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The Charity Commission has issued new guidance for charities with a connection to a non-charity. This is particularly relevant for charities set up by non-charitable businesses, sometimes referred to as “business foundations”. The guidance is also applicable to charities with trading subsidiaries and charities which fund non-charities.
The guidance includes six principles for trustees to consider.
Principle 1: recognise the risks
Trustees should assess and address risks. For example, a risk for charities with a connection to a non-charity can arise in relation to reputation management. Trustees should consider how to manage such risks by taking pre-emptive rather than reactive steps.
Principle 2: don’t further non-charitable purposes
Trustees should understand the scope and limits of the charity’s purposes. For charities with a trading subsidiary it is important to be able to justify and monitor any investment in the subsidiary. Funding provided to a non-charity should further the charity’s purposes.
Principle 3: operate independently
Decisions should be taken in the best interests of the charity and this requires independence from the non-charity. There should be clear boundaries in place particularly in relation to funding, such as the funding of a trading subsidiary. In these circumstances it would be best practice for trustees to have a funding policy to help inform proper governance.
Principle 4: avoid unauthorised personal benefit and address conflicts of interest
This is often a potential issue where for example a charity and a non-charity share board members. It is important to identify and address any conflict for trustees who:
- are appointed by the non-charity;
- are on the board of the non-charity;
- work at the non-charity; or
- have another link to it.
The board should identify and address/approve any trustee benefit arising from the connection with the non-charity. It is best practice to have a clear conflicts of interest policy to provide guidance as required.
Principle 5: maintain charity’s separate identity
It is recommended that trustees consider whether it is in the best interests of the charity to share to any extent its identity with the non-charity. Clearly this could present a reputational risk in some instances. Any such risk should be identified and addressed.
Principle 6: protect the charity
Trustees should look to ensure the assets, reputation and beneficiaries of the charity are protected. If the charity and the non-charity share resources and communications then it is best practice to have in place written agreements to govern the basis of such joint operations.
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A theme of the guidance is to remind trustees to act in the charity’s best interests and to advance only its charitable purposes. We regularly advise charity trustees on governance matters including putting in place policies to inform proper conduct and procedure. If you would like more information in respect of the Charity Commission guidance or any of the points touched on in this article then please contact Andrew White by emailing andrew.white@michelmores.com or calling 020 7788 6324. Andrew regularly advises on the creation of UK charities and provides on-going governance advice for charity trustees. Andrew is a Recommended Lawyer for Charities in Legal 500 which is a leading legal directory.
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