Charity members and their duties
Stephen Roberts, Head of Legal Policy and Litigation at the Charity Commission, on members' duty to further the charitable purpose.
First published by Solicitors Journal on 13 February 2014, and reproduced by kind permission
Members of charitable companies and charitable unincorporated associations have limited powers. In general, they tend to be about changing the constitution, appointing or removing the charity trustees, and deciding whether the charity should be wound up.
Sometimes, the assertion is made that members of charities are not obliged to act in the interests of the charity as trustees must but they can exercise their powers as members in their own interests.
The general position regarding members of companies is set out in Greenhalgh v Arderne Cinemas Ltd [1951] Ch 286. This was that members, in discharging their role as a member, could act in their own interests rather than in the interests of the company. In Girls’ Public Day School Trust Ltd v Minister of Town and Country Planning [1951] Ch 400 Roxburgh J held that the shareholders of a company limited by shares with charitable objects were entitled to exercise their voting rights so as to put it into liquidation and take the surplus assets for themselves. However, that was a case where the company was not considered to be exclusively charitable so neither of these cases concerned the members of a charitable company.
Under section 198 of the Charities Act 2011 charitable companies cannot change their objects without the consent of the Charity Commission. Usually, such consent is not given if the change to the objects in question would mean they ceased to be charitable (see Catholic Care v CCEW [2010] PTSR 1074).
Under the Companies Act 2006 certain actions by directors have to be authorised by the members of the company. In the case of charitable companies under section 201 of the Charities Act 2011 the consent of the members to certain actions of the company with directors (such as substantial property transactions with directors) is ineffective without the prior written consent of the Charity Commission.
It can be seen from this that parliament considered there should be some check on the powers of members of charitable companies to take certain actions.
In IRC v Yorkshire Agricultural Society [1928] 1 KB 611 the Court of Appeal considered the case of a charitable unincorporated association. Atkins LJ indicated that “as it may dissolve itself, so I think it is fairly plain that it may, if it chooses, reassociate itself for other purposes …….” He went on to set out the position if it adopted purposes which were not charitable. “…if in fact it did choose to adopt as its purpose some additional and non-charitable purpose, the position would be that its income derived after that time would not be subject to the obligation to expend it for a charitable purpose, but its income acquired while it professed to be a society for a charitable purpose only would have to be so applied.”
Charitable unincorporated associations often have a clause in their constitution that it cannot be amended in such a way that the association would cease to be a charity. In fact, it appears from other cases that members of companies and unincorporated associations may not have the right to change the objects in such a way that is beyond the contemplation of the members as evidenced by the constitution. In Thellusson v Viscount Valentia [1907] 2 Ch 1 the Master of the Rolls in a Court of Appeal decision agreed with the proposition that “a company or partnership really formed for one particular object is not allowed to be turned into something wholly different, simply by reason of vague general words which you may find in the memorandum of association of the company or the articles of the partnership”.
The Charitable Incorporated Organisation (CIO) was introduced by the Charities Act 2011, the first structure exclusively designed for charities. Section 220 states that each member must exercise the powers that member has in that capacity in the way that the member decides, in good faith, would be most likely to further the purposes of the charity. Most people who wish to be a member of a charity will welcome the notion that there is an obligation on members to act in the interests of the charity rather than in their own interests.