Many people are concerned about their personal liability if they join a committee. This is why it is important for everyone to know what is said in their constitution or other governing document. It is a legal document which should be adhered to. In principle, trustees can be personally liable if the charity gets into difficulty as a result of actions and inactions of the trustees. However, there should be no risk if the trustees have taken appropriate advice where necessary, (e.g. ACAS, Inland Revenue, Business Support, Law Call) and acted prudently and reasonably.
Indemnity insurance is available for trustees but this only covers them if they have acted appropriately and within legal guidelines. That is why it is essential that all trustees are made aware of their powers and responsibilities when they join the committee.
Liabilities can occur for trustees if they commit a criminal offence; do not comply with statutory duties; fail to follow the rules of the charity's governing document; breach the terms of an agreement or contract; or carry out, or authorise, a wrongful act. Fortunately, this situation is rare as the risk of liability is greatly reduced by simple good management practices, such as acting lawfully and in accordance with the charity's constitution, and ensuring the charity has appropriate financial reserves and insurance cover in place.
Constitution - Charities must have a governing document, which outlines how they operate in accordance with charity law. If you are a member of the Pre-school Learning Alliance, you should be following their 2011 constitution:
Unincorporated associations are charities that consist of a membership who work together to further the aims of the organisation. The unincorporated structure is suitable for charities that are relatively small in terms of their assets and is a common structure adopted by early year's settings.
Company Limited by Guarantee - Trustees are offered greater protection as the incorporated company is regarded as having its own legal personality, and can enter into contracts and incur liabilities for which it is solely responsible, rather than requiring trustees or members to do this on its behalf. However, being a limited company does not excuse trustees from their normal legal obligations. The increased reporting requirements imposed on incorporated entities. Every director has a personal responsibility to ensure that certain statutory documents are delivered to the Registrar of Companies as and when required.
Charitable Incorporated Organisation - is a new legal form for a charity. A CIO:
- is an incorporated form of charity which is not a company
- only has to register with the Charity Commission and not Companies House
- is only created once it is registered by the Commission
- can enter into contracts in its own right and its trustees will normally have limited or no liability for the debts of the CIO
The CIO was created in response to requests from charities for a new structure which could provide some of the benefits of being a company, but without some of the burdens. For further info see the charity commission website: https://www.gov.uk/change-your-charity-structure