CC4 What makes a charity, Lecture notes of Law

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GUIDANCE

What makes a 'charity'

SEPTEMBER 2013

New format February 2017

Contents

• Part 1: About this guide
• Part 2: About charitable purposes
• Part 3: About the ‘descriptions of purposes’
• Part 4: About ‘the public benefit requirement’
• Part 5: The High Court’s charity law jurisdiction
• Part 6: Further information
• Annex 1: Technical terms used in this guidance
• Annex 2: About political purposes
• Annex 3: How the law decides what is a charitable purpose
• Annex 4: Definitions in the Charities Act

Part 2: About charitable purposes

Purposes

Your organisation’s ‘purpose’ is what it is set up to achieve. A charity’s purpose is usually set out in the ‘objects clause’ of its governing document (the legal document that creates a charity and says how it should be run). To be a charity your organisation must have charitable purposes only. It cannot have some purposes that are charitable and some that are not (legal requirement).

Charitable purposes

To be a ‘charitable purpose’ (as defined in the Charities Act) it must (legal requirement):

• fall within the descriptions of purposes in the Charities Act (see part 3 of this guide) and
• be for the public benefit - the ‘public benefit requirement’ (see part 4 of this guide) To be charitable, a purpose must satisfy both of these criteria. The purpose must be certain so that, if necessary, it could be enforced by the court (legal requirement). A purpose might not be certain:
• because the wording used to express the purpose in the governing document is unclear or
• because the scope and meaning of that purpose is not clear If a purpose itself lacks certainty it cannot be charitable because it will not be clear that it:
• falls within one or more of the descriptions of purposes or
• is for the public benefit

Purposes that cannot be charitable purposes

Your organisation’s purpose cannot be a charitable purpose if it:

• does not fall within the descriptions of purposes and is not for the public benefit, including if it is:
  • a political purpose - see Annex 2
  • unlawful or against public policy
  • intended to serve a non-charitable purpose

How the law decides what is a charitable purpose

For further guidance on how the law decides what a charitable purpose is, see Annex 3.

Charities carrying out purposes internationally

A charity cannot have purposes that are illegal under the law of England and Wales (legal requirement). The law of England and Wales is not universal and the laws of other countries will differ. This means some charities that are registered in England and Wales might have purposes that are not legally valid in another country. The general position is that if a purpose would be charitable if it were carried out in England and Wales, it will also be considered charitable if a charity registered in England and Wales intends to carry out that purpose in other countries. Similarly, if a purpose is considered to be of detriment or harm if carried out by a charity in England and Wales, it will also be considered to be of detriment or harm if it is to be carried out in other countries by a charity registered in England and Wales.

For more on what each of these descriptions mean, and the sorts of purposes that fall within them, see:

• Guidance on charitable purposes

Using the wording of the descriptions as charitable purposes

It may be possible for your charity to adopt as its purpose the wording used in one of the descriptions of purposes where that wording makes it clear:

• that what is being advanced is clearly a purpose that is recognised as being charitable for the public benefit
• how that purpose is to be achieved (such as ‘the relief of poverty by ....’) In some cases, the wording used in the descriptions of purposes can have more than one meaning, and not all of those meanings are purposes that the law has recognised as charitable or as capable of being for the public benefit. Where this is the case the Commission will let you know whether that wording can be used as the charity’s purpose and whether it needs to be made clearer.

Deciding whether your purpose ‘falls within’ the list of descriptions of purposes

The Commission decides whether your purpose ‘falls within’ one of the descriptions of purposes by looking at:

• whether your purpose is something that the courts or the Charity Commission recognise as falling within:
  • relevant case law or principles derived from relevant case law
  • any definition of the description that appears in the Charities Act

New and novel purposes

Sometimes it is not obvious whether a purpose does or does not fall within the descriptions of purposes, for example where a purpose may be new or novel. We will let you know as appropriate if this is an issue with your organisation’s purpose.

Part 4: About ‘the public benefit requirement’

The ‘public benefit requirement’ is the requirement in the Charities Act that, to be a ‘charitable purpose’, a purpose must be ‘for the public benefit’ (legal requirement). There are 2 aspects of public benefit:

• the ‘benefit aspect’
• the ‘public aspect’

The ‘benefit aspect’

The ‘benefit aspect’ of public benefit is about whether the purpose is beneficial. To satisfy the ‘benefit aspect’ of public benefit (legal requirement):

• a purpose must be beneficial
• any detriment or harm that results from the purpose must not outweigh the benefit

The ‘public aspect’

The ‘public aspect’ of public benefit is about who the purpose benefits. To satisfy the ‘public aspect’ of public benefit the purpose must (legal requirement):

• benefit the public in general, or a sufficient section of the public
• not give rise to more than incidental personal benefit

Guidance on the public benefit requirement

In general, for a purpose to be ‘for the public benefit’ it must satisfy both the ‘benefit’ and ‘public’ aspects (legal requirement). However, if the purpose is to relieve or prevent poverty different rules apply. For guidance on the public benefit requirement (including the different rules for poverty charities) see:

• Public benefit: the public benefit requirement (PB1)

Part 6: Further information

This part provides links to other guidance which you may find of interest in relation to this guide. The following are included in the Commission's set of public benefit guides:

• Public benefit: the public benefit requirement (PB1) (legal requirement) This guide explains the legal requirement that a charity’s purpose must be for the public benefit. This is known as the ‘public benefit requirement’.
• Public benefit: running a charity (PB2) (legal requirment) This guide explains public benefit in the context of running a charity.
• Public benefit: reporting (PB3) (legal requirement) This guide explains the trustees’ duty to report in their trustees’ annual report on how they have carried out their charity’s purposes for the public benefit. The following are not included in the Commission's set of public benefit guides:
• Public benefit: an overview This guide gives an overview of the Charity Commission’s public benefit guidance. It explains:
• how understanding public benefit will help a charity’s trustees
• the trustees’ duty to ‘have regard’ to the Commission's public benefit guidance
• some key points to know about the law relating to public benefit
• Analysis of the law relating to public benefit This analysis of the law may be of interest to charity trustees who wish to know more about the legal basis of the Commission's guidance.
• Start up a charity General guidance on setting up and registering a new charity.
• Speaking out: guidance on campaigning and political activity by charities (CC9) (legal requirement) This publication gives guidance on the legal and regulatory framework for charities wishing to engage in campaigning and political activity.

