The 2005 Act says that a charity’s governing document must not allow its assets to be used for non-charitable purposes during the lifetime of the charity or on being wound up. If the governing document allows assets to be used for non-charitable purposes,the organisation cannot be a charity in Scotland.
Examples of where this might happen are when a governing document allows:
- assets to be shared out or given to its members on wind up
- assets to be used for non-charitable purposes if it wind up or dissolves.
Assets must be used for purposes that are charitable under the 2005 Act. Any definitions of ‘charitable’ or ‘charity’ in your governing document must be compatible with the 2005 Act. This can be done by adding a definitions clause to your governing document. See other information below for example clauses to use in governing documents.
An organisation’s governing document does not necessarily have to specify that its assets will be passed to another Scottish charity on wind up. However, if it says that the assets will be passed to an organisation that is not a Scottish charity, they must be used by that organisation for purposes set out under the 2005 Act.
To pass the charity test and to qualify for charitable tax relief, an organisation’s governing document must allow its property to be used only for purposes that are charitable both in Scots law and in UK tax law.
See other information below for example clauses to use in governing documents.