OG 518 Alterations to Governing Documents: Charitable Companies

Last reviewed:
16 April 2013
Last updated:
28 May 2015

Policy Statement/Overview

The law

Under company law the members of a non-charitable company have complete freedom to alter the company’s statement of objects and any administrative powers and provisions contained in its articles of association.   

For charitable companies, the freedom to make such radical changes is limited by the requirements of s.198 of the Charities Act 2011 to obtain the Commission’s approval to certain types of changes relating to objects, dissolution provisions and trustee benefit provisions.  These changes are defined as "regulated alterations".

The requirement for our consent applies to any charitable company, regardless of whether it is a registered (or seeking to be registered), excepted or exempt charity.

Apart from a couple of exceptions (described in B2.2 and B2.3), only regulated alterations require our consent; all other changes can be made by the members without our involvement. 

 

Our approach 

We assess applications for our consent on the basis of risk, following the criteria in the Commission’s Risk Framework. The level of consideration we apply depends on the risk factors identified and in most cases we would expect to be able to give our consent without further enquiry.

Where we identify a higher level of risk, we need to consider these requests more carefully.  

 

Making the decision

consultThe essential 'tests' we apply when considering changes are set out in B4.  In most cases, making the decision to give consent will be straightforward.  Caseworkers should take advice from a senior colleague or lawyer if, having assessed an application against these tests and followed the principles set out in our guidance, they:

        • consider they may need to refuse consent
        • are not able to reach a decision about whether to give or refuse consent 

  

Registering the changes

Trustees have a legal duty to let us know about any changes (regulated or not) to their charity's register details.

We also have a duty to maintain an accurate and up-to-date register, for ourselves and for the public.   

See E5 for how a change is validly made, and E7 for information on when these changes should be entered on the register. 

Summary of the guidance

The purpose of this guidance is

  • to explain the law as it affects charitable companies when making alterations to their articles of association
  • to help caseworkers assess and make decisions about applications for our consent to these changes 
  • to explain what action the Commission needs to take in all cases where charities notify us of changes they have made, or wish to make, to their articles of association.

Charitable company in this context means an incorporated charity governed by articles of association. This guidance does not deal with Charter companies, CIOs or any other form of incorporated charity. 

OG Contents (Site map)

Casework Guidance

B1 Key Points

  • The law gives charitable companies a wide power to amend their articles of association. (See section C6 of our guidance CC36 Changing your charity's governing document for information on how charitable companies can change their articles).
  • Some changes require our consent before they can be made.  The main requirement for our consent is when the proposed changes are a "regulated alteration" under s198 of the Charities Act 2011.  
  • We also need to give consent:
    • where a charity's articles specifically say that our consent is needed for any change
    • where the way a company is formed means that conflicted members will be voting on a resolution to remove an existing prohibition on trustee benefits
     
  • When considering changes requiring our consent we apply three essential 'tests':
  1. The new objects (or provisions for the distribution of assets on dissolution) are exclusively charitable (see B5.2)
  2. the trustees’ decision to make the change is a rational one in the circumstances of the charity (see B5.3)
  3. The new objects do not undermine or work against the previous objects (see B5.4)
  • We adopt a risk-based approach when dealing with requests for our consent.  The greater the risk, the more convincing the trustees' case will need to be that the changes are in the charity's best interests.
  • When considering changes to objects or dissolution provisions, we take into account the probable impact of the change on the charity's current and future beneficiaries.  If the impact is low or non-existent we are likely be able to approve the change without difficulty, even when the changes are material.  If the impact will be significant, we need to be satisfied that the trustees' decision is consistent with their duty to act in the best interests of the charity. 
  • When considering changes to provisions that allow trustee benefits, we take into account :
    • whether the power being added is within the scope of the statutory power in s185 of the 2011 Act (and therefore doesn't need our consent)
    • whether the power will only be exercisable with our consent on each occasion it is used (so the trustees will need to obtain our consent whenever they want to use the power)
    • whether the trustees will be able to use the power whenever they want without further approval from us, (in which case we apply the principles we would normally apply when considering authorisation of an extension to trustee benefit powers). 
  • Giving or refusing consent under s198 is a decision appealable to the Tribunal, and is eligible for decision review.

Top of page

  

B2 When is our consent required?

Our prior consent is needed for any change:

  • that is a regulated alteration as defined in s198. Not all changes to the objects and dissolution clauses, or provisions that allow payments to trustees, fall into this category. See B2.1, B2.2 and B7.1 for more information on what is, and isn't, a regulated alteration
  • where the governing document expressly states that our consent is needed for all changes. See B2.3 for our approach where this applies
  • where removing an express prohibition on trustee benefits requires members who are conflicted to propose and vote on the removal. See B8.1 for how we provide consent in these cases

 

keypointsWhere the charity is an exempt charity, under s28 of the Charities Act 2011 we must consult the charity’s principal regulator before exercising any specific power in relation to the charity.

 

B2.1 Regulated alterations under s198

Our consent is needed to any regulated alterations to the articles of association of any charitable company, regardless of whether it is a registered (or seeking to be registered), excepted or exempt charity.  These regulated alterations are defined by s198(2) of the 2011 Act and comprise:

  • any alteration to the objects (usually, but not always, in the objects clause) where this specifically adds to, removes from, or alters the statement of the objects themselves.  This applies even when the change to the wording does not change the scope of the objects - for example where wording is modernised by trustees, but does not apply to the alteration of any other provision within the objects clause, such as a power, where this doesn't alter the objects themselves.
  • any alteration to any provision directing the application of the company's property on its dissolution
  • introduction or alteration of any power which would result in authorisation of any benefit to be obtained by directors or members of the company or persons connected with them.  The removal of an express prohibition to pay a trustee which allows access to the statutory power in s185 is not a regulated alteration.  However, if the way the company is constituted means there would not be enough unconflicted members to vote on the proposal we will need to authorise the conflicted members to vote.  For more information on this, see B8.1

 

B2.2  Changes to the objects and dissolution clauses that are not regulated alterations 

Not all changes to a charity's objects or dissolution clauses will be regulated alterations.  This means that, in certain circumstances, these clauses can be amended without our consent.  Examples include:

  • renumbering the clause
  • adding, removing or amending provisions located in the objects clause which don't form part of the statement of objects
  • reclassifying the clause as an article where previously it was located in the memorandum
  • reflecting any changes to the numbering (but not the wording, see Note below) of other clauses referred to in the objects or dissolution clause.   

