Special Relationship



Charities and non-charities can develop a healthy partnership
UK Corporate/Commercial Law
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Charities and non-charities can develop a healthy partnership

Important new guidance issued by the Charity Commission 'Guidance for Charities' connected with a non-charity' suggests how charities might properly manage and review their connections with non-charitable organisations. The guidance says charities can establish and maintain close relationships with non-charities, in order to help charities make a positive difference to their beneficiaries. However, it also indicates that the Commission considers risks and challenges can come with these relationships.

How Did We Get Here?

The Charity Commission's regulatory concerns in recent times prompted the regulator's attention in this area. In its most recent annual report, its regulatory case work has identified these examples of concern:

  • Charities not managing their relationships with sufficient care, leading to enhanced risks of what the regulator considers to be 'misuse' of charities
  • Some instances of charities being used 'to further commercial or private interests'.

Although actual incidents appear to have been identified in only a small number of specific cases, the Commission felt it necessary to issue the new guidance.

Following its usual current practice, the Commission initially issued a draft version and invited comments. Charities, along with professional bodies and organisations advising and supporting the charity sector expressed significant concerns about the scope, tone and content of that draft. The final version has taken at least some of those into account.

Scope of the Guidance

The guidance states that it does not apply to some specific situations, such as relationships with professional advisers or commercial suppliers of goods and services to the charity, such as IT services.

Beyond those exceptions it is broad in scope and has potential application to a very wide range of scenarios and activities. Unsurprising examples of its application include charities with trading subsidiaries, charities funding activities undertaken by non-charities and charitable foundations of corporate organisations. Depending on circumstances, the scope may also extend to relationships arising during charities campaigning and advocacy work, in a variety of formal and informal joint-working and to charities operating together in federated structures.

'Key Principles' for Charity Trustees

The guidance indicates these are 'key principles' for trustees in the context of non-charities, though they are actually areas that any responsible board will be addressing across the charity's operations:

  • Do not further non-charitable purposes (this may be more readily intelligible to trustees as – remain focused on and always within the charity's charitable purposes)
  • Operate the charity and make decisions about it independently
  • Maintain the charity's separate identity
  • Recognise and manage risk
  • Protect assets, beneficiaries and reputation
  • Avoid unauthorised personal benefits and address conflicts of interest.

Problem Areas

The nature and circumstances of charities, what they do and how they do it, vary immensely. The 'one-size-fits-all' approach in the guidance therefore poses some real practical challenges as trustees consider its application. The guidance places considerable emphasis on making statements to the public - explaining that two (or more) organisations are involved, clarifying their details and identifying the non-charity(ies). Whilst the underlying transparency principle is laudable, the level of public interest served by providing lengthy 'grim detail' is questionable in some situations.

Other problem areas for charities to deal with in practice are how to address shared resources, such as premises and staff, and shared communications, especially those made via online and electronic means.

Challenges for New Charities

New charity registration applicants are now required to state whether the new charity will have any connections with non-charities.

Where the answer is positive, the applicant organisation is then required to indicate what categories of organisation will be involved – for example commercial organisations or overseas organisations equivalent to charities – and what their business purposes or other aims are. Plans for joint-working need to be explained and whether any individuals will be serving on both boards. Explanation of how the relationship will help the charity achieve its charitable purposes must be given and details of any 'non-incidental' benefits to trustees of the charity or those connected with its trustees.

A new charity will probably have to do some detective work to obtain all of the required information. For example for a UK registered commercial company its business purposes are not self-evident in its articles because of the effective abolition of 'objects clauses' for most companies in the major company law reforms of the last 20+ years.

In addition, the Charity Commission wants copies of supporting documentation, including a written agreement and charity policies (or at least drafts) on:

  • Beneficiary selection, project choice and charitable funds allocation
  • Identification and management of conflicts of interest
  • Grant-making, monitoring and evaluation
  • Procedure for agreeing to any joint activities with the non-charity
  • Risk management
  • Sharing of personal data with the non-charity.

In reality it may not be appropriate or proportionate to prepare such a suite of documents for every individual proposed relationship with non-charities. A charity's overall policy on, for example, risk management or privacy and data protection may be the overarching policy level beneath which more detailed procedures and arrangements with the third party are agreed and operated.

Also, at registration application stage it is challenging for a new organisation to provide full and final board-authorised documents for all of these areas and it may be impossible. The Commission may be willing to accept drafts in appropriate circumstances.

Don't Panic

The Charity Commission's expectations in this guidance add up to a long list of potential resource-heavy action points for charity trustees, including:

  • Pre-funding checks on non-charities that are being considered for financial support – relating to the genuine existence and nature of the other organisation, its suitability for the charity to support and its competence to deliver the activities to be funded
  • Separation of finances and financial processes
  • Regular relationship, as well as performance, review
  • Public clarity about the independence of the charity and the other party, including in communications
  • Express trustee decisions if there are to be any identity sharing aspects to the relationship, with specific formal and documented arrangements in place for activities such as shared use of the charity's name or logo.

Well-governed charities will already customarily take many of these or other actions, where it is relevant and proportionate to do so. Secretaries will want to encourage their boards not to panic - actions trustees need to take may be more a matter of adjusting and 'fine-tuning' what they already have in place.

Charities' existing compliance with legal requirements should cover some aspects - such as data protection and privacy rights compliance or compliance with applicable charity law or company law rules on public disclosure of specified information in documents, communications and at premises. Charities following core Charity Commission guidance in areas such as trustee decision-making and financial controls will also be meeting many of the regulator's suggested good practices.

A number of the 'tell the public' suggestions will be addressed in fundraising activities because charities are actively complying with both legal requirements and the good practice standards in the Code of Fundraising Practice. Charities following the Charity Governance Code and the Ethical Principles for Charities are also likely to have much relevant operational and governance good practice in place.

Charity secretaries can help their own boards focus on whether, in the light of the new guidance, any additional or revised actions deserve time and attention in the board's annual work plan. Secretaries have a vital role in ensuring there is an adequate chain of evidence on how decisions were reached, what actions were authorised and whether those were actions were subsequently properly taken. n

Cecile Gillard ia a charity law, regulation and governance specialist

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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