Legal issues

Asset Transfer – The legal issues

Giselle Davies, PartnerBethan Walsh, Solicitor

Outline• Structuring the community group to minimise risk for

trustees• Effective legal due diligence• Funding arrangements• Process and progression from working group to operation• Potential problems

Structuring the community groupUnincorporated Incorporated

• Association • Limited company:

• Trust • Shares• Guarantee• Community Interest Company (CIC)

• Charitable Incorporated Organisation (CIO)

• Cooperative or Community Benefit Society

Types of legal structure• Your choice!• Our recommendations:-

– Incorporated status– Depends on other issues

• Membership?• Share capital?• Charitable status/need for tax reliefs?

Due diligence issues

“What are you going to need?” V

“What are you going to get?”

Analyse the information – is it viable?

Due diligence issues• Property:-

− What terms are offered?• Staff:-

− Who is transferring and at what cost?− Pensions− History (e.g. grievances/disciplinary)

• Contracts relating to the operation of the property/business

Effective legal due diligence• Investigating and fact finding• Is the information you have received sufficient?• Does it raise further queries?• Legal due diligence is an ongoing exercise

Financial due diligence• How much will running the asset cost?• How much maintenance is required?• Is there a need for urgent expenditure?• Does the property interest bring liabilities?• Does the asset come with a ‘pot’?

Funding arrangements – some options• Big Lottery Fund• Charity Bank• Grant Finder• Unity Trust Bank or similar• WCVA’s Community Investment Fund• Local authority contribution• External investment

Making progress• Initial steering group (unincorporated)• Conduct due diligence• Set up legal vehicle (e.g. charitable

company/CIO/Community Benefit Society)• Agree terms with the current asset owner• Complete transfer

Indicative timescales• Creating a corporate charity

− Approximately 2 to 3 months to obtain registration with the Charity Commission

− Due Diligence (initial)− Usually 2 months

• Preparing and completing documentation− Approximately 2 months

• Negotiating the deal – Your guess! − Anything up to several years!

Specific legal issues - registrations• Charity Commission• Financial Conduct Authority• CIC Regulator• HMRC

Creating a new charity Issues •Wording your objects clause:-

− Consider the 13 “descriptions” (Charities Act 2011 section 3)

− What/where/who/how− Public benefit

Creating a new charityRegistration with the Charity Commission•Don’t underestimate timescale•Providing evidence/examples of activities of public benefit•Evidence of funding (pledges generally no longer acceptable)

Creating a new charity• Registration with HMRC• Proof required of:-

− Jurisdiction− Registration− Management (“fit and proper persons”)

• Online application• Timescale (8-10 weeks)

Potential problems• Due diligence reveals serious issues:-

− Property (state of repair)− Staff/pension matters

• Terms offered:-− Short lease only− No or inadequate ongoing revenue and funding

• Community resistance

Thank You

Contact details

Giselle Davies

DD : 029 2039 1797E: [email protected]

Bethan Walsh

DD : 0292 039 1832E: [email protected]