Tuesday, 24th October 2006: The Law Reform Commission’s Report on Charitable Trusts and Legal Structures for Charities will be formally launched by the Attorney General, Mr Rory Brady SC, at the Commission’s offices at 6pm this evening.
The Report being published today follows 2 Consultation Papers – on Charitable Trust Law and on Legal Structures for Charities – published by the Commission. The Report forms part of the Commission’s research work under its Second Programme of Law Reform 2000-2007. It also comes against a wider background of the general reform of the regulation of charities. In 2003 the Department of Community, Rural and Gaeltacht Affairs published a Consultation Paper Establishing a Modern Statutory Framework for Charities. The Department’s proposals envisaged the establishment of a charities regulator and a formal register of charities. The Commission agreed to assist the Department on aspects of the proposed new framework, in particular the role and function of charities trustees. The Consultation Paper on Charitable Trust Law was published against that background.
In March this year, the Department published the General Scheme for the Charities Regulation Bill 2006. The draft Charities Bill 2006 includes the first statutory definition of charity, proposes to establish a register of charities and to put in place a regulatory framework for registered charities under the auspices of a Charities Regulator. The draft Charities Bill 2006 incorporates the key recommendations in the Commission’s Consultation Paper on Charitable Trust Law. It does not include any provision covering a particular legal structure for charities, which was dealt with in the Commission’s Consultation Paper on Legal Structures for Charities. Because of this, most of the Report being published today deals with the issue of a new Legal Structure for Charities.
Existing legal structures for charities
The Report being published today notes that existing charities operate under a number of legal structures. These include the charitable trust, the unincorporated association and the company – usually a company limited by guarantee. 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 charity law. The Commission notes that this creates obvious difficulties in any attempt to regulate and to codify any set of rules to apply across all of the different legal structures. It also notes that these existing structures were not developed specifically with charities in mind.
Main recommendation and reasons
The Report recommends the introduction of a new charity-specific legal structure, to be called the Charitable Incorporated Organisation (CIO). There are 3 key reasons for this. First, the company is a legal structure established to distribute profits to its members: this is not consistent with the public benefit purposes of charities. Second, having a charity-specific legal structure will avoid the unnecessary regulatory burden in which charities would have to comply with the registration requirements of company law and of charity law. Third, in the international context in which many charities operate, a number of other States (including the UK) have either introduced or are about to introduce a charity-specific legal structure. The Commission has included a draft Bill in the Report to implement its proposals, which it recommends should be incorporated into the Charities Bill which will follow from the draft Charities Bill 2006.
The Commission’s detailed recommendations include:
- The CIO will be a separate legal entity, that is, a corporate body, and entered on the proposed Charities Register included in the draft Charities Bill 2006;
- The CIO must have a minimum number of 3 charity trustees and have a constitution;
- A model constitution for the CIO should be designed in consultation between the Charities Regulator and the charity sector;
- The liability of the charity trustees will be along the lines recommended by the Commission in its Consultation Paper on Charitable Trust Law which have largely been incorporated into the draft Charities Bill 2006;
- Charity trustees will have limited financial liability;
- For existing charities, the CIO will not be mandatory, but will be an additional option;
- There should be a simple and cost effective way to allow existing charities to convert to the CIO structure;
- The CIO structure should be reviewed after 5 years to decide whether other legal structures for charities should continue to be available;
- There should be detailed Regulations to deal with issues such as: submitting annual accounts of a CIO to the Charities Regulator; allowing existing charities, whether unincorporated or incorporated, to convert to the CIO structure in a simple and cost-effective manner; the amalgamation of existing charities or CIOs; and the winding-up, insolvency or dissolution of a CIO, including directions regarding the application of the property of a CIO in the event of the CIO being wound up.
Report on Charitable Trusts and Legal Structures for Charities