Changes to company law and Charity Commission guidance: what does it mean for charities?

As a result of recent changes to company law, charitable companies and trading subsidiaries should be aware of new obligations and restrictions imposed on them. Many of the changes are already in force, or soon to be, and therefore charities will need to factor these developments into their planning.

Modern Slavery Act 2015

The Modern Slavery Act will require certain businesses to report on what steps they have taken to eliminate modern slavery from both their own business and their supply chains. The Act is the first of its kind in Europe and is designed to minimise the scope for exploitation in supply chains. The duty is soon to come into effect and will require any commercial organisation (body corporate or partnership) with a turnover in excess of £36m to prepare such a statement. Turnover will be determined by reference to the revenue of both the organisation and any subsidiaries (within the meaning of the Companies Act 2006). A statement must be prepared each financial year if a business meets the criteria set out above and particularly defined in section 54 Modern Slavery Act.

Corporate Directors

The Small Business, Enterprise and Employment Act 2015 (the “SBEE”) is set to impose a change in the law that will significantly affect the appointment of directors. Under the SBEE, all directors must be natural persons and can no longer be a body corporate (unless they meet the criteria set out in the exceptions). The changes are both prospective and retrospective and are expected to apply from next Autumn.

Companies House guidance states that “any company with an existing corporate director will need to take action, to either explain how they meet the conditions for an exception or give notice to the registrar that the person has ceased to be a director.” Due to opposition, the implementation of the ban has been moved to October 2016 and the ban itself will be subject to exceptions, to be determined in new regulations. The Department for Business, Innovation and Skills has proposed that a company may appoint a corporate director if all directors of the corporate director are natural persons.

Charities should be aware that there will be a transitional period for companies with existing corporate directors. The SBEE provides that companies will have 12 months after the implementation date to remove corporate directors and notify Companies House. After the expiry of the period of 12 months, any corporate director (who does not meet the excepted requirements) will cease to be a director.

Companies House forms

The SBEE has also imposed new provisions that will affect companies when filing forms. Due to substantial changes to many of the forms, Companies House has issued guidance that it will not accept any old versions received after 10 October 2015. Such changes include, amongst other things, the suppression of the day element of a director’s date of birth. The rationale behind this is to assist with the prevention of identity fraud. The day element of the date of birth will now be redacted and this will affect forms such as AR01 (annual return) and TM01 (termination of appointment). Therefore charities must make sure they use the latest form available from the Companies House website. 

Updated Charity Commission Guidance

A new version of the Charity Commission’s guidance “The essential trustee” has been published. The updated guidance provides a comprehensive overview of the duties and responsibilities of charity trustees. The language used in the new guidance is much clearer, and contains some important changes and clarifications, in particular regarding the difference between legal requirements and “good practice”. We would strongly recommend that all charity trustees (new and experienced) take the time to read it if they have not already done so.

The Charity Commission has also issued education sector guidance on ‘umbrella trusts’. Umbrella trusts are charities that have been established to provide support services to a group of schools (including both academies and non-academy schools). The new guidance states that umbrella trusts are not exempt from registration and provides useful details on charitable structure and example objects.

Conclusion

Some of the issues raised, for example filing the correct Companies House forms, will affect the day to day running of charities. Other developments however will involve longer term planning. Therefore charities should be thinking ahead to the impact of removing corporate directors and reporting under the Modern Slavery Act.