Liability for trustees of Charities, Not for Profits and Social Enterprises

One of the key questions for any start up – whether in the charitable or social enterprise arena or not – is what the best structure is to reduce the potential liability for directors/trustees.

We would recommend using the structure of a Charitable Trust. It is created by execution of a Deed of Trust, but can then be incorporated as an incorporated Charitable Trust under the Charitable Trusts Act 1957.

While there are other options such as an Incorporated Society, the charitable trust route is the process we usually follow.

Once the trust is incorporated, it is a legal person separate from the Trustees, and can enter into contracts and other obligations as its own legal person (under the Common Seal of the incorporated Trust). This means that the trustees do not personally need to be parties to the contracts it enters.

Under this structure, the liability of the Trustees personally would be somewhat analogous to the liability of directors of a Company (who do owe some duties to the Company and its creditors but not direct personal liability for Company actions), but is not clearly stated in the Charitable Trusts Act 1957. It should also be possible to obtain professional indemnity insurance for the Trustees as officers of the trust.

Every situation is unique and we would be happy to discuss your particular situation with you because what is right for one organisation may not work so well in another context.

Please note that this article is not intended to be legal or investment advice, and is only intended as a general guide. Reliance should not be placed on this article where any specific issues are concerned.