The Console scandal is just another example of the lack of implementation of governance standards in the charitable sector. The public are shocked when these cases get highlighted but we have to understand where these organisations start from and how they are funded and the experience of the persons that end up running the organisations.
The Charities Act 2009 has still not been fully commenced and the Charities Regulatory Authority does not have enough staff to deal with registering charities never mind implementing the Act and ensuring good governance standards are being complied with.
Our experience in assisting in setting up a charitable company or amending the constitution or implementing the Voluntary Corporate Governance Code is the intention and good will of the people who are behind the charity to provide a service that isn’t being provided by the State.
However these organisations find it difficult to encourage people with commercial experience to assist the company. We have highlighted some company law and governance points that these organisations should consider and we will go into these in more detail over the coming months.
A charity may be formed as an unincorporated association or as a company. A charitable company may be either a Company Limited By Guarantee (CLG) or a Designated Activity Company. A CLG is the most appropriate company type for a charitable organisation as it is designed for companies that are not trading for gain for the members. As there is no share capital in a CLG, it is easier to change the membership of the company whoever this can lead to one of the biggest issues for CLG’s understanding who the members of the company are and this should be provided for in the constitution of the company.
The constitution of a DAC or CLG will be made up of the Memorandum of Association setting out the objects and powers and the Articles of Association containing the internal rules for the company. When granting charitable status, the Charities Regulatory Authority (CRA) will examine the objects and powers of the company to see do they satisfy the definition of charitable purpose.
The CRA have issued a sample constitution that charities can use to either incorporate a charity or to amend the existing constitution. We have reviewed the constitution and have made some changes to this constitution that we feel should be included.
When establishing a charity or reviewing the constitution of a charity, time should be spent on reviewing the constitution particularly the Articles of Association and what are the internal rules of the company. Particular attention should be paid to who is entitled to be members and directors of the company.
The CRA will grant charitable status based on the application form and the constitution of the company if it can show that the company is carrying our charitable purpose. Charitable purpose is defined in the Charities Act 2009:-
- Relief of poverty or economic hardship
- Advancement of education
- Advancement of religion
- Other purpose that is of benefit to the community
The constitution should contain the necessary provisions to demonstrate its charitable objects and powers.
If the CRA does not grant charitable status the company may consider applying to the Revenue Commissioners for a tax exemption such as the sporting tax exemption. The wording to be included in the Memorandum of Association is different to that that of a CRA charitable constitution.
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Governance Code and Funder Governance
The Voluntary Corporate Governance Code of Practice for Good Governance of Community, Voluntary and Charitable Organisations in Ireland is the main code for this sector.
The Guide states that organisations should adopt this new Governance Code because it is the right thing to do. In doing so your organisation will benefit in many ways. Adopting the Code will:
- Reassure current funders that their money is being managed by a well run organisation with good governance;
- Increase transparency – in that everyone knows exactly how the organisation is being run;
- Help you avoid bad risks;
- Help you achieve your goals faster, and;
- Reduce costs.
The Code is based on 5 principles
- Leading our organisation
- Exercising control over our organisation
- Being transparent and accountable
- Working effectively
- Behaving with integrity
Organisations in this sector are encouraged to sign up and implement the Code to show openness, transparency and willingness to adopt good governance standards.
Some organisations are having difficult in understanding the Code and where to start with the implementation and don’t have the necessary experience or the funds to engage a provider to assist with this. These organisations might also have governance requirements from other funders such as the HSE, Pobal, Tusla etc. If the Government want these charities to adopt and implement these standards they should be provided with additional resources to do so.
How to Advise a Charity
Over the coming months we will examine these points in more detail. All charitable organisations should first ensure they are registered with the CRA. They should then examine what governance requirements are imposed on the organisation particular by funders. They should consider what are the best governance practices they should adopt to show that they are open and transparent and the general public and the service users are confident in the organisation.
How Can CLS Help
We can assist in forming a CLG that will be compliant with the Charities Regulator and Revenue guidance for Charities. We can also assist existing charities to update the company constitution and adopt a governance code. For more information please contact one of the Co Sec Team on 059 9186776 or email@example.com
Our CLS Insights aims to bring you practical information and news on Company Law and Company Secretarial. We cover the topics that matter to your business and give practical tips and also the benefit our experiences. Please remember this article is a guide and legal advice should always be obtained. If you have any queries please contact one of the team and we would be happy to help.