Ltd company registering as charity - trustee being employed

[CharityTrustee]

I realise this might be a bit of a specialist question, but I have tried posting on charity forums and they are all so quiet! MN is always busy so I'm going there might be a user with experience of running a charity or being on a board who can advise me here. Thank you...

I am a non-executive director of a Ltd company (NFP) and we are preparing to register it as a charity, of which Iwill be one of the trustees. We have had a number of consultationswith advisors andother charities & CEO's to discuss the possibility of employing the current CEO as CEO of the charity, whilst also having them on the board of trustees. The person involved is also the founder of the organisation. Our reasons for believing this to be in the interests of the charity are that they have a pivotal role with the community / stakeholders and with the charity, thatthe charity will benefit from them having a role in thestrategic oversight of the charity.

We realise that this circumstance is not common, and for good reason - we are certainly extremely aware and are not in any Kids Company territory. We have sought advice from charities that have done this successfully, but I wanted to seek advice here to see if anyone has any experience of this.

At the moment, our understanding is that we would need to ensure strong risk mitigation and governance procedures are recorded to address any potential conflict ofinterest. We don't forseenumerous areas where conflict of interest would occur other than the obvious -discussion of the CEO's salary, during which the person concerned would leave the meeting and this step would be clearly minuted. Other than that a general openness and transparency over any potential conflicts of interest would be our approach.

Would anyone have any advice about possible wording for clause(s) to include in our articles here, or whether authorisation ought to be sought separately? If the CC came back to ask for further evidence, what would they be looking for other than the assurances I have outlined above?

If anyone has experience of registering an existingCLGas a charity generally I would be most interested to read about it.

Thank you.

[BritInUS1]

Speak to an accountant who specialises in charities

[stucknoue]

I've no experience about changing from a company but I have registered charities. The key thing is whether you meet the criteria, the ceo is less of an issue but their remuneration must be scrutinised afresh

[Josieannathe2nd]

But one of the reasons you have trustees is to give oversight to the charity. That doesn’t work if the employee CEO is also a trustee. There are structures for good reason and to prevent future problems. You need to decide if their role as CEO or trustee is more important and then find someone else to do the other role.

[CobaltLoafer]

What exact structure are you choosing to register?

[CobaltLoafer]

Have you actually sought charity-specialist legal advice? There is no substitute. There are a number of elephant traps in what you are suggesting, not least such a ‘fishy’ structure would put off many kinds of donor.

[CobaltLoafer]

Why can’t the founder just be CEO or Chair? Both allow clear strategic oversight, albeit with different emphasis in each position. The desire to have absolute control would concern me. The Commission is almost certainly likely to have questions and I’m not sure what you’ve said there would be exceptional mitigating circumstances.

[Supersimkin2]

Ask the CC for a start.

My feeling is it sounds dodgy - there's no reason for anyone to be a CEO and a trustee of the same org. Wishy washy stuff about the community engagement won't cut it given the potential for large-scale financial abuse.

[Supersimkin2]

Ask the CC for a start.

My feeling is it sounds dodgy - there's no reason for anyone to be a CEO and a trustee of the same org. Wishy washy stuff about the community engagement won't cut it given the potential for large-scale financial abuse.

[OllyBJolly]

I agree with Josie. The Trustees are there to hold the charity's management to account. That would be uncomfortable at best and impossible at worst to have the head of the management team as part of that discussion.

I don't work with charities but I advise on governance for CLGs with a charitable purpose. They don't have charity status. This kind of circularity with the same individuals as trustees and employees does happen but it's not good governance.

The CEO determines the strategy with their Senior Management Team. The Trustees are there to scrutinise and challenge that strategy.

And it's specialist charity lawyer you need for your articles, not an internet forum.

[Screamqueenz]

I'm an expert in corporate governance (although not in the charity sector), you need to separate those roles unless you have an excellent reason not to. (There is very rarely an excellent reason).

[CharityTrustee]

@Josieannathe2nd I hear what you are saying but there are charities who have this arrangement and it has been authorised by the CC. So it isn't always the case, though I agree with the point in the main. It's more about how those charities have managed this.

@CobaltLoafer as the company is currently a CLG with a not-for-profit / no dividends clause we are aiming to register as a charitable company.

@OllyBJolly I did state in my Op that we have sought advice from many sources, and others not mentioned including other charities, a lawyer and a consultant.

The lawyer has advised this:
"You are right that the Commission’s default position is that they don’t like to see a trustee employed by the charity they administer. We can ask for a special exemption and I have drafted clauses which have been approved by the Commission for this purpose; but I have also had them refused on occasion...It depends on the strength of the argument you can put forward"

So hence I am seeking some more case studies and examples of orgs who have done this and how.

[CobaltLoafer]

What advice have the charities you know who have done this ‘successfully’ given you? If you are hell bent on this structure can’t you just ask to see their Mem & Arts and copy the clauses they used to suit your purpose? Or pay your lawyer to have a go. Not sure why you think you’ll get a ‘better’ answer here.

I strongly advise you against it however. You may think it sounds like a good idea now, but down the line, when the CEO has no independent oversight, when there are contentious decisions, or where there is some kind of crisis where the charity comes under scrutiny, you’ll wish you’d made another decision.

You own your stakeholders, staff and funders better governance. These arrangements end up in Kids Company “founder syndrome” territory for a reason.

[CobaltLoafer]

*owe