OG47 B1 - CHARITY COMMISSION CONSENT NOT NEEDED

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OPERATIONAL GUIDANCE

ALTERATIONS TO GOVERNING DOCUMENTS: CHARITABLE COMPANIES

WHEN IS OUR CONSENT REQUIRED?

OG 47 B1 – 12 November 2008

Purpose

This guidance sets out when our consent to alterations is required.

Functional responsibility

For action

Charity Services

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All operational divisions

Contents

1. Is our consent always needed or not?
2. What trustees should provide and considering requests for consent to regulated alterations
3. Regulated alterations to objects under section 64(2A)(a)
4. Changes under section 64(2A)(b) directing application of property on dissolution
5. Changes under section 64(2A)(c) providing authorisation for benefit to directors etc.
6. Charity requirement to notify Companies House when an alteration under section 64 has been made
7. Prior consent and conditional resolutions *
8. Charities regulated by other bodies
Glossary of Terms used in this Guidance

Index to further related information


The Law	Refer to a lawyer	Refer to an accountant

1. Is our consent always needed or not?
	1.1 Regulated alterations under section 64 1.2 Rarer situations where a more restricted power of amendment applies

	1.1 Regulated alterations under section 64
	Our consent is needed to any regulated alterations to the memorandum and articles of association of any charitable company, regardless of whether it is a registered, excepted or exempt charity. These regulated alterations are defined by section 64(2A) of the 1993 Act (as inserted by section 31 of the 2006 Act) and comprise:
	any alteration to the objects clause (see also OG47 A1 for what the objects clause may include);
	any alteration to any provision directing the application of the company’s property on its dissolution;
	introduction or alteration of any power which would result in authorisation of any benefit to be obtained by directors or members of the company or persons connected with them. [Note – an alteration to remove an express prohibition to pay a trustee, thus allowing access to the statutory power in s73 of the 1993 Act to pay a trustee or connected person for goods or services provided to the charity, is not a regulated alteration (see section 5.3 below). However, where the alteration cannot be made without those directors who would benefit under the statutory power voting on it, the Commission will need to authorise the conflicted directors to vote on the alteration – see OG47 B3].

	1.2 Rarer situations where a more restricted power of amendment applies
	Our consent will be needed in cases where the memorandum or articles of association expressly require our consent to the use of a power of amendment, see section 4 of OG47 A1.
	A clause that is commonly found in the memoranda of association of companies established before 1 January 1982 is:
	"No addition, alteration or amendment shall be made to the provisions of the Memorandum or Articles of Association for the time being in force, unless the same shall have been previously submitted to and approved by the Charity Commission".
	Where the memorandum of association contains such a clause the charity has no choice but to seek our approval to every alteration proposed. This is because such clauses remain legally binding under section 14 of the Companies Act 1985.
	This is clearly undesirable, since the intention of section 64 of the Charities Act 1993 is to regulate only those changes defined as "regulated alterations" in section 64(2A). This difficulty may be overcome by members passing a special resolution to delete the consent requiring provision from the memorandum of association. Such a resolution would require our consent, but we should be prepared to give it as a matter of routine.

2. What trustees should provide and considering requests for consent to regulated alterations
	2.1 What trustees should provide 2.2 Considering requests for consent to regulated alterations

	2.1 What trustees should provide
	The trustees will need to provide a written case in support of the proposed changes requiring section 64 consent, including full details of the changes themselves and the reasons why the charity wishes to make them.
	Trustees should be strongly encouraged to make their application using the form to be found on our website. This pack contains all the questions that we would usually ask pertaining to requests for section 64 changes.
	However, such a rigorous approach will not be needed where:-
		the change will include a continuing requirement for our prior consent before the new or amended power may be exercised (see section 5.2 below); or
		the change is cosmetic or immaterial or the kind that is detailed in section 1.2 above; or
		in the case of a proposed change that would authorise payments to directors, members or connected persons for services, the change makes express reference to section 73A of the 1993 Act and does not go beyond the scope of that statutory power (see section 5 below).

	2.2 Considering requests for consent to regulated alterations
	Our considerations of requests for consent under the different sub-sections of section 64(2A) are dealt with in the following sections of this guidance:
	regulated alterations to objects under section 64(2A)(a) – see section 3
	changes under section 64(2A)(b) directing application of property on dissolution – see section 4
	changes under section 64(2A)(c) providing authorisation for benefit to directors etc. – see section 5

3. Regulated alterations to objects under section 64(2A)(a)
	Charitable companies can only alter their objects clause with our prior written consent.
	3.1 When can we agree to material changes to objects? 3.2 Is the change one no body of reasonable trustees could make? 3.3 What do we do when the proposals involve a major change in the objects? 3.4 When might we withhold consent in the case of material changes to objects?

