Charities in the UK will find themselves with a fairly large body of law unto which they must be compliant. This is primarily of course to make sure that they’re doing an effective job of raising money for genuine causes. However, as charities can also be companies, there are many additional considerations that they must make.
The Companies Act 2006 is the largest piece of legislation that made changes to the way that companies had to operate in the United Kingdom, and it is in fact the largest piece of legislation in UK law, coming in at almost 700 pages long. The aim of it was to codify many aspects of the law in relation to companies, and remove some unnecessary legislation that was proving to be a hurdle for small businesses in particular. It is in essence the number one documentation that companies in the UK must follow.
Given the sheer size of the Act, charities should always consult business experts if they’re looking for in-depth explanations of how it impacts them. In this article, we’re going to look at the various elements that the Act changed that are relevant to charities - some are requirements that they will now have to follow, and others are removals of previous requirements. As the body of law was so large, it was implemented in stages, so we’re going to go through 2007, 2008 and 2009 and point out the most important bits.
It’s always been the case that companies had to include their name and registration details in their letterheads, but in 2007 it became law that this also applies to electronic communications such as emails and of course the website, so you must make sure this is the case. The benefit however is that emails are now an acceptable form of formal communication - paperwork generally isn’t necessary.
Annual General Meetings are now a requirement of the past, unless the company was incorporated before 1st July 1985. However, many charities will still want to hold an AGM in the interests of good transparency and communication. As part of this, the minimum notice period for holding a company meeting is 14 days, and there are no restrictions on proxy votes.
The Charities Act finally put into law that all directors must act with due diligence and always act with the company’s best interests at heart. This is clearly something that the vast majority of directors and charities will naturally adhere to, but it’s worth bearing in mind nonetheless. Similarly, there are certain transactions between directors and the company that must be member approved, though the Charity Commission also has remit here.
Minutes from company meetings must be kept for ten years, where previously this was indefinitely.
Your charity does not have to have a company secretary if it’s incorporated as a company. However, as with other elements of the Act, in many cases it’s still regarded as a wise choice to have a designated secretary to deal with other matters of compliance.
The Companies Act 2006 made changes to the way that charities are to file accounts in that it’s now the Charities Act 2006 that governs this aspect of running a charitable organisation. The aim of this was to ensure that all charities are filing accounts in the same way with increased clarity.
As with several other areas of the Act, the section about conflicts of interest was previously ‘common sense’ or ‘common practice’ but wasn’t necessarily mandated. Directors now have a legal duty to avoid situations where they would, or might, have a conflict of interest between their own interests and that of their company. This goes for all companies, but things are slightly stricter for charities - directors of normal companies can approve conflicts of interest for other directors, but for charities the articles of association must be amended.
The final changes as a result of the Companies Act came in towards the end of 2009. The two important points that may be relevant to charities are that firstly, all companies must have at least one person appointed as a director, which means that directorships can no longer be exclusively comprised of other companies. In addition, a service address can be used in place of the director’s residential address.
To conclude, the Companies Act 2006 is an important piece of legislation for all companies, which includes charities. Its full details are beyond the scope of this article, so you should always consult business advisors if you need detailed information.
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