Trustees of charitable trusts are personally liable for the trust’s debts and obligations.  Essentially they are the “people” of the charitable trust, which means that they enter into obligations personally on behalf of the charitable trust.  In many circumstances a potential trustee doesn’t want to sign up for this degree of liability. 

A potential solution to this concern is for the trustees to incorporate as a charitable trust board under the Charitable Trusts Act 1957. 

So what is a charitable trust board and why might you want to establish one?

Separate legal entity

A charitable trust board is a separate entity that acquires its own legal identity.  The officers of a charitable trust board are generally not personally liable for the charitable trust’s activities, except in relation to their own wrongdoing (such as fraudulent activity or breaching the trust’s rules).  The board, rather than the trustees, will enter into all obligations, and it, not the trustees, will be liable if a default occurs.

A charitable trust board can continue into perpetuity until it is wound up, and is unaffected by changes to its membership.  When the charitable trust board is registered, any property that was previously held by the trustees personally is vested in the board as a whole.  This can be beneficial for entities with a large number of officers and/or who have a number of assets being acquired and changing hands, as the ownership records do not have to be updated every time an officer comes or goes from the charitable trust board. 

Officers of a charitable trust board

The officers of a charitable trust board must continue to act to the high standards that the law requires.  They have similar obligations to that of company directors, namely to:

  • Act in good faith and in accordance with the applicable rules;
  • Exercise their powers for proper purpose and with reasonable care;
  • Not create a substantial risk of loss for the board’s creditors;
  • Not incur obligations without reasonably believing that the board can perform those obligations; and
  • Not make any unauthorised personal pecuniary gain or misuse confidential information. 

Charitable trust board under Incorporated Societies Act 1908

Under the current Incorporated Societies Act 1908, a charitable incorporated society can incorporate as a charitable trust board, in which case the members or a group of members of the society become the board.  However under the proposed new Incorporated Societies legislation societies will no longer be able to incorporate as charitable trust boards.  It is expected that those societies which have already incorporated as a board prior to the change of legislation will automatically transition to the new legislation and will retain the benefits of incorporation.

How do you incorporate as a charitable trust board?

To incorporate as a charitable trust board, a majority of the charitable trust’s trustees must sign an application form and submit this to the Registrar of Societies and Trusts, along with a copy of the charitable trust deed and a statutory declaration from one of the trustees.

If you think that your charitable trust would benefit from incorporating as a charitable trust board, or you are looking to set up a charitable entity, see you legal advisor for advice that suits your situation. 

Claire Tyler