The Essential Trustee – Charity Commission publishes new guidance for charities
3 April 2019
The Charity Commission has published new guidance for charities with a connection to a non-charity. The guidance does not introduce new rules, but it does highlight some of the existing law and practice which trustees and charities should be following.
A key principle of charity law is that charities must have purposes (also known as ‘objects’) which are wholly and exclusively charitable. All of the activities of the charity should be aimed at furthering those purposes.
The Commission has highlighted that commercial organisations can be closely connected to charities. In some cases these organisations help charities to raise funds, offer resources to help the charity save money or help improve the charity’s work in some other way. Typical examples of close relationships between charities and commercial organisations include: charities with trading subsidiaries, the regular receipt of funding from a non-charity, and where a charity has been set up and is funded by a commercial organisation (known as a ‘corporate foundation’).
Although these connections are legally permissible and often provide significant benefits to charities, they can give rise to greater levels of risk. In particular, 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 also risk sharing its identity, which could make it more difficult for members of the public and potential donors to tell the two organisations apart.
In its guidance, the Charity Commission has reminded trustees of their duty to be aware of these risks and to manage them appropriately.
Only further your charity’s purposes
Trustees should ensure that all of the charity’s activities are in furtherance of the charity’s purposes. The charitable purposes will be set out in your governing document (commonly, but not always, a Constitution, Articles of Association, Trust Deed, or Scheme). Trustees must ensure that their charity does not do anything which does not further its purposes.
In practice, this means that any activities, projects, initiatives and use of charitable funds and assets directly advances the charity’s purposes or is ancillary to advancing the charity’s purposes. There are some limited exceptions to this in connection with raising income for the charity, for example charities may: engage in fundraising activities (including holding fundraising events); raise a small proportion of the charity’s overall income from carrying out non-charitable trading activities within the charity; and invest funds to generate income for the charity. However, when considering how to spend the charity’s funds and deploy the charity’s assets, it is essential that the trustees always consider how the proposals will advance the charity’s purposes for the benefit of the public.
Manage 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.
This article represents a summary of the guidance issued by the Charity Commission. We would strongly encourage all charity trustees to read the guidance in full.
The content of this article is from the August 2019 edition of The Essential Trustee and is for general information only. For further information please contact Liz Brownsell or or another member of our Charities Team. Law covered as at August 2019.
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The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at April 2019.