Protecting Trustees through Incorporation….. The Limits
Limited By Guarantee But Not Limited In Liability!
This article was originally written by our founder, Martin Ladbrook.
Many voluntary sector organisations are making or considering the decision to become incorporated in order to protect the trustees should the organisation become insolvent.
Mistakenly, a number of trustees feel that by incorporation, their own personal liability is in someway limited. This is not the case, indeed incorporation actually imposes additional duties and liability!
The directors of the corporation (who will be the same as charity trustees) will not be insulated from their corporation’s own direct responsibility and as the directing “mind and will” they are likely to be held personally liable.
In the same way that directors of commercial organisations are personally liable, then the trustees, directors and officers of an incorporated charity may still feel the need for protection. Charity trustees indemnity insurance does provide some appropriate protection, specifically in respect of the personal liability of the trustees, directors and officers as well as providing the appropriate indemnity for officers and committee members of incorporated associations.
This does not mean that every charitable organisation, whether incorporated or unincorporated, should have charity trustees indemnity insurance. The strong argument put forward by the Charity Commission is that each organisation should attempt to mitigate or limit the chances of any potential loss or wrong doing so as to avoid having to take out the appropriate insurance cover.
However, in an increasingly litigious society, where trustees of charitable organisations are not immune from claims being made against them, we recommend this is an area of cover that your non profit organisation considers. Each organisation should look at its own ways of operation and ensure, as far as possible, that good practice is followed wherever possible. Why not take a look at our handy guide.
However, one final consideration is trustee recruitment. It is becoming increasingly difficult to recruit trustees without satisfying those potential trustees that appropriate insurance protection is in place.
