The Charities Act 2022 – Incorporations and Mergers

Many unincorporated charities such as charitable trusts have been looking at the benefits of converting from an unincorporated entity to a corporate structure in recent years, especially with the option of a Charitable Incorporated Organisation (CIO) now available.

There are several benefits of a CIO, including increased protection for trustees. We have written previously about the risks and opportunities for charities in relation to The Charities Act 2022 and emerging from the Covid pandemic, which can be found here.

Legacies in wills

One of the sticking points for some trustee boards, preventing them from making the change to an incorporated entity was the potential risk of losing out on generous legacies left in wills.

This could have potentially happened during the process of transforming an existing unincorporated charity into an incorporated structure, which would be a separate legal entity, with a new charity registration number.

A poorly written will may be unclear about what happens in the event of a charity merger or change in name or charity number, resulting in the bequest failing.

For example, phrases used in wills such as “provided it is still in existence” and which do not expressly provide for the merged charities to receive the legacy may have caused problems in the past.

Some charities have even gone to the effort of keeping their old unincorporated charity registered with the Charity Commission, retaining it as a ‘shell charity’ ready to collect any such legacies.

The Charity Commission already has quite a task on its hands regulating the active charities on the register, let alone also keeping tabs on the shell charities that might exist.

The Charities Act 2022

We welcome the news that following The Charities Act 2022 receiving Royal Assent in February this year, recommendations previously suggested by the Law Commission have been adopted. The provisions of the act now mean that the above use of shell charities is no longer required.

Provisions in the Act include:

• A new subsection relating to gifts, which enables gifts to a charity which has since merged as part of a “relevant charity merger” within the meaning of section 306 of the 2011 Act, to take effect as a gift to the new charity.

This will be the case even where the gift specifies that it will only take effect if the charity continues to exist on the effective date of the gift.

• Gifts to merged CIOs – similar amendments to apply the same rules where two or more CIOs amalgamate, or a CIO transfers its undertaking to another CIO.

Based on the current timeline issued by the Charity Commission it is anticipated that the provisions of the act are expected to come into force in the Autumn 2023.

For more information about how these issues may affect your charity or not-for-profit organisation, please send me an email or call 01297 33388. Our specialist charities team is also on hand to help.