	3.1 When can we agree to material changes to objects?
	The onus in these cases is on the trustees to make a case as to why they are making the changes.
	We recognise that trustees, directors and members are usually in the best position to decide what is best for their organisation, and we would generally support their approach. We would therefore approve such changes as long as we are satisfied on the following points:
	the new wording expresses exclusively charitable objects; AND
	the proposed change is not something which no body of reasonable trustees could make ; AND
	the new objects do not undermine or work against the previous objects.

	3.2 Is the change one no body of reasonable trustees could make?
	Clearly, determining whether the trustees are acting reasonably in a given case requires a certain amount of judgement. The presence of some or all of the following factors may help to demonstrate that the change is reasonable :
	Do the proposals seem consistent with what the founders’ intentions might have been in the light of modern social and economic circumstances?
	Are there good reasons in the interests of the charity for making the change?
	Have members and beneficiaries been consulted about the changes?
	Will the changes have no detrimental effect on the existing beneficial class (see section 3.3 below)?
	Will the number of people who benefit increase or remain broadly the same?
	Have ways of benefiting the existing beneficiary class been fully explored?
	The criteria above should not be regarded as a "tick list". It is important to remember that the decision as to whether we give our consent is not based on an exact science, and will depend on the specific circumstances of the charity in question.
	If in doubt as to whether we can give our consent in any specific case, caseworkers should take legal advice.

	3.3 What do we do when the proposals involve a major change in the objects?
	As long as the trustees have given us a convincing explanation as to why their proposed changes are in the charity’s best interests, we should not reject their proposals simply because the revised objects are significantly different from the existing objects.
	For instance, as long as the new objects are exclusively charitable and seem capable of fulfilling the charitable purpose:
	we should consent to an extension to the beneficial class;
	we should consent to the adoption of additional purposes for an unchanged beneficial class;
	we can consent to changes which render the objects significantly different from the existing ones, as long as the proposal is not likely to undermine or work against the original objects.
	We can automatically accept changes to objects which do not affect them materially, as long as the revised objects are also exclusively charitable.
	Examples might include:
	where the change is purely administrative (eg renumbering clauses); or
	where the changes do not affect the scope of the objects in any way (eg stating the objects in clearer, modern language).
	In all cases, new objects put forward must clearly express their charitable nature. Where there is any doubt about the acceptability of the wording or of the scope of the changes being proposed, advice should be taken from a legal officer.

	3.4 When might we withhold consent in the case of material changes to objects?
	Although our general approach is to give consent to object changes, we do need to consider whether they:
	may adversely affect the original object / beneficiary class. An example of this would be the case of Re Cyclists Touring Club (1907) 1 Ch 269, where the company wanted to extend its cyclist protection object to include motorists. Consent was refused, on the basis that at the time motorists were one thing that cyclists needed protection against; or
	propose wording that is now outdated and is no longer viewed as charitable, even if it has been previously accepted.

4. Changes under section 64(2A)(b) directing application of property on dissolution
	4.1 Our policy on changes to dissolution clauses 4.2 Examples of possible changes to dissolution clauses 4.3 Approval of changes to dissolution clauses

	4.1 Our policy on changes to dissolution clauses
	Section 64(2A)(b) provides that our consent is required before any change can be made to any provision directing the application of the property of the company on its dissolution. Our consent is not needed where the dissolution clause is altered in a way that does not affect the application of property.

	4.2 Examples of possible changes to dissolution clauses
	There are many potential possibilities for changes to dissolution clauses which we may be asked to consider.
	Among the commonest provisions of a dissolution clause to which we may be asked to approve alterations are:
	where the property is to be passed to a named charity;
	when the property has to be passed to a charity with the same or similar objects.

	4.3 Approval of changes to dissolution clauses
	The onus is on the trustees to make a case as to why they wish to make the proposed change. Our basic approach to considering these changes should follow the same principles as in 3.1.
	Circumstances in which we might question the change would include:
	the change would seem to be to the detriment of the existing beneficial class (see 3.4 for an example);
	the change is unworkable for some reason – for instance, the new named charity does not exist or is not operating satisfactorily, or there is reason to believe it would not accept the gift.
	Some typical scenarios and how to deal with them are set out below, but if caseworkers are in doubt in any particular case, they should seek legal advice.

	Where the property is to be passed to a named charity
	(a)	Original named charity no longer exists
		If the receiving charity named in the memorandum and articles no longer exists, we would normally consent to such a change.

	(b)	Original named charity still exists
		If the original named charity still exists, we would normally consent if the original charity has no objection to the change.
		Where the original named charity does object to the change, there may still be good reasons for the charity making the change. If this is the case, we would apply the principles in 3.1 in the usual way.