 

Note - changes to clauses other than the objects or dissolution clauses may be regulated alterations because of the way they affect the meaning of the objects or dissolution provisions.  Examples of this are changes to:

  • the wording of a clause referred to in the objects or dissolution clause
  • the definition of a term referred to in the objects or dissolution clauses, even if the definition is located elsewhere in the articles

 

B2.3  Governing document requiring our consent for all changes 

Although not a regulated alteration, the articles of association may expressly require our consent before any alteration can be made. 

A clause that commonly appears in the articles of companies established before 1 January 1982 is:

“No addition, alteration or amendment shall be made to the provisions of the Articles of Association for the time being in force, unless the same shall have been previously submitted to and approved by the Charity Commission”.

However, the Companies Act 2006 includes a section (63(4)) which means that such a clause if adopted prior to 1 October 2009 (the date that section 63 of Charities Act 2006 came into force) has no effect.

 

B2.4 Where there are contradictory provisions in the charity's articles

Before the Companies Act 2006, a company's governing document was made up of separate memorandum and articles of association, both containing provisions dealing with the administration of the charity.  In the event of contradictory provisions appearing in the two documents, the memorandum was deemed to take precedence. 

Under the 2006 Act, the operative clauses in an existing charity’s memorandum are now taken to be part of the articles of the charity.  This means that in the event of a contradiction between clauses there is no way of saying which should override the other.

We are most likely to come across this where a charity has a power in its articles to make payments to the trustees whilst at the same time having a provision in its memorandum restricting trustee benefit.  Because we cannot say conclusively that the hierarchy that used to exist would still apply (and in any case the court might take a different view), we should recommend that a charity seeks consent before amending the articles in a way which might explicitly authorise payments to trustees.

Top of page 

B3 Consent not needed

 

B3.1  When trustees don’t need our consent

With a couple of exceptions, our written consent is only required for alterations that fit within the definition of "regulated alteration" in section 198(2) of the 2011 Act.  The exceptions are described in B2.2 and B2.3.

Even in cases where we do not have to give consent to the alterations made to the articles of association, under s35(3) of the Charities Act 2011 the trustees must notify us of any changes that have been made to the governing document of the charity and provide us with an up-to-date copy.

 

B3.2 Actions for the trustees whether or not our consent is needed

Any alteration to a company's articles of association must be put to (and agreed by) the members as a special resolution -  for information on how to pass a resolution  validly, see E5.1.  The directors must notify Companies House and the Commission of the changes and provide us with a copy of the revised articles.  (They can do this using our on-line form).  Changes to the objects are only effective when registered with Companies House.

Top of page

B4  What trustees should provide and considering requests for consent to regulated alterations

The trustees need to explain to us, in writing, the changes they want to make and their reasons for making them.  They should do this using our on-line form which contains all the questions that we would usually ask when considering requests for consent to s198 changes.  (In exceptional cases we may accept applications in hard copy but only where trustees are unable to use our on-line services).

 

Our policy is to follow a risk-based approach when considering the impact of the proposed changes, applying the regulatory approach set out in our published risk framework.   In general we can consent to most changes if they meet three essential 'tests':

  1. The new objects or dissolution provisions are exclusively charitable (see B5.2)
  2. the trustees’ decision to make the change is a rational one in the circumstances of the charity (see B5.3)
  3. The new objects do not undermine or work against the previous objects (see B5.4

The factors we need to take into account when dealing with most requests for consent under the different sub-sections of s198 will be covered by the questions in our on-line form and are explained in B5, B6 and B7.

 

 However, we can authorise as a matter of routine and without further inquiry:

  • Changes which include a continuing requirement for our prior consent before the new or amended power can be used (see B7.2 for our approach in these cases)
  • Changes authorising payments to directors, members or connected persons which make explicit reference to s185 of the 2011 Act and go no further than the scope of the statutory power. For more information about our approach to changes that enable new benefits to trustees or persons connected to them, see B7.

 

What we are looking for is evidence that the changes satisfy each of the three 'tests' set out above.  It is for the charity to provide us with this evidence and although we may ask for further information where this is helpful, we should avoid entering into protracted correspondence on the matter.   

See B5, B6 and B7 for our approach to considering regulated alterations in more detail.

Top of page

 

B5  Alterations to objects

We can automatically accept changes to objects which do not materially affect their meaning, as long as the revised objects are also exclusively charitable.

See B5.1 for our approach on agreeing material object changes.

 

B5.1 When can we agree to material changes to objects?

 

Our starting point

When considering giving consent to any regulated alteration under s198, we apply three essential 'tests':  

  1. The new objects or dissolution provisions are exclusively charitable(see B5.2)
  2. the trustees’ decision to make the change is a rational one in the circumstances of the charity (see B5.3)
  3. The new objects do not undermine or work against the previous objects (see B5.4

If the change meets all three of these criteria, we should be able to give our consent to the proposal, even when it involves a major change to the objects.  

 

Our approach

The trustees need to make a case to us as to why the changes are necessary.  We recognise that trustees, directors and members are usually in the best position to decide what is best for their organisation and we would generally support their approach. 

As long as the trustees have given us a convincing explanation as to why their proposed changes are in the charity's best interests, we should not reject their proposals simply because the revised objects are significantly different from the existing objects.

 

For instance, as long as the new objects are exclusively charitable:

  • we should usually consent to an extension to the beneficial class
  • we should consent to adoption of additional purposes for an unchanged beneficial class
  • we can consent to changes which render the objects significantly different from the existing ones, as long as the proposal is not likely to undermine or work against the original objects.   

 

lawyer_referIn all cases, new objects put forward must clearly express their charitable nature.  Where there is any doubt about the acceptability of the wording or the scope of the changes being proposed, advice should be taken from a legal officer.

 

 

B5.2  Are the objects exclusively charitable?

The trustees must tell us in their application why they want to alter the objects and what activities the charity intends to pursue. We must be satisfied that the charity’s revised objects are completely charitable, otherwise this could affect its status as a charity.    

