Liability to third parties

Trustees might potentially risk being personally sued by a third party, for example by an employee on the grounds of discrimination. 

Trustee liability insurance might cover losses of this type. Trustees might also, in some cases, be indemnified by the charity against any some losses of this type (although the charity would need to have the resources available to fulfil such an indemnity).

Trustees of unincorporated charities can also, potentially, be personally liable for the debts of the charity, if the charity has insufficient funds and owes money to someone who seeks to recover it. In this case, trustees and the members of the organisation could be held joint and severally liable for the charity’s debts.

Trustees can minimise their liability for the charity’s debts by avoiding putting the charity in a position where it could run out of funds - for example, by paying attention to reserves levels and financial commitments, and carrying out regular risk management). 

Trustees might also avoid a risk of claims from creditors by limiting liability in contracts to the assets of the charity. 

Trustees should consider incorporating the charity as a charitable company, if the risks of the charity facing a debt or claim that it cannot meet are felt to be significant.

Trustees of incorporated charities which include charitable companies, industrial and provident societies, royal charter bodies and CIOs when they start are not liable for the debts of the charity. This is because the incorporated body has its own legal identity: contracts and agreements are held in the name of the unincorporated body. In these situations, trustees are described as having limited liability.

It is important to note that limited liability does not cover all potential liabilities facing trustees – for example, it does not cover breach of trust or statutory duty or where they have authorised a wrongdoing where trustees could still be held personally liable.