	When the property must be passed to a charity with the same or similar objects
	Sometimes a charity’s dissolution clause will provide for its property to be passed to another charity which has exactly the same objects as its own.
	We should be prepared to consent to changes which relax this requirement if there are clear reasons in the interests of the charity to do so. For example, it may be that there are no longer other charities which have the same or similar objects as the existing charity, or the trustees may take the view that their charity is unable to operate effectively because the existence of another charity with the same objects is already providing a sufficient service with the result that the remaining assets of the charity could be better used for a wider charitable purpose. So long as the new outlet for the remaining assets will be charitable we should be prepared to accept the change.

5. Changes under section 64(2A)(c) providing authorisation for benefit to directors etc.
	The third category of "regulated alteration" concerns the extension of provisions which can benefit directors or connected persons personally.
	We may be asked to approve changes to the Memorandum and Articles which introduce specific provisions for benefiting trustees etc, and which can be exercised either with or without our further prior approval on each occasion. [Not all of these changes will be regulated alterations – see s5.1 and also s5.3.]
	5.1 Power to provide benefit to directors etc which may be exercised without further approval 5.2 Conditional payment powers 5.3 Removal of express prohibitions

	5.1 Power to provide benefit to directors etc which may be exercised without further approval
	Where the power being added provides authorisation for payment to directors, members or connected persons for services we need firstly to compare the proposed power with the statutory power provided by section 73A of the 1993 Act, as inserted by section 36 and 39 of the 2006 Act.
	If the powers being added do not exceed the statutory power then this is not regarded as a regulated alteration (s64(2B)(b) of the Charities Act 1993).(The charity can make use of the statutory powers where appropriate and if it can meet their conditions, it does not need to refer to them in its memorandum of association.)
	Where the power being inserted exceeds the statutory power and does not call for our consent before it is exercised each time, we should remember that the trustees will be able to make full use of the power. We should therefore consider very carefully whether we can provide our consent in the light of our policy on trustee benefit.
	In doing this, we should apply the principles normally applied to giving consent to the extension of trustee benefit provisions – see OG100 about Trustee Indemnity Insurance, for example.
	Where the power proposed is novel or there are doubts about whether it is appropriate, then legal advice should be sought.

	5.2 Conditional payment powers
	If the charity wishes to introduce a conditional payment power – that is, one which can only be used with further Commission approval, we can authorise it as a regulated alteration without a case being made by the charity, provided the power itself is appropriate for a charity.
	The power cannot be exercised without further reference to us, so in cases like this we can routinely give consent under s.64(2A)(c) to include a payment power subject to such a condition.
	We would resist the creation of powers which permit trustee benefits within the statutory provision, but which are expressed to be exercisable with our prior consent. Our approval is not required to a benefit that can be exercised within the statutory powers.

	5.3 Removal of express prohibitions
	If the governing document contains a clause expressly prohibiting the provision of benefits to directors, members or connected persons, its removal is not classed as a regulated alteration. This is because the removal of the prohibition does not, itself, authorise a trustee benefit. However, depending on how the charitable company is constituted, the company may or may not need to seek the authority of an order under s26 of the Charities Act 1993 for the conflicted directors to vote on the alteration – see OG47 B3 for more details.

6. Charity requirement to notify Companies House when an alteration under section 64 has been made
	Where any change is made to a company's memorandum and/or articles of association, the company must send to the Registrar of Companies a copy of the resolution giving effect to the change and a copy of the memorandum and/or articles as altered. Where our consent to the change is required under section 64(2), a copy of our letter or other form of consent must also be sent to the Registrar within 15 days of our consent being given (section 30 of Companies Act 2006).
	The Registrar should not accept any changes without proof of our consent (section 64(3) of the 1993 Act as amended by section 226 of the Companies Act 2006).

7. Prior consent and conditional resolutions
	Section 64(2) requires that we must give our prior written consent in cases where it is needed. The Registrar of Companies will accept documents registering amendments accompanied by our consent, even where the resolution pre-dates that consent, provided that:
	the change made by the resolution is properly expressed to be conditional upon our consent being given.
	Charitable companies will therefore meet the requirements for our prior written consent if they submit such a conditional resolution.
	Where a resolution has been passed without the change being made conditional upon our consent, it is not possible for us to consent to the change made by the resolution.

8. Charities regulated by other bodies
	Some charitable companies will not only be subject to the controls in section 64, but may also be regulated by other bodies as well
	For instance, Registered Social Landlords may be established as charitable companies, and as such, will not only be subject to the controls in section 64, but will also need the Housing Corporation's consent under paragraph 11(3) of schedule 1 to the Housing Act 1996 to changes to their memorandum and articles. Further details can be obtained from the Housing Corporation, Maple House, 149 Tottenham Court Road, London, W1T 7BN. Their telephone number is 0845 230 7000 and the Internet address is www.housingcorp.gov.uk.
	If in doubt as to whether another body may have to consent to changes in the memorandum and articles of a charitable company, caseworkers should take legal advice.

Glossary of Terms used in this Guidance
	1993 Act
	cy-près
	Housing Corporation
	trustees

Index to further related information