The revised objects may be significantly different from the existing ones.  This doesn’t necessarily matter, as long as what is proposed will not cause the charity to stop being a charity and the new objects do not undermine or work against the original objects.

If the issue is simply how the objects are worded, we can direct the trustees to our example charitable objects.

Where the objects include any restrictions we need to check that they meet the requirements of the Equality Act 2010.  This applies when charities want to alter their beneficial class but could also apply when there is an existing restriction that is no longer acceptable in view of the 2010 Act.  Charities can only operate restrictions on the basis of a protected characteristic such as race etc where this is allowed under the exemptions in the Equality Act.  

Our guidance on the Equality Act 2010 explains how charities are affected by it. 

   

lawyer_referIf the objects are not exclusively charitable we won't be able to agree to the changes, irrespective of whether the proposals meet the other required criteria.  Legal advice should therefore be taken where there is any doubt about the charitable nature of the proposed objects.

 

 

B5.3 Is the change one which a reasonable body of trustees might make?

Trustees are under a duty to act in the best interests of their charity. When seeking our consent to a regulated alteration, therefore, they need to show that their decision-making in relation to the proposals being put forward is consistent with this duty.  

In all cases what we are looking for is that the trustees have made a decision that a reasonable body of trustees might make.  In general, the bigger the change, the more convincing a case we will require from the trustees. This is important because although it is the trustees who are ultimately responsible for deciding what is best for their charity, we need to be able to form our own view about the proposals if we are to provide the consent that the law requires.

The decision as to whether we can give our consent will depend on the circumstances of the individual charity.  Most of the information we need should be evident from the trustees' application, but if not we may need to ask for more information. 

 

There are some factors that we would always want to take into account.  However, we should be proportionate in our approach.

  • In most cases the proposed change will be straightforward and uncontroversial and we won’t need to consider these factors in depth.
  • Where more radical changes are involved which are likely to have significant consequences we will need to examine the proposals in greater detail.

 

Factors to take into account

1.  Taking into account modern social and economic conditions, do the proposals seem broadly consistent with what the charity was set up to do?  

Charitable companies don’t need to demonstrate a failure of trusts when changing their objects and so it isn’t necessary for us to apply a “cy près” test when we consider such proposals.   All that matters is that the new objects are charitable and are not likely to undermine or work against the existing ones.  However, the changes must be rational ones for the charity to make.

One of the ways we can assess this is whether the proposed objects seem broadly consistent with what they are replacing.  If not, the trustees should be able to justify the departure. 

There could be any number of sound reasons for proposing the change.  The trustees may consider that the charity’s aims are no longer relevant in a modern context, or they may have identified beneficiaries or needs not thought of when the charity was set up. 

As long as the new objects are not likely to undermine or work against the existing ones, and the trustees can show why they consider the changes to be reasonable in the circumstances of the charity, we should be able to consent to the change.  See B5.4 for an example of where we would not give consent.  

 

2.  Have the trustees considered how the objects will be carried out?

It must be clear that the charity will be capable of carrying out the revised objects.  This will usually be apparent.  Where it isn't clear we will need to ask for more information. 

Proposals that seem over-ambitious should not be rejected on those grounds alone; the trustees may simply have long term plans for the charity.

However, if the revised objects seem unrealistic or unworkable and the trustees have not told us how they will be carried out, we will need more information showing there is a rational justification for the change before we can consider giving our consent.     

 

3.  Have the trustees taken into account the implications of the proposed change for the charity's members and beneficiaries?

If the changes are uncontroversial and the impact on members and beneficiaries is likely to be limited or non-existent, this will not be an issue. 

However, if the changes are significant, for instance radically redefining the people who can benefit, we need to be satisfied that the trustees have, as a body, considered the impact of the proposed changes, and can justify their decision as being in the best interests of the charity.  Questions which we would expect the trustee to be able to answer include:

  • have the trustees consulted the charity's members or beneficiaries, or do they intend to before implementing the change?  If not, what is their rationale?
  • what consequences for existing beneficiaries have they identified and how will these be managed?  (For example, if the charity is widening its beneficiary class, what will the cost of supporting more people mean for its existing beneficiaries?)
  • Is there a way for people to raise any concerns or objections they may have?  How will these be handled?

 

4.  Have the consequences for the charity’s beneficial class (ie future as well as current beneficiaries) been fully considered?

This will be important if the number or range of people who are able to benefit will reduce as a result of the change.  (See B5.1 for our policy where the beneficiary class stays the same, or increases). 

There may still be a good reason for the proposals.  For example, the existing beneficial class may be already well provided for, or no longer in need of the charity’s help.  

If, on the other hand, the trustees don’t appear to have considered what the consequences of the change might be for the charity’s intended beneficiaries it will be more difficult for us to give our consent at this stage.  We will need the trustees to explain the rationale behind their proposals.  Questions the trustees should be able to answer include:

  • what are the reasons for the change?
  • why is it in the charity's best interests?
  • is there other provision for people who will no longer be beneficiaries under the revised objects?  If not, is there nevertheless a good reason for making the change?
  • what would be the consequence of not making the change? 

 

B5.4  When might we withhold consent in the case of material changes to objects?

Although our general approach is to give consent to object changes, we do need to consider whether they

  • may adversely affect the original object/beneficiary class.  The case that illustrates this is Re Cyclists Touring Club (1907) 1 Ch 269, where the company wanted to extend its cyclist protection object to include motorists.  Consent was refused on the basis that at the time motorists were the one thing that cyclists needed protection against
  • propose object wording that is now outdated and is no longer viewed as charitable, even if it has previously been accepted. 

 

lawyer_refer

Case officers should refer to a legal or senior colleague if, on the basis of the information available, they are either unable to make a decision about giving consent to the changes, or consider they may need to refuse consent. Top of page

 

B6  Alterations affecting what happens to the charity's property on dissolution

 

There are many possibilities we could be asked to consider when charities want to change their dissolution provisions.  The onus is on the trustees to make a case for their proposal and show that it is a decision that a reasonable body of trustees might make.  This should be easy to establish where the proposed change is workable and rational. 

Our approach when considering each case is to follow the general principles described in B4. 

