The Legal Framework for Governance

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The Legal Framework for Governance 31 January 2015

Transcript of The Legal Framework for Governance

The Legal Framework for Governance

31 January 2015

INTRODUCTIONS Tom Morrison

LEGAL STRUCTURES AND EDUCATION PROVIDERS

Gerry Morrison & Tom Morrison

Legal Structures for Further Education Providers

• Statutory Further Education Corporations • Education Act 2011 • Companies • Charitable Status • Subsidiaries - wholly owned subsidiaries - joint venture

companies • Relationship between Further Education Corporations

and Subsidiaries • Academy Trusts

Statutory Further Education Corporations

• Majority of Further Education Colleges • Set up by order of the Secretary of State under the FHEA • Powers vested by Act of Parliament • Independent Corporate Bodies • Own legal personality distinct from governors/members • Instruments and Articles of Government • Purposes set out in Section 18 and 19 FHEA • Composition, procedures, internal powers • Private training providers = mainly companies • A few colleges are companies

Education Act 2011 • Prior to EA 2011 Further Education Corporations’

instruments and articles could only be amended by regulations made by SOS under FHEA

• Amending regulations issued periodically, uncommon for FE Corporations to request bespoke changes

• Less flexible, hard to change governance structures, internal procedures

• FE Corporations at a disadvantage to private training providers and colleges established as companies

Post-Education Act 2011 • FE Corporations’ freedom to amend instruments and articles • Instruments and articles must specify how FE Corporation

may amend them • SOS power to amend, replace or revoke • Change composition of governing body, procedures and

internal powers • Balance flexibility, efficiency with protecting the organisation’s

aims, assets and beneficiaries • Remove some of the previous disadvantages • Provided instruments and articles comply with Schedule 4 of

FHEA (minimum requirements for governance)

Post-Education Act 2011 • FE Corporations’ power to dissolve themselves • FE Corporations may transfer property, rights and

liabilities upon dissolution to specified education providers for educational purposes

• Consultation required • FE Corporations can use EA 2011 powers to convert

legal structure • Rationale for change?

Companies • Limited by shares • Limited by guarantee • Regulated and incorporated by Companies House • Companies Act 2006 • Memorandum and Articles • Power to amend articles and dissolve • Two-tier system of governance - directors and members • Statutory directors’ duties

Powers • Power for FE Corporations to convert legal structures to

companies • Can be a wholly-owned subsidiary of Further Education

Corporation or joint venture companies • Academy Trusts

Charitable Status • FE Corporations are exempt charities • Principal Regulator SOS for Department for Business

Innovation and Skills • FE Corporations cannot amend instruments and articles

to cease being charities • Governors’ legal duties and responsibilities as charity

trustees • The Charity Commission, The Essential Trustee: What

you need to know • Aims for public benefit

Advantages Charitable Status • Tax breaks • FE Corporations exempt from corporation tax, income

and capital gains taxes arising out of the provision of education and stamp duties

• Fundraising • PR benefits • Asset-lock

Disadvantages Charitable Status • Perceived red tape (charity law) • Complex rules trading activities • FE Corporations cannot carry out large scale non-

charitable trading or non-primary purpose trading • Routed through subsidiary • Ultra vires, breach charity law, tax penalties • Rules on payment of governors as charity trustees • Partnership/joint ventures with non-charities additional

red tape

SUBSIDIARIES, JOINT VENTURES AND COLLABORATION IN THE EDUCATION SECTOR

Tom Morrison & Gerry Morrison

Subsidiaries • Wholly-Owned Subsidiaries

– colleges can establish separate legal entities to run different activities across their group

– ring-fences risks/liabilities – commonly create wholly-owned subsidiary companies – tax efficient gifting of surplus to parent college – diversification of activities – development of new brands – acquire private training providers

Relationship between Further Education Providers and Subsidiaries

• Non-charitable subsidiary - arm’s length commercial relationship between subsidiary and parent charity

• Subsidiary = separate legal entity with its own legal personality

• Directors of subsidiaries not all the same as college governors

• Conflicts of interest • Charity law regulates funding of subsidiaries by FE

Corporations • Reporting/Monitoring

When might a subsidiary be appropriate and what are the

alternatives?

Legal models for collaboration • Wide ranging • No single definition • Interchangeable use of terms • Joint venture = JV • Legal entity (Specific Purpose Vehicle = SPV) • Partnership • Contractual joint venture • Collaboration or subcontracting?

Joint Venture Companies • Partnerships/joint ventures between FE Corporations

and non-charities/other organisations/colleges • Ring-fences risk/liabilities • Apprenticeship training agencies • Owned by the College and one or more third parties • Membership Agreement

Rationale • Key to any successful collaboration • Short term requirement? • Longer term benefits? • Driven by specific project requirements? • Political drivers? • Cost saving? • Creating capacity? • Better together? • Rationale should dictate choice of legal model

Distinct projects • Large scale projects • Bringing together multiple partners • Geographic reach • Capability • Capital projects - more likely to be SPV • Revenue projects - more likely to be contractual JV

Longer term requirements • Collaborative working for the long term • Explored other options - e.g. merger? • Typically transfer of functions into a SPV • Outsourcing • Procurement • Governance of the SPV • Longer term contractual alternatives

Academy Trusts • Companies limited by guarantee • Exempt charities • Sponsored by Colleges • Set up multi-academy trusts • Independent, separate legal entities, own legal

personality • Funded directly by Department for Education via a

funding agreement • Relationship with the college as sponsor • Conflicts of interest

Group discussion and questions

Tom Morrison Gerry Morrison

Partner [email protected]

01482 337310

01904 625790

Partner [email protected]

01482 323239

01904 688539