What is the personal risk to you if you are a board member of a charity?
Your liability will be affected by the type of charity that you have. Most charities fall into one of three categories:
- incorporated societies
- incorporated trusts.
If you are a trustee of a trust which is not incorporated under the Charitable Trusts Act then you will have personal liability.
This is because the trust itself is not liable for its debts. The law does not recognise that an unincorporated trust can own assets or owe debts. It is the trustees who own the assets and owe the debts, albeit on behalf of the trust. The trustees are personally liable.
As long as the trustees comply with the terms of the trust, if they get sued they can use the assets of the trust to pay the debt. However, if the trust has nothing then they have to carry the cost themselves. That is the ordinary law applying to most trusts and it includes charitable trusts.
The law provides an extra protection to charitable trusts, which is not available to other trusts – they can incorporate under the Charitable Trusts Act.
If the trust incorporates then it becomes similar to an incorporated society in the sense that the society or trust becomes a separate legal entity in itself.
That means that the assets and debts of the charity don’t belong to the trustees or board members – they belong to the incorporated trust or society. If someone wants to sue the trust or society then they can do that directly and they cannot sue the trustees or board members.
So the lesson is – get incorporated.