Circumstances where we might question the change include:  

  • where the change seems to be detrimental to the existing beneficial class (see B5.4)
  • where the change is unworkable for some reason – for instance:
    • a charity named to receive the dissolving charity's property either doesn’t exist or for some other reason is not able to accept the gift
    • there is reason to believe the receiving charity would refuse the gift

 

B6.1  Common scenarios for the application of property on dissolution

The most common changes we are asked to agree are where the dissolution clause requires the property:

  • to be passed to a named charity (see B6.2)
  • to be passed to a charity with the same or similar objects (see B6.3)

 

lawyer_referIf, having read B6.2 and B6.3, caseworkers are uncertain about whether a proposed change is acceptable, they should seek legal advice. 

 

 

B6.2  Property to be passed to a named charity

As long as the new outlet for the remaining assets is charitable, we will normally consent to a change of receiving charity if:

  • the original charity named in the articles of association no longer exists
  • the original charity still exists, but has no objection to the change
  • the original receiving charity still exists and objects to the dissolution provision being altered, but there are still good reasons for the charity to make the change.  If this is the case, we follow the approach in B4.

 

B6.3  Property to be passed to a charity with same or similar objects

As long as the new outlet for the remaining assets is charitable, we will normally consent to a change which relaxes the requirement for the charity’s property to be passed to a charity with the same or similar objects if there are clear reasons in the interests of the charity to do so.  This might include:

  • when there are no longer any charities with the same or similar objects to whom the charity could pass its property
  • when the existence of another charity with the same objects means that, in the view of the trustees, the needs of their charity’s beneficiaries are being sufficiently met elsewhere and they want to find a more effective use for the charity’s remaining assets.

Top of page 

B7 Alterations that authorise benefits to directors, members or connected persons

We may be asked to approve changes to the articles of association which introduce specific provisions for benefiting trustees etc. 

Where the power being added provides authorisation for payment to directors, members or connected persons for services, we need first to compare the proposed power with the statutory power provided by s185 of the 2011 Act.  s185 gives charities a statutory power to pay trustees for services, (and goods, when in connection with services) subject to a number of specified conditions which have to be met. 

In B7.1 and B7.2 we explain which alterations need our consent and our approach in dealing with these cases.

 

B7.1 Is the power within the scope of the statutory power in s185? 

s199 of the 2011 Act says that for the purposes of s198(2)(c), "benefit"  does not include any remuneration (within the meaning of s185) whose receipt may be authorised under that section. So, when adding a power which allows trustee benefits, this is not regarded as a regulated alteration as long as the new power is within what s185 allows.  The charity will be able to use the statutory power (as long as it can meet the specified conditions) and doesn't need to refer to it in the articles of association.  Our consent is not needed.

 

Note - Our consent is not required to a benefit that can be exercised within the statutory powers, even where the charity’s articles say that this is conditional upon our approval.  For this reason we should actively discourage the creation of powers that express the need for our approval to allow trustee benefits within the statutory provision.   

 

B7.2 Does the power exceed the scope of the statutory power in s185?

Where the power being added exceeds the statutory power this is a regulated alteration and our approach will depend on whether the power will be exercisable without any further consent from us.

  • If the charity has to obtain our consent every time it wants to use the new power, we can approve the alteration without needing the charity to make a case. 
  • Where there are no conditions about obtaining further approval from us, it's important to be aware that the charity will be able to make full use of the power.  So when we consider whether we can provide our consent to such an amendment, we must do so in the light of our policy on trustee benefit, and applying the principles which we normally apply when giving consent to the extension of trustee benefit provisions.  For more information on this the OG 515 series on Payments to Trustees, and OG 100 on Trustee Indemnity Insurance.

Top of page 

B8 Removal of express prohibitions on trustee benefits  

If a charity’s governing document expressly prohibits trustee payments, this prohibition must first be removed before s185 powers can be used.  Removing an express prohibition of this kind is not a regulated alteration within the meaning of s198 even though its removal means the trustees can now use the statutory power.  

  

However, if the prohibition will be replaced with a power to provide benefits to trustees going beyond what is allowed under s185, the addition of that power will be a regulated alteration needing our consent.  

 

We may need to authorise trustees to vote if the way the company is constituted means that those voting to remove the express prohibition might stand to benefit.  This applies even when the benefits would fall within the scope of s185.  

Our approach is set out in B8.1.

 

B8.1  When our consent is needed

Depending on the way the company is constituted, the members may need our authority to vote on the removal of the prohibition.

 

Normally the trustees would pass a resolution to make the change and then put the resolution to the members to consider.  However if the company has no members, or not enough who are not also trustees to make up the necessary quorum to consider the resolution, the trustees will not be able to vote to remove the prohibition because by doing so they are effectively giving themselves a power to benefit.  Where this happens, the trustees will need to come to us for a s105 Order authorising the conflicted members to vote on the removal of the prohibition. (They can, however, vote to adopt a power that goes no further than the statutory power, if there is no prohibition). For information about Orders, see OG501 

 

Without any further extension of the trustee benefit powers, removal of the prohibition simply allows access to the limited statutory payment powers in s185.   In most cases, therefore, the decision to make the Order should be a straightforward one.

 

Factors we take into account include:

  • the reasons for removing the prohibition
  • evidence which shows the change will be in the charity’s interests
  • whether the trustees have confirmed that in removing the prohibition they will only make payments in accordance with s185, or seek our further consent
  • any implications for the reputation of the charity with its donors, funders, members and supporters and with the general public

lawyer_referCaseworkers should take advice from a legal officer if they are in any doubt as to whether an Order can be made to remove the prohibition.

    

 

B8.2 Consent not needed

As long as there are enough unconflicted members to vote on the resolution, the trustees can remove the prohibition so as to have access to the statutory power in s185.  The trustees will need to:  

  • pass a resolution to remove the prohibition on paying trustees
  • put the resolution to the members to consider, following the necessary procedure for passing a resolution validly. 
  • amend the articles according to the terms of the resolution which has been passed by the members  (if the resolution is rejected by the voting membership, the trustees will not be able to remove the prohibition)
  • notify us and Companies House of the alteration, and send us as soon as possible a revised copy of the articles of association

 

We will need to update the register when we receive confirmation of the date and terms of the resolution. We needn't wait for the revised governing document to do this but we should prompt the trustees to submit this on line as soon as they can. 

 

Top of page

   

B9 Adopting a standard governing document

Where a standard governing document is being adopted, we need to make sure that the new articles do not incorporate any alterations needing our consent.  

