Guidance for trustees of charities dealing with a connected non-charitable organisation

This guidance is for trustees of charities that have a long-term close relationship with a connected non-charitable organisation such as a:

  • trading subsidiary
  • commercial business
  • not-for-profit organisation or social enterprise

Here we highlight some of the existing law and practice which trustees and charities should be following.

A  charity must have purposes ( ‘objects’) which are wholly and exclusively charitable. All of the activities of the charity should be aimed at furthering those purposes.

Although some commercial connections are legally permissible and can  provide significant benefits to charities, they can also  give rise to greater levels of risk. The Charity Commission is concerned to ensure that:

  • charities do not become victims of ‘mission drift’ (i.e. supporting work which is outside of their charitable purposes)
  • trustees are not placed in awkward positions where they have conflicts of interest which impact on their ability to effectively manage the charity
  • charities do not provide inappropriate benefits to closely connected commercial organisations.

A charity that operates too closely with a commercial organisation might risk its identity becoming entwined, which could make it more difficult for members of the public and potential donors to tell the two organisations apart.

Trustees have a duty to be aware of these risks and to manage them accordingly.

Charity’s objects compliance.

Trustees should ensure that all of the charity’s activities are in furtherance of the charity’s purposes as set out in your governing document (eg. Constitution,CIO constitution, Articles of Association, Trust Deed). All activities of the charity must be within the remit of the objects specified in the governing document.

The  charity projects, activities  and use of charitable funds and assets must advance the charity’s purposes or be ancillary to advancing the charity’s purposes. Limited exceptions to this include fundraising activities (eg holding fundraising events); raising a small proportion of the charity’s overall income from carrying out non-charitable trading activities within the charity; and investing funds to generate income for the charity. When deciding how to spend the charity’s funds and deploy the charity’s assets trustees must always consider how the proposals will advance the charity’s purposes for the benefit of the public.

Conflicts of interest

All trustees have a legal duty to act in the best interests of their charity and part of this includes properly managing conflicts of interest.

Trustees must avoid putting themselves in a position where the interests of the charity conflicts with their personal interests, duties or their loyalties to another person or organisation. Trustees should know how to identify conflicts and then proactively work to avoid them.

The definition of a ‘conflict’ for these purposes is very broad, and includes potential and perceived conflicts as well as actual conflicts. So, it is very important for trustees to always consider whether there is any possibility that a duty, loyalty or interest that they have might conflict or be perceived to conflict with their ability to act solely in the best interests of their charity.

Where conflicts are identified, the affected trustees should not participate in the decision making process and should absent themselves from that part of the meeting during which the decision is taken. In light of this, it is important to ensure that you do not have too many trustees with the same conflicts, as this could affect your ability to hold a quorate meeting in their absence.

Operate independently and maintain a separate identity

Charities must be independent organisations. Trustees must not allow their decision making to be influenced, for example by significant sources of funding from a commercial organisation. If a trustee feels they are conflicted by loyalty to the donor, they ought to abstain from any relevant decisions.

A charity must also be careful to maintain a separate identity from any non-charity partners it works with. Having separate branding and maintaining a clear distinction between the two organisations is important to protect the charity’s reputation and maintain the confidence of donors. Additionally, when working with a non-charity, charities should carry out proper checks to ensure that the organisation is suitable for the charity to work with.

Take advice when required to protect your charity

The Charity Commission does not expect trustees to be experts in charity law, but it does expect them to act with reasonable care and skill. Where trustees are professionals (for example, accountants or solicitors) the standard of skill expected is higher.

Trustees should keep themselves fully informed, conduct due diligence, ask questions and carefully manage risks. The Commission has made it clear in its guidance that trustees should take appropriate advice when required to ensure that the best interests of the charity are being met. Charities should also ensure that appropriate written agreements are put in place where necessary to protect the charity.

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