While it’s generally evident who your trustees or directors are, ‘members’ form an all too often forgotten component of charitable companies and Charitable Incorporated Organisations (CIOs). We’re not talking about members in the sense you might be more used to at church, but are referring to it in its legal definition – akin to shareholders in a company, but without the financial interests. While they can easily be overlooked, it’s important to know who they are, as both charitable companies and CIOs have a statutory obligation to keep a register of its members.
Why keep a register of members?
As well as being a legal obligation, keeping an up to date register of member shows that your church or charity has good governance, which strengthens your reputation. It also helps your operations, as auditors and those engaging in due diligence process can quickly see who the members are.
Keeping an up to date register will reduce delays and frustrations if the charity is merging with another charity, or if there is a dispute within the charity. It is also a necessity for conducting meetings or passing resolutions, as it shows past and present members, giving evidence of who the members are.
In contrast, where there is no register of members, or no clear way of identifying them, the foundations of the church or charity’s governance arrangements are undermined.
So who are your ‘members’?
A charitable company does not have any shares or shareholders. Instead it is owned by ‘members’ who guarantee to pay a set amount of money (usually a nominal amount such as £5) towards the company’s debts. Members of a charitable company therefore have limited liability in relation to the company’s debts, as they only have to pay the amount guaranteed if the company winds up.
Like charitable companies (which must have both members and company directors) all CIOs must have members and charity trustees. Some companies and CIOs want their only members to be the directors/trustees, whereas others want a wider membership open to other people.
CIOs have a similar structure to charitable companies, except that members of a CIO either have no liability at all or (like a company) limited liability for the CIO’s debts. CIO members also have an additional duty to exercise their powers as members of the CIO in the way they decide in good faith would be most likely to further the purposes of the CIO.
Keeping a register of members
The Charitable Incorporated Organisations (General) Regulations 2012 (“the Regulations”) require CIOs to keep a register of trustees as well as a register of members. However, if the only members are the trustees, then the Regulations only require a CIO to keep a register of trustees.
For charitable companies, the obligation to keep a register of members is set out in Section 113 of the Companies Act 2006. For CIOs, the obligation is set out in Regulation 26 of the Regulations (and Schedule 1).
For charitable companies
What information must a register of members contain?
The register must contain an entry for each member of the company showing:
- the member’s name and address,
- the date on which the person became a member,
- the date on which the member ceased to be a member, and
- if the charitable company has more than one class of member, a statement of the class to which that members belongs.
If a company has more than 50 members, it must keep an index of the names of the members of the company that allows individual members’ register entries to be found easily (unless the register is in such a form as to constitute an index in itself). The index must be kept with the register of members at all times.
Charitable companies must keep the index of members up to date. Changes to the register of members must be reflected in the index within 14 days after the date the change was made to the register.
Where should the register of members be held?
A company’s register of members must be kept available for inspection at its registered office, or at a single alternative inspection location (SAIL) located in the same part of the UK as the company’s registered office. A company is only allowed one SAIL for all its statutory registers. That is, it cannot have one alternative inspection location for its register of members, and a different alternative inspection location for its register of directors (trustees) and company secretaries.
Section 1135 of the Companies Act 2006 allows a company to keep its register of members in electronic form, provided it is capable of being reproduced in hard copy form.
Can anyone inspect the register of members?
Any person is entitled to inspect a company’s register of members and index of members, and to be provided with a copy of the register, but these rights are subject to that person submitting a request for access (a ‘subject access request’) that satisfies the ‘proper purpose’ test.
The Companies Act 2006 does not define what is a ‘proper purpose’. However, guidance published by the Institute of Chartered Secretaries and Administrators considers that proper purposes include the following:
- a member, or their properly appointed attorney, seeking to check that the member’s personal details are accurately recorded on the register
- a request made by a regulatory or statutory body
- a person seeking to analyse the register for the purpose of producing statistical research data of general public interest, provided information about individual members is not disclosed.
The register of members will contain the names and addresses of individuals and so be mindful that this information will constitute personal data for the purposes of the Data Protection Act 2018.
What happens if a charitable company fails to maintain a register of members?
Company officers have a legal duty to ensure that their companies meet all statutory obligations imposed by the Companies Act 2006. Maintaining an accurate register of members is one such duty, so failure to meet this obligation is a criminal offence.
Both the company and its officers may face penalties if the register of members is not maintained. A company that does not have an up to date register of members is considered in “default”. All current officers of a company that is “in default” are deemed to have committed a summary offence, regardless of which officer was assigned the particular duty to maintain the register.
The consequences of being convicted of a summary offence include:
- a Level 5 fine (unlimited fine)
- additional daily default fine of up to one-tenth of the Level 5 fine
- damage to the reputation of the charitable company and its trustees
For Charitable Incorporated Organisations (CIOs)
What information must a register of members contain?
The register must contain an entry for each member of the CIO showing:
- the member’s name and service address;
- the date on which the person became a member;
- the date on which the member ceased to be a member; and
- if the CIO has more than one class of member, a statement of the class to which that members belongs.
Where should the Register of Members be held?
The register may be kept in hard copy or in electronic form. If it is kept in electronic form, it must be capable of being reproduced in hard copy form. A CIO’s register of members must be kept available for inspection at its principal office as it appears on the register of charities, unless the charity trustees have passed a resolution for the register of members to be held at another address, as specified in the resolution.
Can anyone inspect the Register of Members?
Any of the CIO’s trustees or members can request to inspect or be provided with a copy of the register of members, where such a request is made in order for the person making the request to carry out their duties, or if the request is in relation to their own entry in the register.
A third party can request to inspect or be provided with a copy of the register in limited circumstances where the CIO is being wound up.
What happens if you fail to maintain a Register of Members?
If a CIO fails to maintain an accurate register of members, the Charity Commission may by order give the charity trustees such directions as it considers appropriate for securing that the default is made good.
What else do the Regulations require?
The Regulations also require that:
- on or after the 10th anniversary of the date when a person ceases to be a member (but not before), all of his/her details in the register may be deleted;
- if the CIO has only one member initially, the entry in the register for that member must state, “The CIO has only one member”;
- if the number of members is more than one but then falls to one, the entry for that member must state, “The date on which the CIO became a CIO having only one member was [insert date]”;
- if the CIO has only one member but then the number of members increases to two or more, the entry for that member must state, “The date on which the CIO ceased to be a CIO having only one member was [insert date]”. It is suggested that, where that statement has to be made, it is inserted immediately below the member’s name in the register (within the same text box as their name); and
- where there are more than 50 members, the register is “to be kept in such a form as to constitute in itself an index”, and the index must be kept with the register of members at all times.
Please give us a call if you want to talk through your requirements and find out how we might be able to help you.