For example, the articles for charitable companies produced by the Charity Law Association include a power to authorise trustees to take action in matters where they have a conflict of interests, as long as they don't receive any benefit from the charity.  Because the CLA clause would allow the conflicted trustee to benefit from a source other than the charity, adopting this power is a regulated alteration needing s198 consent.

 

lawyer_referNote: In this case we have accepted the CLA wording and will provide consent if the trustees can show that they consider adopting this power is in the best interests of the charity. However, caseworkers should take legal advice if the CLA wording we have accepted has been changed in any way.

Top of page 

B10 Prior consent and conditional resolutions

s198(1) says our prior written consent is needed to any regulated alteration. The company members can pass a resolution without agreeing the form with us first, but only if the resolution explicitly states that it is conditional upon our giving the required consent. 

The risk with this approach is that if, having considered the proposals, we require any changes to be made or if we decide we cannot agree to the resolution that has been passed, then it will be ineffective and the trustees will need to start the process again.

Top of page 

B11 Charities regulated by other bodies

Some charitable companies are regulated by bodies other than the Commission and may need their consent for changes to the charity's governing document.  We may also have to consult with the other regulator before we can use our powers.

Examples include

 

lawyer_referconsultIf in doubt as to whether another body may have to consent to changes in the articles of a charitable company, caseworkers should take legal advice.

 

Top of page  

B12 How consent is given

 

B12.1 Applying for our consent 

Charities should use our online form which asks the trustees for the information we need in order to consider their request.  They should describe the proposed changes and their reasons for making them. 

Where our consent is required, the trustees will need to agree the proposed changes with us before they are incorporated into a special resolution to be passed by the members of the company.  This is important because the law doesn't allow us to provide our consent retrospectively, so we cannot approve special resolutions that have already been passed, even if we would have agreed to the changes beforehand.

The only exception to this is where the resolution is conditional upon our consent, ie cannot take effect without it.  

If the proposed change is to an approved governing document, or the charity is a member of a branch or umbrella structure, we should check that consent hasn't already been given to a co-ordinating body under a blanket authority. For more information about blanket authorities, see B13.

 

B12.2 Level of authority

Most cases will be dealt with by First Contact, where they are assessed using our risk framework and taking into account the complexity of the proposals.  Any cases assessed as higher risk, or where the amendments are likely to require detailed consideration, should be transferred to the appropriate Operations team to ask more in depth questions about the charity’s proposals.

Authority for amendments under section 198 of the Charities Act is given in accordance with our Authorised Officer policy.  The legal basis for authorised officers and our policy approach is explained in OG 702.

Generally, the caseworker will be responsible for providing (or refusing) consent.  

consultIn unusual or contentious cases caseworkers should take advice from a mentor or lawyer.    Whether consent is given or refused, a decision note should be recorded setting out the information considered and the reasons for reaching the decision.

 

B12.3 Consent by email or form

 The law doesn’t specify in what form consent must be given. The usual and most appropriate way of giving our consent to online applications is by email, referring to the amendments which the trustees have told us about in the online form.  The online form allows trustees to select whether or not the amendments need our consent.  In all cases we need to make it clear exactly what we are approving. The form generates a PDF document at the end of the application process setting out the changes the trustees want to make.  Having assessed the proposed changes we need to decide whether we can consent to all, some or none of the proposed changes

  • if we can consent to all of the changes we should email the trustees stating that we are giving consent under section 198 of the Charities Act 2011 to the amendments contained in the PDF email attachment
  • if we can only consent to some of the changes we should specify in an email those changes to which we are giving our consent  

 

See B14 for what to do if we need to refuse consent to a proposal.

  

B12.4 consent by endorsement

In line with Government policy to conduct our business wherever possible by electronic means, we will provide our consent by email and only where this is not possible would we endorse a physical document.  Our approach in these exceptional cases is set out below.  

As long as the resolution is either in draft form or conditional upon our approval then once we have assessed the changes we can endorse our consent on the resolution or governing document, as appropriate. 

  • Where all of the proposed amendments require our consent we will endorse either the special resolution or the governing document with the wording:

'On behalf of the Charity Commission for England and Wales, consent is hereby given under section 198 of the Charities Act 2011 to these proposed amendments' and then sign and date it.

  • where some of the amendments require our consent and others don’t, we follow the approach in B12.5
  • if there are changes that need our approval but that we can’t agree, we will not be able to endorse the document containing them; in these cases we should set out the acceptable amendments in an email to the trustees

In all cases where we are providing consent by endorsement we should send PDF versions (so they cannot be altered) of the endorsed documents attached to an email to the trustees.  A copy should be saved with the charity’s key documents.

 

B12.5 Mixed regulated and non-regulated alterations

We sometimes receive draft special resolutions referring to multiple alterations in the governing document where some need our consent and others don't.  In these cases we will return the documents and ask the trustees to complete our on-line form so that we can provide consent only for those alterations that require it.

Top of page

 

B13 Blanket authority

Where a number of charities have adopted an approved governing document co-ordinated by a national or other umbrella body and a regulated change is proposed to that governing document, we can provide our consent in a single blanket authority.  We do this by including in our written consent a schedule listing the charities for whom the authority applies.

The umbrella body needs to make the application on behalf of its members.  Once we have provided our consent, the onus is then on the umbrella body to communicate this to their member charities so that they can adopt the approved amendments by special resolution.

The member charities will still need to send us the necessary documents showing that the amendments have been validly made, so that we can update their individual Register entries.  They will also need to notify Companies House of the changes.

Top of page 

B14 Refusing consent

Although where possible we should aim to provide our consent, there may be times when, having considered the proposals, we are unable to do so.  If we cannot agree to any of the proposed changes we should explain clearly in writing why this is the case.  Giving or refusing consent under s198 is a decision appealable to the Tribunal, and is eligible for decision review.

For information about decision reviews and final decisions, see OG 736.

 

lawyer_referCaseworkers should take advice from a legal officer in all cases where consent is being refused to the proposed alterations.

