UK: Operating Overseas

Last Updated: 30 July 2012
Article by Donald Taylor

A trend has emerged over the past few years of British schools setting up schools overseas. This has been done in a variety of ways but from a legal perspective there are certain common themes that recur each time.


There are two reasons why a school which is a charity may set up a new school overseas:

  • To further its charitable objects; or
  • To generate income for the charity.

It is very important to be clear about which reason applies in each case. This will have an impact on the structure, the tax considerations and the decision making by the Governors.

Furthering Charitable Objects

Many schools are not able to set up a school overseas to further their charitable objects because those objects are limited to providing education in a defined territory, such as "to educate children in Yorkshire". However, if the school does have sufficiently broad charitable objects then the Governors can exercise their discretion regarding the best way to further those objects. The Governors of such a school may determine, after having taken proper advice and considered an appropriately detailed business plan, that setting up a new overseas school is the best way to apply the charity's assets for the purposes of education in accordance with their charitable objects.

Generating Income

Alternatively, a school may decide to set up a new school overseas as a fundraising venture. Most schools have the power to fundraise in this manner, but this should be checked at an early stage. Once it has been decided to enter into the venture, the school needs to identify exactly what it is selling. Is the school selling its brand, in the same way that it may earn money by permitting its logo to be placed on a product? Alternatively or additionally, is there any expertise or copyright material being sold? It is likely that the revenue will need to be routed through a wholly owned trading subsidiary, to protect the parent school from risk and to ensure tax efficiency.

Legal Structure

The legal structure to be used will depend to an extent on the overseas jurisdiction in which the new school is being established. One option is for the parent school to own all or part of the new school. Ownership of a new school takes various forms but they are all characterised by an assumption of some of the commercial risk, with payment dependent on the success or failure of the venture. A second option is for there to be a contractual relationship with the new school, akin to any other business relationship that a charity's trading subsidiary may have with a third party.

Where a new school is run by the parent school or as a joint venture with a local partner, typically a company or other legal entity will be set up to operate the new school. The constitution of the new school will establish the owners' rights, although these provisions will typically be supplemented by a more detailed agreement which covers what each party will contribute to the school, what they will receive from it and what will happen if there is a dispute between the parties.

Where the parent school's role is just to provide its brand or know how to the new overseas school, a contract between the two schools can be used. If the parent school's motivation is fundraising then the contract will need to specify market-rate payments for the use of its branding or know how. Thought needs to be given as to how this will be calculated. Will there be a payment based on pupil numbers or a specified annual payment, for example. Will different elements of the parent school's provision be charged differently, with perhaps royalties paid for teaching materials but educational consultancy services charged on an hourly charge-out basis?


A parent school's most fragile asset is its reputation. Involvement in setting up an overseas school creates substantial risks that need to be carefully managed. In particular, the manner in which the new school uses the parent school's name must be carefully controlled and the parent school must have the ability to terminate the arrangements, where necessary in the circumstances, to protect its name.

An overseas school will be in a different legal jurisdiction. This means that any legal arrangements between the parent school and the new school are vulnerable to changes in the law in two jurisdictions. If involvement with the overseas school is justified by the Governors as an investment of the parent school, then in many jurisdictions there are risks that property rights will not be fully respected. Finally, any dispute may be subject to the local courts which depending on the jurisdiction can be relatively cheap and efficient with high ethical standards or the opposite. This is especially important when the overseas school and its owners have no assets outside the relevant jurisdiction, and so any legal action will need to be taken or enforced by the local courts. Certain legislation in the UK applies to activities overseas and the parent school should be aware of this where relevant, notably the Bribery Act 2010.

A final consideration is that a school which is using its prestigious name and reputation to attract profitable overseas pupils may harm that business by opening an overseas school which then competes for the same pupils. Any business plan should take into account potential lost revenue for the parent school as well as projected incomes for the new school.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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