Contracting with Charities

November 6, 2015

In the current climate of corporate social responsibility and growing awareness of ethical business and consumer practices, companies are increasingly finding themselves in a situation where they wish to contract with a charity. Whether a business wishes to contract as a means of making donations, entering into a joint project with a charity, or even setting up their own charitable arm there are three fundamental issues to be aware of before entering into any agreement with a charity.

Identity

The first step to securing a valid contract is to clarify the type of entity with whom the company is contracting. There are various forms of charity, these can vary in size and may be a corporate entity (limited by guarantee, charitable incorporated organisations, registered societies or royal charter bodies), or an unincorporated entity (charitable trusts or unincorporated associations). The important distinction between the two is that the former has its own legal personality and therefore may freely contract in its own name. The latter is not a legal entity in its own right, therefore may only contract in the name of its individual trustees, corporate trustees or committee members. It is vital that companies get this distinction correct, in order to avoid inadvertently entering into a contract with an entity that does not exist.

Powers

Whether or not a charity has the legal power to enter into a proposed agreement will depend upon the terms of its articles of association, constitution, rules or trust deed. If the governing document does not give the charity the power to enter into a contract, its trustees or directors will be in breach of trust which may impact on the validity of any agreement. For charitable companies sections 39 (a company’s capacity) and 40 (power of directions to bind the company) of the Companies Act 2006 do not apply except in favour of an individual who is unaware at the time 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 is beyond the power of the directors.

Execution

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. For charitable trusts or unincorporated associations, contracts will be in the names of the individual trustees/committee members and should therefore be executed by each individual.

Due to the logistical difficulties faced by unincorporated charities with a large number of trustees, where a signature is required from each trustee section 169 of the Charities Act (Northern Ireland) 2008 allows trustees to authorise two of their number to sign or execute documents on behalf of the trustees as a whole. A resolution passed to this effect may be general, or transaction specific. Unless otherwise stated such a resolution will provide continuing authority to either two specific trustees or any two of their number until revoked. It is advisable for any company wishing to execute a document in such a way to seek a copy of this resolution in order to ensure that the trustees signing have the authority to do so.

Please note that the content of this article is for information purposes only and further advice should be sought from a professional legal adviser before any action is taken.