Top of page 

B15 Updating the register

Once the changes have been made we will need to update the register.  The trustees should be referred to our on-line form to provide:

  • confirmation of the date when the special resolution was passed by the members
  • (for changes to objects only) confirmation of the date that the change was registered with Companies House
  • as soon as possible, a revised copy of the governing document incorporating any changes made

Top of page   

Case Studies

D1. An example of changes needing our consent under s198(2)(a)

  

The charity's Object was:

"To advance for the public benefit education and in particular the education of the pupils at any School in respect of which the Company acts as a Foundation it being acknowledged that in carrying out the Object the Company must, so far as is consistent with this purpose have regard to its obligation to promote community cohesion under the Education Acts"

The Trustees proposed to change this to:

 "To advance for the public benefit education and in particular the education of the pupils at any School in respect of which the Company acts as a Foundation having regard to its obligation to promote community cohesion under the Education Acts"

The charity’s powers (which were not part of the objects clause) included the power:

to act as the foundation of any Qualifying School for the purpose of the School Standards and Framework Act 1998

 

The trustees proposed to change this to

 

to act as the foundation of any school

 

The reason given for the requested change was that the schools supported by the charity were converting to academy status and so the articles were no longer fit for purpose and did not give the charity the power to transfer the schools' land over to the academy trust.

 

The proposed change was a regulated alteration for two reasons:

 

  1. the new wording altered the statement of objects, even though this did not change its meaning
  2. the power defined a term used in the charity’s objects.  Changing this definition in the power therefore altered the statement of objects.

 

Either one of these amendments would have needed our consent. 

 

D2 An example of how we assessed an application for our consent to an object change

 

The trustees of a charitable company wanted to carry out two projects which fell outside its existing objects.  The change was a regulated alteration under s198 and needed our consent.

 

The charity’s objects were:  

'the relief of unemployment in Cardiff and the surrounding areas for the public benefit and training towards new employment'

The trustees proposed to change these to:  

‘the relief of those in need, by reason of youth, age, ill-health, disability, financial hardship or other disadvantage in Cardiff and the surrounding areas for the public benefit'.

The trustees explained that the change was to enable the charity to:

  • add a project running an afterschool curriculum workshop in Science, English and Mathematics, in one of Wales’s most economically and socially deprived areas.  The workshop was attended predominantly by Somali children aged 7 – 16.
  • start a project installing computers into care homes for the exclusive use of residents, supported by volunteer workers

 

Because this was such a radical shift, we asked the trustees if they had considered setting up a new charity with broader objects.   The trustees' view was that it was appropriate for the charity to carry out the projects because of the name and reputation that it already held in the local area.

They made the case that by adding these two projects to the charity's services, they would be extending support to young and old people, not just those of employable age, concentrating holistically on the social and personal development and welfare of people of all ages.

 

Assessed against the three essential ‘tests’ that we apply for all cases, we concluded that the trustees’ case showed:

  1. the objects were exclusively charitable
  2. there was a clear rationale to support the change; specifically, the trustees had identified in their decision-making a rational link between the relief of need associated with unemployment and the relief of need amongst other disadvantaged groups outside the normal age range of employment
  3. the revised objects did not in any way work against or contradict what they were replacing.

 

We were therefore able to provide our consent under s198(2)(a) to the proposed change.

  Legal/Policy Framework

E1  Law - Key Points

  • Under s21 of the Companies Act 2006, the members of companies have an unrestricted power to amend their company’s articles of association.  Section 31 of the 2006 Companies Act sets out the conditions that apply where amendments are made to a company’s objects. For companies that are also charities, the provisions of sections 21 and 31 are subject to restrictions set out in s197 and s198 of the Charities Act 2011 which specify "regulated alterations" that must have our consent.  
  • Regulated alterations include those where a new power for directors, members, or connected persons to benefit is being added but do not include those that fall within the statutory power given in s185 of the Charities Act for a trustee to receive payment for the provision of services and goods in connection with a service.
  • Our prior written consent must be obtained before any regulated alteration is made.  We cannot authorise changes after the event and any regulated alteration made without our consent will be ineffective.  
  • A company that has made a regulated alteration is required to notify Companies House of the alteration and send a copy of our prior written consent with the notification. 
  • Apart from the exceptions in B2, all other changes can be made without our consent.  Under s35(3) of the 2011 Act the trustees must notify us of any changes and provide us with updated trusts for their charity.

Top of page 

E2 Policy – key points

  • Our policy when considering applications for our consent to regulated alterations to a charitable company’s articles of association is to adopt a risk based approach in line with our risk framework.
  • In most cases we will be able to consent to changes proposed by the trustees, as long as they can show that the changes meet the three essential 'tests' described in B4.
  • As a matter of routine we will agree changes to trustee benefit clauses where the power we approve can only be used with our further consent
  • In cases where radical changes are proposed to the objects or dissolution provisions, or where we are giving full use of a power to provide benefits to trustees, members or connected persons, we will need a convincing case from the trustees to meet the three essential 'tests'. 
  • Our approach when considering material changes to the objects is set out in B5.1.  We apply the same criteria for changes to the dissolution provisions.
  • Our approach when authorising trustee benefits is set out in the OG 515 series.
  • In cases where we become aware of unauthorised changes we will need to decide whether there are any regulatory issues that we need to pursue.  We follow the approach in our risk framework when deciding what action, if any, to take.

Top of page

 

E3        Definitions

Regulated alteration” (in s198(1)) means

  • Any alteration of the objects of the charity, wherever they appear in the charity’s articles
  • Any alteration of any provision which directs how the company’s property should be applied on dissolution
  • Any alteration which would provide authorisation for any benefit to be obtained by directors or members of the company or persons connected with them (see definition of “connected person”), other than those benefits which are authorised under s185 of the 2011 Act

 

For the purposes of s198 of the 2011 Act we consider “alteration” means both:

  • Additions (including the insertion of completely new clauses)
  • Deletions of, or changes to, existing provisions

   

Benefit” (in s198(2)) is defined in s199 as meaning any direct or indirect benefit, other than any remuneration authorised under section 185 of the Charities Act 2011.

