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Are you a charity founder or trustee? Advice please(5 Posts)
I know MN is a strange place to seek advice about this, but before I get flamed...I am a part of an Advisory Board for a small organisation and we are all doing research into this issue. I have reached out to a solicitor, local CVS and another charity advisor, but much of the advice has differed so far and the Charity Commission have not helped to clarify. So I am posting this in case there are any experienced charity founders or trustees on here.
The situation is, a small company (limited by guarantee) is already in existence. Currently there is 1 director (the founder) and numerous freelance employees. It has been running on a not-for-profit basis (which is written into the constitution) for the last 5 years and receives community grant funding to work with disadvantaged children, delivering after school activity programmes. (They do amazing work). There is an Advisory Board who support the director and provide an extra layer of due diligence, but currently only in an advisory capacity rather than a legal one.
The plan is to register the company with the Charity Commission, and receive registered charity status, thereby becoming a small "charitable company", with charity number. (This was the director's idea). This would enable the organisation to access other charity grants as well as benefit from charity tax status, and hopefully grow over the next few years.
The advisory Board are all willing to become formal trustees of the organisation (the new charity). In our view, the best person to run the organisation as CEO would be the current director, as he has all the experience, knowledge, historical relationships with partners and funders, and trust with stakeholders and has made the organisation the success it is from the beginning.
The question is about the steps we would need to take in gaining charity status and retaining the current director as CEO whilst not causing conflict of interest.
If the Advisory Board members are added as company directors through Companies House now, then when we apply to the Charity Commission and the organisation is registered as a charitable company they will automatically 'convert' into trustees. So far so good. However, the current director is also (obviously) currently listed as a director with Companies House, so in that instance he would become a trustee too. There would then be a conflict of interest as we would want him to be CEO and continue to take payment from the organisation. The second option is that he could resign as a director of the company now, but then how would he have any legal footing to carry on the business of running the organisation, liaising with accountants, the bank, Companies House, HMRC etc if he is no longer listed as a director? A third option is he is appointed as one of the trustees and then we as the board apply to the Charity Commission to enable us to employ him. We were advised by one lawyer that it is 'perfectly natural' for a founder to be the first to be employed by the charity, and that we could get Charity Commission authorisation to employ him as long as we managed conflict of interest, and ensured that the director / CEO absent himself from all relevant board discussions about the role, salary etc etc.. We have also looked not to 3 current charity CEO's who founded their organisations and who sit on their boards (not as chair but as a normal trustee) and these were obviously all given CC authorisation, so it must be possible. The final point to add is that if the director did become a trustee, we would have a quorum of trustees (majority) without him, so he would not have a deciding vote.
So this is tricky.. The guidance is very clear for those starting a brand new charity, but deeply unclear for those registering a current, existing and operational organisation as a charity, where employees currently exist, get paid and run the organisation.
If anyone can offer their advice or experience I would be grateful. Thank you.
Why not just take the legal advice you were given by the lawyer?
I guess you want to know if there are any pitfalls or things you might not have considered.
Yes that's right. And we have had slightly conflicting advice from different people. The "by the book" response from the Charity Commission seems to be there's no way he could be the CEO and on the board, but the practice proves that not to be the case. Lawyers couch their language in such a way that creates less clarity! For me anyway.
Also I thought there might be some charity founders on here
I have personal and professional experience in this area, and it sounds like you are asking all the right questions and in my experience it would unusual for the CEO to also be a Trustee, even initially. I can see why the CC don't like it, but I have also seen it happen - but normally its when the organisation initially constitutes and the CEO steps down from the board soon after.
You don't need to be a Trustee to liaise with the bank, be a bank signatory or indeed talk to the accountants. Most CEO's of small charities I work with or have worked at do all that and are not on the Board. They may need to be an authorised signatory, or recognised person (e.g. for HMRC) - but that's different to being a board member. And it should be someone on the new Board (acting as company secretary) who talks to the CC (if you convert to a CIO, you wont need to ever speak to Companies House again), not the CEO.
Why can you not register with the CC, and (I assume) convert to a CIO and during this process, the current Director stands down as a Director, with the new Trustees taking over?