The Charity Commission has now published its Guidance for charities with a connection to a non-charity and it is essential for all charities (and in particular charity trustees) to familiarise themselves with the content. Our charitable housing provider clients should be particularly aware of the new guidance as it applies to both registered charities and exempt charities. The Charity Commission explicitly states that it will expect trustees to have applied the Guidance if it reviews a charity’s connection with a non-charity.

The Guidance sets out six principles for trustees to manage and review their charity’s connections with non-charities. The Guidance also helpfully signposts readers to its other Guidance documents where further detail can be sought. 

The Six Key Principles

  1. Recognise the risks

    The Guidance acknowledges that working with other organisations can bring positive outcomes for beneficiaries but can also bring risks. The Guidance acknowledges that the risks that may arise will depend on each charity’s particular circumstances and the type of connection that it has with the non-charity.

    In particular the Guidance notes that charities should be able to provide evidence that they actively manage and review connections with non-charities. The frequency of, and how you undertake, these reviews will depend on the level of risk and complexity of each case but the Guidance suggests once a year.
  2. Do not further non-charitable purposes

    The Guidance notes that working with non-charities has both opportunities and limits. Charities must not allow its resources or activities to fund or support non-charitable purposes. Any benefit to the non-charity must be incidental (e.g. a necessary result or a by-product of carrying out the charities’ purposes).

    The Guidance includes a specific reference to investing in a charity’s trading subsidiary which will be of particular interest to a number of our clients. The Guidance notes that charities can invest in their trading subsidiary as a way of providing financial support. However, the same conditions apply as they would to any investment and charities must have adequate investment powers and follow its investment policy.
  3. Operate independently

    The Guidance reiterates that charities must be independent and exist only for its charitable purposes for the public benefit and that charity Trustees must only act in the interests of the charity.

    The Guidance in particular notes that, whilst there is nothing wrong with being provided funding by a non-charity, the charity must ensure that it has a choice in accepting the funding and that it can address any conflict of interest. It is also clear that trustees can be appointed by another organisation but trustees must be free to make their own decisions.
  4. Avoid unauthorised personal benefit and address conflicts of interest

    The Guidance acknowledges that conflicts of interests arise in all types of organisation and that trustees must avoid putting themselves  in a position where their duty to the charity conflicts with their personal interests or a duty to another person or body. Each individual trustee is responsible for declaring conflicts of interest that affect them.

    The Guidance explicitly acknowledges that a trustee may also be director of a trading subsidiary and that this can give the charity necessary oversight over the trading subsidiary. However, if there is a benefit to the trustee then Charities should ensure that their governing document allows this (or seeks Charity Commission approval if not). The Guidance also accepts that a non-charity may appoint a trustee to the charity but that all decisions made by trustees must be in the best interests of the charity irrespective of how they have been appointed.
  5. Maintain your charity’s separate identity

    The Guidance stresses that charities are independent organisations with their own legal identities and tax statuses. If a charity has a close connection with a non-charity it must ensure that the financial structures are kept separate and that has made a decision as to whether the charity’s best interests are served by:

    a) Sharing an identity with the non-charity through use of a similar or working name, joint branding or shared website; or

    b) The charity and the non-charity having separate identities.
  6. Protect your charity

In the final principle, the Guidance provides that a charity must protect its assets, reputation and beneficiaries. This will include using written, formal agreements with non-charities where arrangements are complex, long-term or involve more money or risk.

Finally, the Guidance provides information on what the Charity Commission will do when things go wrong, and gives advice on how to apply to register a charity with a connection to a non-charity.

If you would like to discuss any element of the Guidance or how it may apply to your organisation, please contact Susie Rogers, Laurence Gorley or Rachel Collins.