 Remuneration” includes any benefit in kind and “amount” in this context means the monetary value of the benefit

 Services” includes both goods and services when the goods are provided in connection with the provision of services

 Connected person” (for the purposes of s198(2)) means anyone falling into the categories described in s200 of the 2011 Act.  s200 says:  

“For the purposes of section 198(2)(c), the following persons are connected with a director or member of a charitable company – 

(a)  a child, parent, grandchild, grandparent, brother or sister of a director or member;

(b)  the spouse or civil partner of the director or member or any person falling within (a)

(c)  a person carrying on business in partnership with the director or member or with any person falling within paragraph (a) or (b)

(d)  any institution which is controlled –

(i)  by the director or member, or by any person falling within paragraph (a) (b) or (c), or

(ii)  by two or more persons falling within sub-paragraph (i), when taken together.

(e)  a body corporate in which –

(i)  the director or member or any connected person falling within any of the paragraphs (a) to (c) has a substantial interest, or

(ii)  two or more persons falling within sub-paragraph (i), when taken together, have a substantial interest.”

 This definition also applies for the purposes of s185 and s186 of the 2011 Act. 

Top of page 

E4 Other legislation which might impact on our decision making

E4.1 Equality Act 2010

Any proposed changes must meet the requirements of the Equality Act 2010.   This may apply when, for example, charities want to alter their beneficial class or the existing beneficial class is no longer acceptable in view of the 2010 Act.

The Equality Act 2010 draws together a number of different pieces of legislation dealing with discrimination, primarily the Equal Pay Act 1970, the Sex Discrimination Act 1975, the Race Relations Act 1976, the Disability Discrimination Act 1995 and three major statutory instruments protecting discrimination in employment on grounds of religion or belief, sexual orientation and age.  

Under the 2010 Act it is unlawful to discriminate against people who have one or more of what the Act defines as ‘protected characteristics’.  These are

  • Age
  • Disability
  • Gender reassignment
  • Marriage and civil partnership
  • Pregnancy and maternity
  • Race
  • Religion and belief
  • Sex
  • Sexual orientation

The Act contains a charities exception which allows charities to limit their beneficiaries to people who share a protected characteristic.  Charities can do this provided they meet one of two tests:

  • Test A – Tackling disadvantage.  This test is met if a charity’s aim is to tackle a particular disadvantage faced by people who share a protected characteristic. 
  • Test B – Achievement of a legitimate aim.  Test B applies where the charity is not tackling a particular disadvantage but is seeking to achieve some other legitimate aim in a fair, balanced and reasonable (proportionate) way

Where an existing or proposed restriction to a particular group of people on certain grounds is not based on the needs or disadvantages experienced by that group, charities will need a strong justification to continue with or include the restriction.

There may be other exceptions in the Equality Act which apply to certain types of charity, for example religious charities.  For information on how the 2010 Equality Act affects charities see our guidance Charities and the Equality Act.  

 

E4.2 Human Rights Act 1998, Data Protection Act 1998 and the Freedom of Information Act 2000 

The Human Rights Act 1998 gives further effect to rights and freedoms guaranteed under the European Convention on Human Rights.  It applies to all public authorities, such as central and local government bodies, the police, hospitals and prisons.  As agents of the Charity Commission we must respect the rights and freedoms of people and organisations that we deal with as set out in the Convention.  

 

Where we are making a decision about authorising changes to a charitable company’s articles of association we therefore need to consider our public law duties including whether our decision might impact on the human rights of any individual (or corporate body).  For more information about the Human Rights Act, including which articles are most likely to be engaged in our work, see OG71 Human Rights Act 1998.

 

The Human Rights Act 1998 is complemented by the Data Protection Act 1998 and the Freedom of Information Act 2000.

 

The Data Protection Act 1998 introduced into UK law the provisions of the EC Data Protection Directive (95/46/EC) and made new provision for the regulation of processing of information relating to individuals. The purpose of data protection is to protect individuals (data subjects) from the unauthorised and unreasonable use or disclosure of information about themselves (personal data).

 

The Freedom of Information Act 2000 enables people to gain access to information held by public authorities. Since the Act was implemented (1 January 2005) people have the right to make a written request for information held by a public authority, to be informed in writing whether the authority holds the information and to be given access to that information, unless it is exempt from disclosure.

 

For more information about the combined effects of data protection, freedom of information and human rights legislation upon our work, see section 2 of OG71 A1 Human Rights Act 1998.  This sets out the “golden rules” we should follow in everything we do.

Top of page 

E5  What charitable companies need to do to pass resolutions validly

 

E5.1  Special Resolutions

The decision to alter a charitable company's governing document is made by the company members (and not, as in most other cases, by the trustees).  The trustees are responsible for proposing any alterations and, where necessary, obtaining our prior consent.

The members of the company need to pass a special resolution specifying the proposed change or changes to the articles of association.  This can be done:

  • at a meeting of the members of the company
  • in writing in accordance with the provisions of s288 of the Companies Act 2006

There are statutory procedural requirements relating to the passage of special resolutions at meetings of the company.  One of these is that the notice of the meeting needs to specify the substance of the resolution which is in fact passed.  If, at any subsequent point (for example at the meeting), the members change the substance of the resolution:

  • this will invalidate the notice given for the meeting.  A new meeting must be called giving notice of the revised resolution
  • the charity will no longer have our prior consent to the change (since this only applied to the agreed wording).  Our prior consent, in writing, to the revised resolution will be needed before it can be put to the members.

 

 

E5.2  Our prior written consent

The 2011 Act is explicit on the need for trustees to have our written consent before making regulated alterations.  We cannot give our consent retrospectively and no alteration made before we give our consent will be valid.  

The only exception to this is where the company’s members pass a resolution that is conditional upon our giving the required consent.  In these cases, the clear intention is that our consent brings the resolution into effect.  

 

E5.3  Conditional resolutions

Section 198(1) requires that we must give our prior written consent in cases where it is needed.  If the members pass a resolution without agreeing the form with us first, the resolution must explicitly state that it is conditional upon our giving the required consent, otherwise it will not be valid.  

The Registrar of Companies will accept documents registering amendments accompanied by our consent, even where the resolution pre-dates that consent, as long as the change made by the resolution is properly expressed to be conditional upon our consent being given.  But where a resolution has been passed that is not conditional on our consent, it will be ineffective and we cannot agree to it retrospectively. 

Top of page 

E6 Charity requirement to notify Companies House when an alteration under section 198 has been made

Where any change is made to a company's articles of association, the company must send a copy of the resolution giving effect to the change and a copy of the articles as altered to the Registrar of Companies within 15 days of the resolution being passed. Where our consent to the change is required under section 198(1), a copy of our letter or other form of consent must also be sent to the Registrar by the charity.

