Charities: directors and trustees
Learn about the roles and responsibilities of directors and trustees of charitable organizations.
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Directors manage charitable corporations, while trustees manage unincorporated charities and trusts. An incorporated charity must have at least three directors. Directors and trustees are responsible for administering and managing their charity and must ensure their charity operates according to the law.
Directors and trustees have a fiduciary duty to the charity. A fiduciary duty is a special duty created by the courts — a brief description of each of these duties is below. In addition, directors have rules found in legislation, including the Not-for-Profit Corporations Act for provincial corporations or the Canada Not-for-Profit Corporations Act for federal corporations. The Trustees Act, and the document that established the trust (a trust deed or constitution), contain rules for trustees.
This page also contains guidance for directors and trustees on their general duties, investing, liability, fundraising and owning and leasing property.
The information contained in this page is not intended to be legal advice. Directors and trustees should discuss their duties with legal counsel knowledgeable about charity law.
Duties when directors are first appointed
A new director or trustee should understand the purposes of the charity. These can be found in the charity’s letters patent or articles of incorporation, which is the legal document that creates the corporation. Unincorporated charities a constitution that outlines their purpose and trusts have a trust deed.
A new director should also review the recent past administration of the charity. They have a duty to investigate any suspicious circumstances which suggest the charity’s property has not be properly used. As a director you may be responsible to take action to correct any problems.
Managing charitable property and funds
The law requires directors and trustees to be “reasonable, prudent and judicious” when managing the charity’s property. They must treat the charity’s property the way a careful person would treat their own property, including:
- investing wisely
- making sure the charity doesn’t go into unmanageable debt
- properly supervising employees
- protecting the property from risk of loss
- making sure the charity does not generate any excessive administrative expenses
Using property for charitable purposes
The charity's property can only be used for purposes of the charity. It cannot be used for any other purpose, even if that other purpose is charitable. Some charities may have more than one purpose, and this will be laid out in the letters patent, articles of incorporation or in the document that creates the organization or trust, such as a constitution or trust deed.
If property is given to the charity for a specific or restricted purpose, it must be used for that purpose. It cannot be used for another purpose without court authorization, even if it is an emergency or the other purpose is charitable. Charities may not borrow from restricted funds to fund the charity’s operating or other program expenses
If property is improperly used, directors or trustees may be required by a court to repay the money. Some charities have funds or property that are supposed to be used for one specific purpose. The directors or trustees must make sure that the property is used for that purpose.
Avoiding conflicts of interest
A conflict of interest happens when a director or trustee has a personal interest in a decision made by the charity. Directors and trustees must always put the interests of the charity first and not allow their personal interests or preferences to affect their conduct and decisions. Decisions of trustees and directors must be made fairly and for the best interest of the charity.
Directors and trustees must also avoid the appearance of conflict of interest. Certain investments can be a breach of the duty of a director or trustee, such as loans to:
- donors, directors or trustees of the charity
- companies in which they have shares
In general, a director or trustee should not conduct business with the charity. In some situations, regulation 4/01 of the Charities Accounting Act or a court order can authorize directors/trustees to conduct business or be a client of their charity.
Duty to act without personal benefit
Generally, a charity cannot pay a director for serving as a director. A director, or a person connected to a director, cannot be paid for services provided in any other capacity unless they are permitted by either:
- s.2.1 of regulation 4/01 of the Charities Accounting Act
- a court order issued in an application to the court
- an court order made under section 13 of the Charities Accounting Act, which provides a simplified procedure for charities to acquire a draft court order without needing to go to court (written consent of the OPGT is required)
Learn more about s.13 of the Charities Accounting Act and how to get a court order without going to court.
S.2.1 of regulation 4/01 allows charitable corporations to compensate directors, and people connected to directors without a court order, as long as certain requirements are met. This includes payment for services, such as:
- giving a lecture
- professional services and consultations
- types of research
- a contract for maintenance work
- rental of a space
A trustee also cannot be paid for services in any capacity unless the trust deed allows such a payment or it has been approved in advance either by the court through an application or an order made under section 13 of the Charities Accounting Act. Trustee payments may also be laid out in the document that creates the charity’s trust.
A charity can pay a director or trustee back for reasonable expenses.
Learn more about managing payments for directors and connected persons.
Maintaining the charity’s accounts
Directors and trustees are responsible for the charity's property. They must make sure that the charity’s accounts are maintained, and invoices are produced and tracked.
The Public Guardian and Trustee may ask a charity to file its financial statements with the Office of the Public Guardian and Trustee. If the charity is incorporated, the act that incorporated the charity will contain rules that require the charity to obtain audited financial statements.
These financial statements should track the charity’s financial information, including income and any investments the charity has made. Notes should be added to explain any conflicts-of-interest. If property is given or donated to the charity for a special purpose, this should also be included.
The Public Guardian and Trustee may also request information about the management of a charity. Any charity can be requested by the Public Guardian and Trustee to pass its accounts. This is a court process where the accounts are reviewed by a judge of the Superior Court of Justice. A charity will be asked to pass its accounts where there are serious concerns about its administration.
