Charity trustees – duties and good practice

Charity trustees are responsible for ensuring that a charity operates to achieve its charitable purposes (the reason it was established) and have general control and management of the charity. All charity trustees, regardless of whether they are involved in day-to-day management, are subject to certain legal duties under the Charities and Trustee Investment (Scotland) Act 2005 ("2005 Act"). This article provides a high-level summary of each of these duties, together with illustrations of good practice. The Scottish Charity Regulator (OSCR) has published useful guidance which is available on its website here and here.

Trustees must always be mindful of their legal obligations under the 2005 Act, as a breach of duty can constitute misconduct, entitling OSCR to invoke its statutory powers and take action against the trustees. While the availability of trustee indemnity insurance can, in certain circumstances, provide trustees with protection against personal liability, it is unlikely to provide cover for a breach of duty. Trustee indemnity insurance is discussed further here.

In addition to their duties under the 2005 Act, trustees should also be aware of any duties and/or requirements set out in the charity's governing documents. There may also be additional duties and requirements which are specific to the legal form of charity concerned. Trustees of charitable companies, for example, are subject to the duties set out in s.170-177 of the Companies Act 2006, while Scottish Charitable Incorporated Organisations (SCIOs) are subject to the requirements of the Scottish Charitable Incorporated Organisations General Regulations 2011.

The duties set out under the 2005 Act are split into two categories: general duties and specific duties. In addition to the general and specific duties, which are set out below, charity trustees are also subject to an over-riding duty to act in the interests of the charity.

General Duties

1. Duty to ensure the charity operates in a manner consistent with its purposes

A charity's purposes are set out in its governing documents and are the objectives the charity was set up to achieve. This duty is subject to good faith, meaning that trustees must act honestly and reasonably in ensuring that the activities of the charity are consistent with and/or advance the charity's purposes.

Examples of good practice include ensuring that each trustee has a copy of the current governing document and that each trustee receives an induction to the charity on beginning their role.

2. Duty to act with care and diligence when dealing with the charity's affairs

While managing the charity, trustees must exercise a level of care and diligence that is reasonably expected of a person who is managing the affairs of another. The purpose of this duty is to ensure that the charity is run both responsibly and lawfully.

Illustrations of good practice include: agreeing financial budgets and monitoring financial performance; comparing any proposed plans against the charity's governing document to identify if/when the governing document requires updating; keeping abreast of any changes in the law which might affect the charity and recognising when professional legal advice may be required.

3. Duty to manage any conflict of interests

The over-riding duty for charity trustees is to act in the interests of the charity. It follows that where a conflict of interest arises between the charity and the person or organisation which appointed the trustee, the trustee must put the interests of the charity first. In other conflict situations (i.e. where the interests of the charity conflict with the trustee's own personal or business interest), the trustee must disclose the conflict to the charity and must refrain from taking part in any related discussions or decision making.

Conflict of interest situations are not uncommon. To ensure that they are appropriately handled, a charity should consider maintaining a register of interests which details where each charity trustee works and any other organisations that they are involved in. It is also good practice, and a requirement for a SCIO in terms of the SCIO General Regulations 2011, to maintain a conflict of interests policy which clearly sets out what trustees should do in the event of a conflict.

Specific duties

There are 5 specific duties under the 2005 Act. It is the trustees who are ultimately responsible for ensuring that they are met, regardless of whether the practical requirements of these duties are delegated to staff, volunteers or professional advisors.

1. Charity details on the Scottish Charity Register

To ensure the accuracy of the Scottish Charity Register, trustees must provide OSCR with the following up to date information about their charity:

• Name;
• Principal office;
• Purpose; and
• Name and address of one of the trustees.

While there is no requirement to notify OSCR of a change in trustee (such information being contained in the charity's Annual Report), OSCR must be notified as soon as possible if the change concerns the charity's principal contact.

2. Reporting to OSCR

As well as annual monitoring requirements (which require charities to send OSCR annual accounts, the trustees' annual report, 'external scrutiny report' and online annual return each year), and various charity accounting requirements (as referred to below), the 2005 Act requires that OSCR consent is sought before making certain changes to the charity – further details are contained on OSCR's website. The changes concerned include, for example: changing the name of the charity; amending its objects and purpose; changing its legal form; and undertaking certain reorganisations. Provided consent is received, the charity must also notify OSCR in writing once the change has been implemented. There are also certain changes OSCR need to be notified about which do not require its prior consent, for example, changes to the charity's governing document (other than changes to your charity's name or purposes).

3. Financial records and reporting

Charities are subject to certain financial reporting requirements and must prepare annual accounts. The annual accounts should include a "statement of account" which details the charity's activities and achievements in that year. A copy of the annual accounts should be provided to OSCR along with the charity's annual report.

4. Fundraising

Trustees are responsible for managing how the charity fundraises. There are both legal requirements and a Code of Practice to consider when fundraising. Further information is available on the OSCR Fundraising Page.

5. Providing information to the public

Finally, a charity must provide certain information to the public. The charity's name and Scottish charity number must be visible on the charity's home page on its website and on all external documents (i.e. letters, emails and invoices). A copy of the charity's governing document and the latest examined or audited accounts must also be provided to anyone who requests them.

How can Brodies help?

Brodies has a dedicated charities & third sector team made up of specialist lawyers who regularly advise charities on regulatory and governance aspects of charity law and practice. If you have any questions regarding the duties of charity trustees, including the specific requirements relating to SCIOs and charitable companies, please get in touch with your regular Brodies contact or one of contacts listed below.