Practice area overview: Charities law

What’s it all about?

Charity law, in the narrow ‘black letter law’ sense, is the area of trust law which governs trusts established for a charitable purpose for the public benefit. But in practice charity law might be better thought of as a niche area of commercial law applicable to charities. That means knowing about company law, tax, fundraising, intellectual property (IP) and so on.

Being a charity is a legal status rather than a legal form. That means that charities can be formed as trusts, unincorporated associations, industrial and provident societies, companies or statutory bodies.

In terms of clients the charity sector comprises a wide variety of charities of all sizes, including community-based voluntary organisations, philanthropic trusts, benevolent funds and corporate foundations as well as schools, shelters, care homes, and faith-based organisations. Section 2(2) of the Charities Act 2006 sets out 13 different types of charitable purpose, which goes to show just how broad the charity sector really is.

The working culture

It is perhaps the very real sense of variety, together with the idea of public benefit, which makes working in charity law so interesting. The people are also an important factor. Working with trustees and senior managers can be rewarding and inspiring.

Most of my colleagues volunteer in one way or another – whether as a trustee or company secretary or through pro bono advice. It is a useful way of trainees and junior lawyers to get involved and finding out what areas interest them.

As a trainee, I was involved with many varied clients and legal issues. Typically this included drafting and amending constitutions and governance policies; registering charities with the Charity Commission and obtaining regulatory orders; drafting and advising on contracts; and assisting with other general commercial matters with a charity law dimension.

Since qualifying in September 2010, I have also been involved with a number of charity incorporations (i.e. where an unincorporated charity transfers its undertaking to a newly formed charitable company limited by guarantee) and mergers.

What other practice areas do charity lawyers work most closely with?

Most larger charities are companies limited by guarantee and may structure their commercial operations through a trading subsidiary. This means that it is essential to know about company law and contract. Charities are also concerned to utilise their favourable tax treatment so an understanding of tax and VAT is also important. A knowledge of IP is also useful because a charity’s brand can sometimes be its most valuable asset.

Equally it is useful, in relation to particular charities, to know about the sector-specific law in which they operate e.g. education, health, social care, ecclesiastical, etc.

Other departments will typically deal with specific issues as they arise, for example, property, employment, litigation, etc.

What phrase is a charity lawyer most likely to use and what does it mean?

‘Social enterprise’ is not a new concept but it is becoming an increasingly important one under the Coalition Government – it is a descriptive label, rather than a legal definition, and can refer to the full range of organisations characterised, to a greater or lesser extent, by:

(i) ownership or governance through participatory stakeholder structures;
(ii) the provision of goods or services with a view to an operating surplus; and
(iii) the application for social aims and/or distribution of profit to stakeholders.

However, since ‘social enterprise’ has no technical definition, it can mean different things in different contexts. Arguably, though, it is this very flexibility which has left a creative space for social entrepreneurs to flourish and innovate.

Skills required

It is important for charity lawyers to have an understanding of and commitment to social enterprise and a general commercial awareness. The best way to obtain this is to get involved – there are plenty of opportunities for volunteers.

Charities are also particularly keen to ensure that legal fees, which they could otherwise spend in furthering their objects achieve maximise effect -for that reason charities require concise advice and practical solutions rather than abstruse legal screeds. Strong drafting and good communication skills are vital. Charity lawyers regularly draft constitutional documents, contracts and grant agreements as well as applications to the Charity Commission for regulatory orders.

Recent developments

Developments in public policy are a mixed bag for charities. On the one hand cuts in Government funding pose a serious threat to charities’ ability to achieve social outcomes. However, the Coalition’s ‘Big Society’ and mutualisation agendas offer new opportunities for social enterprises, particular in the area of public service delivery.

From the legal perspective the Charity Commission is due to review the Charities Act 2006 this year and a new legal structure, the Charitable Incorporated Organisation (CIO), is also scheduled for implementation this year. The Charity Commission itself if reviewing its functions in light of the funding cuts to see how it can most cost-effectively fulfil its statutory duties.

Christopher Hook is a solicitor at Bates Wells Braithwaite

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