Managing the charity’s assets
The directors and trustees are responsible for the management of the charity's funds and assets and must be in control of them. They should not delegate this responsibility to employees or financial consultants, although they can provide help and advice.
Directors or trustees may use the management services of accountants, stockbrokers, and other financial consultants. They may pay for these services as part of the administrative expenses of the charity.
Directors and trustees must make all major decisions concerning the charity. They can delegate the day-to-day management of the charity to employees, but they remain responsible for the operations and administration of the charity.
Directors and trustees must invest excess and special purpose funds in compliance with their articles of incorporation, letters patent or the Trustee Act.
Duty to Invest
Directors of charitable corporations and trustees of charitable trusts are responsible for the assets of the charities they manage. This includes investing funds not immediately needed to carry out the charity's purposes. The power to do this can usually be found in the letters patent or articles of incorporation of the corporation. For trusts and other unincorporated charities, the power to invest may be set out in the trust deed, constitution or bylaws which create the charity. If no power to invest is included, the trustees must follow the requirements set out in the Trustee Act. If the charity was established by a Special Act of the legislature, the Act itself may set out the investment duties.
Guidelines for directors and trustees
Directors and trustees should follow the guidelines below:
- Know the governing documents. These are the documents that set up the charity, such as its letters patent, trust deed or constitution.
- Know your duties, responsibilities and powers as a director or trustee.
- Document all deliberations, actions and decisions regarding fundraising campaigns.
- Become familiar with fundraising best practices and decide which practices are applicable to your organization.
- Be open and transparent. Share information with members and donors so they understand your decisions.
- Be knowledgeable about all aspects of the fundraising campaign. Consider the costs and risks of different fundraising strategies. Make sure that there are no misrepresentations being made and that the costs of the campaign are reasonable.
- Know if the charity has any restricted or special purpose funds. Find out what the restrictions are and make sure detailed records are kept.
- Ensure that special purpose funds that are not needed immediately are invested in compliance with the Trustee Act and the regulations under the Charities Accounting Act.
Investing charitable funds
Under the Trustee Act, directors and trustees can make any investment that a prudent investor might make as long as they act with care, diligence and good judgement. These investments can include mutual funds, pooled funds and segregated funds offered under contracts of insurance.
Section 27 (5) of the Trustee Act lists the factors directors and trustees should consider when investing charitable property, including:
- the possible effects of inflation or deflation
- general economic conditions
- the expected tax consequences of the investment decisions or strategies
- the role each investment or course of action plays within the charity's overall portfolio
- the expected total return from income and growth of capital
- the needs of the charity for liquidity, regularity of income and preservation or appreciation of capital
- an asset's special relationship or special value, if any, to the purposes of the charity or to its beneficiaries
Directors and trustees should also consider other factors when investing, including diversification. This means that the directors and trustees should consider investing in several different institutions and a number of different types of investments. This reduces the risk to the charity.
Every charity should have an investment plan that provides a reasonable assessment of risk and return. Under the Trustee Act, a trustee is not liable for losses to charitable property if the loss arises from an investment which is made in accordance with an investment plan.
Trustees and directors of charities also have the option of delegating investment decisions to an outside agent, such as an accountant. However, they remain responsible for monitoring the activities of the agent and the performance of the investments, along with a few other conditions. Trustees and directors must:
- prepare a written investment plan
- create a written contract with the agent
- regularly review the contract and plan to make sure they are up to date
- make sure that proper records of the charity’s investments are maintained and supporting documents are kept
Liability insurance and special trust funds
Liability insurance protects directors, officers and trustees against losses they may bring on when managing the charity in good faith. This is also known as providing an indemnity. Section 2 of Regulation 4./01 of the Charities Accounting Act allows charities to buy liability insurance for their directors, officers or trustees.
Charities are only authorized to give an indemnity or buy indemnity insurance under certain conditions. For example, the indemnity or insurance cannot cover a loss where a director has been dishonest or acted in bad faith.
Special purpose trust funds involve money given to the charity to be used for a particular purpose, such as funds given to a university for a scholarship or medical research. Section 3 of Regulation 4/01 allows charities to combine special purpose funds with other special purpose funds for investment purposes.
There are also certain conditions that must be met if the charity wishes to combine special purpose funds. Funds can only be combined if it benefits both funds — if combining the funds results in a lower rate of return, the funds should not be combined.
Special conditions and requirements for liability insurance and combining funds
Charities that indemnify or purchase liability insurance for their directors, officers or trustees — or combine special purpose funds — are responsible for ensuring they meet all requirements of the regulation. They must also keep records showing that they’ve met all requirements of the regulation.
Since this regulation is not mandatory, it is up to the charity to decide if they wish to protect directors, trustees and officers with insurance or combine special purpose funds. The regulation does not take priority over written documents or court orders applying to the charity.
To learn more about how to combine special purpose funds and apply for indemnity insurance, please consult the regulation. You may also want to consult a lawyer to learn more.
Owning and leasing property
A charity that owns property is required to use it for charitable purposes. This includes owning land. A charity can own land for the purposes of leasing or investment if the lease is in accordance with the charity’s other investments and it uses the revenue for charitable purposes.
Office of the Public Guardian and Trustee
Charitable Property Program
595 Bay Street, Suite 800