On 29th March 2019, the Charity Commission published guidance – ‘Charities with a connection to a non-charity’ – on how to manage a relationship between a charity and a non-charity, along with the benefits and risks of such a relationship.
The benefits
The guidance outlines some of the main benefits a charity may gain from partnering with a non-charity, which include:
– providing a main source of funding for the charity.
– providing an opportunity to further the purposes of the charity.
– managing some of the risks that a charity may otherwise have.
– providing a trading structure to raise funds.
There are obvious benefits to the non-charity as well, such as getting involved in charitable work and potentially improving their own reputation.
The risks
The most well publicised risk that charities have faced recently has been that charities have acted unconscionably or unethically. Any inference of these types of issues occurring would inevitably affect the non-charity partner so if you are choosing a charity partner it would be wise to undertake some due diligence to ensure that there are no skeletons in the cupboard.
The guidance
The guidance is aimed at a vast range of organisations, both charitable and not. The objective of the guidance is to ensure that the relationship between a charity and a non-charity are to further the charity’s objectives, are in the best interests of the charity and maintain the independence of the charity.
The guidance uses 6 key principles – these summarise how charities are expected to conduct themselves within such a partnership.
- Recognise the risk. Charities can do this by ensuring that they do not adopt a course of action with unjustifiable or unnecessary levels of risk, as well as being aware of all the general risks associated with the partnership and having systems in place to ensure protection against these.
- Do not further non-charitable purposes. Charities need to deliver public benefit and comply with charity law. Understanding the charity’s purposes, as set out in its governing document, is key in ensuring that no activities are undertaken in breach of these.
- Operate independently. A charity needs to ensure that they are not operating to further the purposes of any other organisation. This also means the charity’s trustees need to only act in the best interests of the charity.
- Avoid unauthorised personal benefit and address and properly deal with conflicts of interest. Trustees have a legal obligation to avoid any situations where a conflict of interest exists or may arise, and also to declare if any conflict should arise.
- Ensure the charity’s separate identity is maintained. A charity has its own legal and tax status. All financial records should be kept separate from any other organisation.
- Protect the charity. The assets, reputation and beneficiaries of the charity need to be protected. The charity’s trustees should also undertake due diligence on their non-charity partner.
What happens if things go wrong?
The Charity Commission will expect that the charity’s trustees have applied the guidance. The Charity Commission states that a charity that has followed the guidance will:
- always work on achieving its charitable purposes for the public benefit;
- not support or fund not charitable purposes;
- control how funds are spent and resources are used;
- understand the purpose of the connection with the non-charity;
- ensure that the connection is always in the charity’s best interests;
- understand the responsibility it has to uphold the reputation of the charity as a whole; and
- ensure that the connection does not result in any non incidental private benefit to the non-charity or people connected with it.
In the event of minor breaches, the Charity Commission expects the organisations to work towards fixing the problem and ensuring there is no reoccurrence. In the event of a serious breach, this should be reported to the Charity Commission in which case they may open a statutory inquiry into the breach. Rarely the consequences can include fines or penalties, an HMRC investigation and/or personal liability for the trustees of the charity if the charity suffers loss due to the trustees beaching their duties.
What should charities do?
Charities should use this guidance when working with non-charities and review their activities and relationship with any non-charities regularly. The key factor underpinning any business by a charity is that it needs to be for charitable purposes.
The Charity Commission has produced an infographic for trustees managing their charity’s connection to a non-charity.(https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/790809/connection_to_non-charity_A4.pdf)