Conference of Religious of Ireland.
[109]
The Department’s Consultation Paper indicated that charities which are
companies limited by guarantee would not be subject to dual filing requirements
– see p 13.
[110]
Appendix 5, available at www.pobail.ie/en/CharitiesRegulation/.
[111]
See paragraph 4.11, above.
[112]
Modern Company Law for a Competitive Economy: Developing the Framework
(Interim Report of the CLRSG March 2000), paragraphs 9.19 and 9.28-9.30. Modern
Company Law for a Competitive Economy: Completing the Structure (Interim
Report of the CLRSG November 2000), paragraph 9.3, and Modern Company Law:
Final Report (Final Report of the CLRSG July 2001) paragraph 4.63.
[113]
Part 2 of the Companies (Audit,
Investigations and Community Enterprise) Act 2004 and the Community
Interest Company Regulations 2005.
[114]
See the discussion of the
reforms in England and Wales and in Scotland, and the proposed reforms in
Northern Ireland, discussed in Chapter 3, above.
[115]
See Applying for Relief from Tax on the Income and Property of Charities
(CHY 1, May 2003) and Charities Manual July 2001 at p.13 available at
www.revenue.ie
[116]
See paragraph 2.17, above.
[117]
The precise reporting requirements for charities are likely to be developed
between the Charities Regulator and the charity sector.
[118]
For example, in England and Wales, a trustee’s annual report and
accounts must be filed by all charities with gross income or total expenditure
of over £10,000, see Part VI Charities Act 1993 and applicable
Regulations.
[119]
See paragraph 3.16, above.