Businesses will contract with charities in a wide range of circumstances – as customers, as part of a corporate responsibility programme, as sponsors, to name but a few. This is the first in a series of articles dealing with arrangements between businesses and charities, and will look at the three fundamental issues to bear in mind when entering into arrangements with charities generally. Future articles will look at property transactions in particular, and commercial participator arrangements where additional regulatory issues come into play.
When contracting with a charity, the first issue to establish is the type of entity involved. Charities come in all shapes and sizes, and can be corporate entities (such as companies limited by guarantee, charitable incorporated organisations, registered societies or royal charter bodies), or unincorporated entities (such as charitable trusts or unincorporated associations). The former have their own legal personality and can enter into contracts in their own name. However the latter are not legal entities in their own right, so can only enter into contracts in the names of their individual trustees, corporate trustee (if they have one) or committee members. It is important to get this right, as otherwise you may inadvertently enter into a contract with an entity that does not exist!
A key consideration is whether the charity in question has the legal power to enter into the arrangements proposed. This will depend on the terms of its articles of association, constitution, rules or trust deed – if the governing document does not give the charity the power to follow a certain course of action, its trustees or directors will be in breach of trust if they do so and this could impact on the validity of the agreement you have with the charity.
In particular, for charitable companies, sections 39 (a company's capacity) and 40 (power of directors to bind the company) of the Companies Act 2006 do not apply to the acts of a charitable company except in favour of a person who:
- does not know at the time the act is done that the company is a charity, or
- gives full consideration in money or money's worth in relation to the act in question, and does not know that the act is not permitted by the company's constitution or that the act is beyond the powers of the directors.
The final crucial point to bear in mind is execution of contracts. A charity that is a corporate entity, or a corporate trustee of an unincorporated charity, will sign and execute contracts in the same manner as any other company. However, you may wish to check the terms of the relevant articles or rules to confirm that there aren't any weird and wonderful requirements that are specific to that charity. For charitable trusts or unincorporated associations, contracts will be in the names of the individual trustees/committee members and therefore should be signed or executed by each named individual.
Given the logistical difficulties that unincorporated charities with large numbers of trustees can have when trying to enter into deeds in particular, where a signature is required from each trustee, section 333 of the Charities Act 2011 (previously section 82 of the Charities Act 1993) allows trustees to authorise two of their number to sign or execute documents on behalf of the trustees as a whole. A resolution passed under this section can be general, or specific to a particular transaction or class of transactions, and can refer to specific trustees or any two of their number. Unless the resolution states otherwise, and until revoked, it will provide a continuing authority given by the trustees from time to time of the relevant charity – therefore if there is a change in the trustee body, that shouldn't invalidate the resolution. If you are dealing with trustees who are looking to rely on a resolution passed under this section, or its predecessor, the best thing to do is ask to see a copy – you can then be happy that the people signing or executing the document on behalf of the trustees have authority to do so.
When contracting with a charity it is always advisable to do a bit of background to understand what type of charity you are entering into a relationship with to ensure that the fundamentals of the contractual relationship are right and to avoid questions being raised at a later stage as to whether the contract is valid and enforceable.