Constitution, governing document, articles of association, trust deed. Whatever name it goes by, it is the central document for your charity’s governance and operation.
With such regulatory weight on its shoulders, your constitution (the term I will stick to for the purposes of this article) needs to be robust, but sufficiently flexible, fit for its current purpose, and future proof.
If you are drafting your constitution for the first time to establish your charity, or reviewing your existing constitution (which ideally should be done every three to five years), here are five top tips to consider:
1: Ensure your charitable purposes are clear, appropriate and future proof
Starting with the crux of any constitution, and the key to passing and continuing to pass the statutory charity test, are your charitable purposes. The Scottish Charity Regulator (OSCR) has published a useful guide to drafting your charitable purposes, including a preferred format and illustrative examples.
When considering your charitable purposes, ensure that they clearly describe your charity’s intended public benefit, and that your suggested activities support those purposes. A balance must be struck when drafting your charitable purposes as overly narrow wording may restrict future activities or funding opportunities. You should also ensure that the purposes remain relevant as the organisation develops, helping to avoid what is often referred to as ‘mission drift’.
2: Create a governance structure that works in practice
A constitution should provide a governance framework that is effective, proportionate and capable of adapting as the charity evolves. The first structural question to consider is whether the charity should be one-tier or two-tier.
A one-tier charity operates with a single body of people acting in two different capacities, as trustees and as members, depending on the decision being taken. Conversely, a two-tier charity has a membership wider than just the trustees. This distinction can have a significant impact on the governance and operation of the charity, and the most appropriate structure will often depend on the charity’s size and activities.
Speaking of membership, member categories, eligibility and voting rights must be clearly set out in the constitution. Trustee appointment, removal and succession planning must also be clearly stated using practical provisions in the constitution. Careful consideration must also be given to the minimum and maximum number of members and trustees, and how these numbers correspond to the quorum thresholds for decision-making.
3: Include appropriate powers and clear decision-making procedures
Well-drafted powers and meeting procedures help trustees and members discharge their roles and duties efficiently and reduce the risk of disputes or challenges over decision-making. More traditional constitutions will often contain a list of powers that may be utilised in the furtherance of the charity’s purposes.
In contrast, more modern constitutions generally dispense with such lists and instead adopt a general power authorising anything lawful that furthers the charity’s purposes. Which option to use often comes down to preference.
During and after the pandemic, the ways in which charities could make decisions were tested to the extreme as many constitutions did not include the option of hybrid or remote meetings. These provisions are now commonplace. When reviewing a constitution, the rules around meetings, resolutions, voting and delegation to sub-committees should be clearly presented and simple to understand.
4: Build in flexibility for growth, change and reorganisation
As a charity grows, its governance structure should be able to adapt alongside it. The development of the charity’s activities, funding opportunities, the wider social-economic environment and the beneficiary pool are all likely to change over time. A constitution drafted at establishment is therefore unlikely to remain fully fit for purpose without review as those changes and developments occur.
Every constitution should have a clear amendment process, including recognition of the need for OSCR’s prior consent where amendments are sought to your charitable purposes. The need to formally amend your constitution can be mitigated by ensuring the inclusion of flexible governance arrangements to accommodate changes in best practice, technology and working methods.
A well-drafted constitution allows for transitional advances such as collaborations and mergers and does not unduly restrict a charity’s ability to evolve.
5: Ensure your constitution properly protects charitable assets
In a similar category to charitable purposes, the provisions relating to the use of the charity’s assets, including on dissolution, are a vital part of a charity’s constitution and something OSCR will scrutinise during its review process.
Clauses on distribution of charitable assets, trustee remuneration, expenses and the dissolution (winding up) process must be clearly set out and ensure the protection and use of those assets in accordance with Scottish charity law.
Key considerations include ensuring any surplus assets are transferred to a charity with the same or similar charitable purposes, preventing the distribution of charitable assets to members (unless they are legitimate beneficiaries) and dealing appropriately with restricted funds. Amending dissolution clauses without fully understanding the legal implications can create compliance issues and delay regulatory approvals.
Conclusion
Trustees should both carefully draft and regularly review their constitution to ensure it reflects current operations, complies with Scottish charity law and supports the charity's long-term objectives.
A well-drafted charity constitution should clearly articulate charitable purposes, establish a practical and workable governance structure, give decision-makers the powers they need to manage the charity effectively, allow the organisation to adapt and grow, and ultimately protect charitable assets.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