The Registrar should not accept any changes without proof of our consent (section 198(3) of the 2011 Act). However, even if they do so, the change would be ineffective without our prior written consent.  

Top of page 

E7 The date that amendments become effective

The date that the amendment takes effect depends on whether or not the change affects the objects of the charitable company. 

 

E7.1 Where the amendment changes the objects of the charity

Under s31(2) of the Companies Act 2006, where a charitable company amends its objects, the amendments will only come into effect once entered onto the register at Companies House.  The charity cannot operate under the new objects until this has happened.

Once the changes to the objects have been registered at Companies House, the charity must inform us of this registration date so that this can be entered onto the register of charities.

 

E7.2 Where the amendment does not change the objects of the charity

Where a charitable company makes amendments to its articles of association that do not change the objects of the charity, these amendments will take effect on the date the special resolution is passed by the charity's members.  This is the date that should be recorded on the register of charities.

Top of page 

  

 

Q & A

F1  Does this guidance apply to all incorporated charities?

No, it applies to charities governed by articles of association, including excepted and exempt charities.   (Exempt charities come within the provisions of the Charities Act 2011 unless explicitly excluded from them).  It doesn’t apply to other forms of incorporated charities, such as those governed by a Royal Charter and CIOs.

 

F2  What changes can a charitable company make to its governing document?

Charitable companies are able to make any changes to their articles of association as long as they meet the requirements of s197 and s198 of the Charities Act 2011.  s198 says that changes which the Act defines as “regulated alterations” can only be made with our prior written consent, and will be invalid without it.

 

F3  What is a regulated alteration?

A regulated alteration is one that falls within the descriptions set out in s198(2) of the Charities Act 2011 and includes:

  • amendment of the company’s articles of association adding, removing or altering a statement of the company’s objects
  • any alteration of any provision of its articles of association directing the application of property of the company on its dissolution, and
  • any alteration of any provision of its articles of association where the alteration would provide authorisation for any benefit to be obtained by directors or members of the company or persons connected with them (other than any benefit that would be authorised by s185)

For the purposes of s198 of the 2011 Act we consider the term alteration means both:

  • Additions (including the insertion of completely new clauses)
  • Deletions of, or changes to, existing provisions

 

F4  Which alterations need our consent?

    All regulated alterations made by a charitable company, regardless of whether the company is a registered, excepted or exempt charity, need our consent. 

    We also need to provide our consent in some cases where the proposed amendment is not a regulated alteration within the meaning of s198.  These are:

  • where the governing document requires our consent to all amendments, whether or not these would otherwise be considered a regulated alteration.  In these cases we will routinely provide consent for the trustees to remove that requirement, so that in future they can use the statutory authority to make changes without coming to us for our consent (except where these are regulated alterations).
  • where the trustees want to remove an express prohibition on trustee payments but cannot do so because of the way the company is constituted. If the charitable company doesn’t have members, or enough members who are not trustees to form a quorum to consider an amendment to remove a prohibition, they will not be able to pass the necessary resolution to make the change.  Under those circumstances, they will need us to provide our authority by making an Order.  

 

F5  Do organisations seeking registration need our consent to make changes fitting the definitions in s198?

Where an applicant organisation which is a company with objects that are not exclusively charitable appllies to be registered as a charity, we will advise the applicants to amend the objects.  In such cases the existing objects as presented are not charitable and so consent is not required because the company is not a charity. 

 

Where an applicant company applies to register with objects which are charitable but which do not reflect its true purposes  we will propose alternative wording (as long as the purposes could be charitable) and if agreed we will need to give consent to the amendment.  We may also propose amendments to the provisions of the governing document which require consent.   We are unlikely to refuse consent in these cases; what is more likely is that we are unable to register the applicant company (because we cannot see it is established for exclusively charitable purposes).

 

F6   What do we need from the charity in order to consider their application?

The trustees need to complete our on-line form telling us about the changes and their reasons for making them.  In exceptional cases we may accept hard copy applications. 

If the objects or dissolution provisions are being changed, we need to know the exact wording which is being proposed.  Where the change authorises a benefit for directors, members or persons or organisations connected to them which needs no further approval from us, the trustees need to tell us why providing this benefit will be in the best interests of the charity.

Any resolution the trustees submit must be in draft, or conditional on our consent.  We can't accept a resolution that has already been passed by the members, even if we would have agreed it beforehand, unless it contains a condition that the change is only effective with our consent.

 

F7 How flexible can we be when deciding if an alteration is a regulated regulation?

S198 of the 2011 Act says that any of the changes described this section are regulated alterations requiring our consent and are ineffective without it.  Anything that flows from such changes made without our consent will also be unlawful.   It’s important therefore that we recognise those alterations that need our consent and treat them as such.  

However, we apply a risk-based approach when considering applications for our consent to s198 alterations. If we are satisfied that there are no negative consequences for the charity arising from the proposed change, (and provided they meet all of the three 'tests' described in B4) we should be able to provide our consent without further enquiry.

 

F8 Why do we need to know about changes that we don’t need to authorise?

The law requires trustees of registered charities to tell us about changes to their charity's governing document so that the register of charities can be kept up to date.

  Trustees must send details of changes to us, and tell us:

  • what the changes were
  • that the changes were properly made (ie at a validly held meeting of the members)
  • the date that the special resolution was passed
  • where the charity's statement of objects has changed, the date these changes were registered at Companies House.
Where changes have been made that should have had our prior written consent, we would need to advise the trustees that these changes, and anything flowing from them, are ineffective under the law.  In rare cases, we may identify concerns which require us to take regulatory action.

Model letters and orders

G1 Wording of the Charity Law Association model articles of association - clause authorising conflicts of interests

Clause 6.5: 

“When any Trustee is a conflicted trustee, the trustees who are not conflicted trustees, if they form a quorum without counting the conflicted trustee and are satisfied that it is in the best interests of the charity to do so, may by resolution passed in the absence of the conflicted trustee authorise the conflicted trustee, notwithstanding any conflict of interest or duty which has arisen or may arise for the conflicted trustee, to:

………take any action not otherwise authorised which does not involve the receipt by the conflicted trustee or a connected person of any payment or material benefit from the charity.”