Charities 'need new legal structure'

The Law Reform Commission recommended the creation of a new legal structure for charities today.

Thousands of organisations working in the charitable sector – worth an estimated €20bn – operate as charitable trusts, companies or unincorporated associations.

The Law Reform Commission (LRC) said in its latest consultation paper that it recommended the creation of a new legal structure called the Charitable Incorporated Organisation (CIO).

It would have a minimum of three charity trustees, limited liability for members and a model constitution which would be drawn up in consultation with the charity sector.

The LRC said it was generally recognised that the existing legal structures were not ideally suited to the nature of charitable entities and were not devised with charities in mind.

Charitable trusts and unincorporated associations have no limited liability and no accountability because there are no requirements to file annual accounts.

Companies do have limited liability but charities feel daunted by the amount of paperwork involved in complying with company law and the directors can be held personally liable for reckless or fraudulent trading.

“Companies generally operate to earn profits for their shareholders. By contrast, the ethos of charities is radically different,” said the LRC paper.

The new structure would not be compulsory for all charities but the LRC i proposing that the situation should be reviewed five years after it is introduced. It is calling for submissions for interested groups before its final report on the issue is published later this year.

Eamon O’Cuiv, Minister for Community, Rural and Gaeltacht Affairs, is expected to publish a bill this year to establish an independent body to regulate the charity sector.

“The development of a new legal structure for charities must be seen as an integral part of the reform process,” said the LRC paper.