Development Trusts need a legal and management structure which balances the two elements of their work: on the one hand carrying out a range of economically, socially or environmentally useful projects, on the other generating income to sustain their operations
As such, Trusts have to be small businesses which also do unprofitable work. They have to be independent and entrepreneurial - yet able to call upon charities and sponsors for support not available to the private sector.
Development trusts have been defined as:
Independent, not-for-profit organisations which take action to renew an area physically, socially and in spirit. They bring together the public, private and voluntary sectors, and obtain financial and other resources from a wide range of organisations and individuals. They encourage substantial involvement by local people and aim to sustain their operations at least in part by generating revenue. (Creating Development Trusts, HMSO, 1988).
The structure most Trusts adopt is that of a company which does not distribute profits - known as a company limited by guarantee - which may also be able to achieve charitable status. Some Trusts have an associated trading company in addition, if they are a charity and their income generating would jeopardise their charitable status.
Strictly speaking, there is no particular significance in the use of the term Trust in this instance. It is a convenient shorthand for a non-profit distributing organisation with wide-ranging objectives; it does not signify some particular organisational model.
This form of company is similar in some ways to a conventional company limited by shares. Its operations are governed by the Company Acts, and it has a Board of Directors.
However, instead of shareholders it has members, and instead of buying shares and receiving dividends they offer a guarantee - usually a nominal £1 - as the limit of their liability.
Since there is also generally a provision that assets of the company can only be passed to a similar company if it is wound up, there is no way to distribute profits for private gain.
Funders and supporters of the Trust can be sure that any surpluses are either ploughed back into the company to meet its objectives, or distributed for charitable purposes.
Being a charity is a matter of
status, not of organisational structure: it is possible to secure
charitable status for a number of different structures. The issue is
essentially whether the objectives of the organisation are accepted
as charitable by the Charity Commissioners, and it has an appropriate
constitution. Because of its not-for-profit nature, a company limited
by guarantee with charitable objectives can apply for charitable
status.
Among the advantages of charitable status are:
Among disadvantages are:
The precise rights and duties of
members will depend upon the memorandum and articles of association
of the Trust - its constitution. These can be drafted to allow
organisations or individuals - or both - to be members.
Members can be given rights to elect the directors - or this right
can be restricted to a particular class of member, perhaps the main
sponsoring organisations. The structure of a company limited by
guarantee is highly flexible and can be tailored to the particular
circumstances of the Trust concerned.
The Board of directors of the Trust
company take responsibility for the actions of the Trust, but -
provided they are not negligent - the personal liability of the
directors is limited to the extent of their guarantee (usually
£1).
The directors usually concentrate on policy issues and may delegate
action to staff and/or sub-committees. In a charitable company the
Board of directors also act as Trustees of the charity, and as such
have additional responsibility to ensure Trust funds are only used
for its charitable purposes.
Since Trusts are action-oriented organisations where swift
decision-making is important, there is a strong case for limiting the
size of the Board, preferably to less than 12. Other interests can be
invited to join sub-committees or act as specialist advisers to the
Trust.
Generally the aim should be to have only two layers of control - the
directors and the staff. Don't build too much complexity into the
constitution - set up sub-committees when they are needed.
The relationship of the chair of the Board and the senior member of
staff (perhaps termed executive director) is crucial to the success
of a Trust. The chair is responsible for effective decision-making by
the Board, the executive director for servicing the Board and
management of staff. The two must be able to work closely
together.
Directors should be chosen for the
benefits they can bring to the Trust in terms of their contacts,
personal skills and standing within the community. They should be
capable and committed individuals - not committee time-servers.
There is a case for having a range of different skills represented on
the Board - finance, project development, community involvement - so
the Board can make a significant contribution to the work of the
Trust, not rubber-stamp staff proposals.
The consensus among those running existing Trusts is that it is wise
to avoid a majority of local authority officers or members on the
Board, in order to safeguard its independence. Legislation aimed at
stopping local authorities setting up subsidiaries does, in any case,
prevent this in most cases. There are restrictions on the level of
control, through representation or finance, which local authorities
can have over Trusts without incurring financial penalities.
In order to maintain its independence and control over its affairs
the Trust should provide its own secretarial and financial
services.
A charity should not trade unless it
does so as a means of directly achieving its objectives (for example,
a workshop for the blind). For this reason some Trusts set up
parallel trading companies which can sell products or services and
covenant profits back to the Trust. If this is done, it is important
that the two are linked closely through joint directorships to stop
the trading company going its own way.
A separate company can also be used if there is to be an active
campaigning arm, or where some activities like job creation don't fit
into the narrow limits of what is legally charitable.
In general a Trust needs one or more full-time paid staff to operate. Once the Trust has a substantial work load, it will probably need more. For example:
Many Trusts also offer opportunities to volunteers to work on projects, help in the office, produce publications or even run a shop if the Trust has one.
Setting up a Trust requires
specialist legal expertise. It does not form part of the day to day
work of most solicitors in private practice or the public sector, and
consequently it is wise to use a solicitor familiar with companies
limited by guarantee and securing charitable status. This will avoid
delays in drafting an appropriate charitable objects clause for the
memorandum and articles, and considering options on membership and
voting rights.
The Trust should also keep its legal adviser in touch with any major
problems which arise, in order to avoid longer term
crises.
The following are the main questions
to be considered in drafting the memorandum and articles - that is,
the constitution - of a Development Trust.
They are intended only as a guide to the issues to be covered, since
there are potentially large variations in the internal structure
which could be adopted.
The issues raised should be discussed with a solicitor specialising
in companies limited by guarantee.
© David Wilcox david@partnerships.org.uk.
Tel +44 (0)1273 677377. Fax: +44 (0)1273 677379. These information
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republished as a whole.
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