Annex 1: Technical terms used in this guidance

The following terms are used in this guide, and should be understood as having the specific meanings given: The Charities Act: the Charities Act 2011. Charity trustees: the people who serve on the governing body of a charity. They may be known as trustees, directors, board members, governors or committee members. Charity trustees are responsible for the general control and management of the administration of a charity. Governing document: a legal document setting out a charity’s purposes and, usually, how it is to be administered. It may be a trust deed, constitution, articles of association, will, conveyance, Royal Charter, scheme of the Charity Commission, or other formal document. High Court: the principal civil court of unlimited civil jurisdiction in England and Wales. It comprises 3 divisions: Queen’s Bench, Chancery, and the Family Division. Objects: A charity’s ‘objects’ are a statement of its purposes. Usually these are found in the ‘objects clause’ of a charity’s governing document. However, not all charities have a governing document with an objects clause. Usually a charity’s objects clause means the same as its purposes, but sometimes they are slightly different, such as when:

• the objects clause does not adequately or fully express the organisation’s purposes
• the clause contains more than just the objects, such as powers Public benefit requirement: the legal requirement that, to be a charity, an organisation’s purposes must each be for the public benefit (legal requirement). Purpose(s) and charitable purpose(s): the Commission uses the term ‘purpose(s)’ to mean the purpose(s) of an individual organisation. A charity’s purpose sets out what it is set up to achieve. To be a ‘charitable purpose’ a purpose must fall within one of the descriptions of purposes in the Charities Act and be for the public benefit. This has to be demonstrated in each case (legal requirement). The courts: the Commission uses this term to mean, collectively, the Tribunal, the Upper Tribunal and the courts. The Tribunal: the First-tier Tribunal (Charity) is the first level of appeal against the decisions of the Charity Commission set out in Schedule 6 of the Charities Act. The Upper Tribunal: The Upper Tribunal (Tax and Chancery Chamber) is the second level of appeal against decisions of the Commission set out in Schedule 6 of the Charities Act.

We will consider this where the political activity that an organisation carries out is:

• integral to the organisation’s work
• at least part of the reason for the organisation’s existence
• a ‘freestanding’ purpose, an end in itself, with no direct and immediate connection with the work of the organisation in carrying out its charitable purposes
• the sole, or continuing, activity of the organisation We will let you know where there is an issue about whether your organisation has a political purpose.

Why ‘political purposes’ cannot be charitable purposes

A ‘charitable purpose’ must be ‘for the public benefit’ (legal requirement). The courts have taken the view that they are not in a position to judge whether or not a ‘political purpose’ is for the public benefit (and therefore whether or not it is charitable) because:

• the courts have no means of judging whether a proposed change in the law, or the policies of a political party, or a policy or decision of government, local authorities or other public bodies, will or will not be for the public benefit
• it is for Parliament, not the courts, to decide matters of public policy and changes in the law
• in the case of a purpose to change the law or policy overseas, the courts should not prejudice relations between the UK and foreign states by taking a view about whether their laws or policies should be changed or retained

Annex 3: How the law decides what is a charitable purpose

Relevant background knowledge includes everything that would affect the way each of the purposes set out in the organisation’s governing document would be understood by a reasonable person. The purposes are what this reasonable person would say they are. What the organisation has been doing or carrying out (its activities) since it was set up are not relevant in forming this view. This is because those activities may or may not be within the scope of the purpose. What matters is the scope of what is authorised by each purpose. Where it is not clear or self-evident that the purposes fall within the descriptions of purposes then evidence of activities that the organisation has been, or will be, carrying out and relevant background information can be looked at to understand whether everything that could be done under the purpose falls within the description. This question does not answer whether the purpose is charitable but whether it is capable of being charitable if for the public benefit. Where it is not clear or self-evident that the purposes are for the public benefit, then evidence of activities that the organisation has been, or will be, carrying out and relevant background information can be looked at. It is necessary to establish:

• what the benefits are and who benefits,
• what the outcomes or consequences are of carrying out the purpose,
• whether the purposes are undertaken for the public benefit. These questions are answered by:
• looking at evidence,
• what is demonstrated by that evidence, and
• by recognising simple obvious common sense facts – speculation or controversial or political assertions are not sufficient. Step 1: Deciding what the purposes are The nature and scope of the purposes in the governing document are considered as a reasonable person with relevant background knowledge would. Only what could be done under the purpose is considered. Step 2: Deciding whether the purposes fall within the descriptions of purposes The purposes are considered to establish whether everything that could be done under the purpose is either:
• recognised as falling within one or more of the descriptions of purposes, or
• does so by analogy. Step 3: Deciding whether each of the purposes is for public benefit Each of the purposes is considered to see if it is for the public benefit by considering:
• the benefit aspect, and
• the public aspect of public benefit. EXCEPT for the relief of poverty and some prevention of poverty purposes, where the benefit aspect only is considered. Yes No Yes Charitable Not Charitable