Charitable account without formal status

Yorky

This could be the wrong forumn so please move if necessary. I'm looking for advice on the following situation:

Voluntary donations (to a worthy cause) are administered by an individual informally and in a voluntary capacity. The donations are initially made to a group which are then handed over to an individual for lodgement to a designated bank account, in the individuals name and the sole signatory to the account.

When the group need to make a purchase they request a cheque from the same individual.

According to the group, they haven't applied for charitable status due to the audit requirements and general administration.

My concerns are:

1)Although the signatory is an unquestionably honourable person, they could misappropriate funds if they so desired.

2) If the individual died the funds could be added to their personal estate if they died intestate or they may not have made specific provision for it in their will

3) There may be other VAT , tax and other implications.

There is a significant amount of money in the account.

Are the above-mentioned concerns justified?

Should they register as a charity or other legal entity?

Thanks in advance.

johnfás

Just from the start I'd like to highlight that we don't give any legal advice on this forum. However, we do discuss legal ideas and we can flag some common sense issues arising.

First, there is no such thing as a registered charity in Ireland. The nearest thing we have to it is a CHY Number, which is not a legal recognition of charitable status, per se. It is simply a number issued by Revenue when a body successfully applies for charitable tax reliefs under the Taxes Consolidation Act. However, charitable registration will be introduced under the Charities Act 2009 once it is fully commenced and such registration will be compulsory. That is not yet the case. The Act makes significant amendments throughout the ambit of charity law.

On to your core points. It is unwise in any group organisation to have a sole signatory on a bank account. It is even less wise that the money in question be held in a personal account. It is possible to open an account as an unincorporated association and this can be achieved very easily. This will create alot more transparency and accountability. It is not however, a legal requirement at this moment in time.

Concern 1) is very valid. It is quite possible that the person in question could misappropriate funds. It is clear that in such a circumstance the monies should not be held in a personal name except in some extremely short term situation, where it is still less than advisable. I'm thinking here for a moment of a spontaneous collection which is a "one off" and lasts for only a limited duration. Here the practicalities may dictate that best practice is not followed. That does not appear to be the case in your description.

Concern 2) is also valid. If the person died and did not flag the issue of the bank account in their will it is likely that it would, in the first instance, form part of their estate. It would then be possible for an application to court to highlight the equitable position of the account - namely that the monies were held on trust for another cause. However, this would have to be asserted by a person, or body, with standing and it would also have to be proved. Therefore, the scenario you outline could be dealt with... but it would be alot more straightforward a separate bank account with multiple signatories, settled in the appropriate manner, were established.

Concern 3) depends entirely on circumstances. I don't see where you think VAT would arise. Unless this money is being used to buy and sell goods or services the issue of VAT does not arise. In any case there is no VAT exemption for charitable bodies under tax law. Other tax issues could arise insofar as there is charitable tax relief available on donations to charitable bodies registered with the Revenue Commissioners. In order to qualify for such an exemption it is necessary for individuals to donate in excess of €250 per annum.

To answer your latter points. The above concerns are justified. Any group which is collection money on behalf of a particular purpose would be advised to establish some form of structure beyond holding money in a personal bank account. There are multiple legal structures which are available. Best practice dictates that bank accounts in such circumstances should never have a sole signatory and money should not be held personally.

In relation to your final point, as I said above, there is no such thing as a registered charity currently unless you are registering for tax relief. If you are not soliciting monies in excess of €250 per annum from individuals there is little point seeking registration with Revenue as you will not gain any benefit. However, the Charities Act 2009 requires that all charitable bodies register with a new body, the Charities Regulatory Authority. This body has not been established yet and probably won't be for another 12 months.

FreudianSlippers

As johnfás said, please keep it to broad legal issues and avoid specific advice.