The individuals that run a charity or not for profit organisation may be referred to in a number of different ways – trustees, members, committee members, management committee, board of trustees, executive committee, board of directors, etc.
Whatever title they are given each person has the same responsibility to act in the best interests of the Charity as a whole. Each person acting in that capacity will face some risks and liabilities whether they are involved in an unincorporated or incorporated organisation.
These liabilities include:
- Breach of trust under charity law (carrying out unpermitted political activity, or receiving personal benefit from the charity)
- Criminal offences such as fraud
- Major civil wrongs such as serious negligence
- Acting as a charity trustee or company director when disqualified
- Failure to comply with statutory requirements, such as health and safety breaches or failure to deduct employees’ PAYE
Trustee indemnity insurance is of course available, but it will not protect trustees against liability for commercial debts or the repercussions of proven wrong-doing as outlined above.
The extent of liability attaching to a trustee’s actions will vary significantly depending on how the organisation is set up:
|Limited by guarantee
|Community Interest Company
|Charitable Incorporated Organisation
|Industrial and Provident Society
Trustees in an incorporated body are not normally liable for debts incurred or negligence, because the organisation is a legal entity in its own right and therefore provides limited liability protection for its trustees. In the event of a problem, the organisation would be pursued, rather than individual trustees.
Whilst this incorporation provides a much needed degree of protection for charity trustees, it does not totally protect them from negligence or wrongdoing. The main risk to trustees in a funding crisis is that they continue to trade when they know (or ought to have known) that there was no reasonable prospect of avoiding insolvent liquidation.
In a situation where you may be individually (personally) liable, it is worth noting that:
- you remain responsible for previous decisions and failings even if you resign, so it is usually best to stay put
- it is important to ensure that collective decisions are clearly minuted
- funders may well be sympathetic to any difficulties and it is usually worth consulting them at an early stage