The new guidance published by the Charity Commission aims to provide a single point of reference for the Commission’s guidance for any charity with a connection to a non-charity. The Commission has stated that it is only intended to consolidate information for charities that have connections with non-charities, and not to introduce new legal requirements.
However, the guidance contains much for charities with close connections to non-charities to consider, and many charities may need to take action to ensure they comply with best practice.
What does the guidance contain?
Charities that need to know about the new guidance include those with trading subsidiaries, those founded by corporations and those working with non-charities jointly to achieve the charity’s aims.
The main body of the new guidance sets out six principles for managing and reviewing a charity’s connection to a non-charity:
- Recognise the risks – the guidance recognises that relationships with non-charities can benefit charities, but emphasises that charities must assess the risks of any particular relationship carefully, and take appropriate steps to manage any risks.
- Do not further non-charitable purposes – for a charity to be charitable all charitable funds must be applied exclusively for charitable purposes, and the guidance highlights the risks involved in a charity providing funding to a non-charitable organisation.
- Operate independently – a charity must remain independent of any non-charitable organisation with which it has a close connection, even if, for example, it was founded by the non-charitable organisation in question. The trustees must act in the best interests of the charity alone.
- Avoid unauthorised personal benefit and address conflicts of interest – The guidance notes that any personal benefit from a charity must be appropriately authorised in advance of the benefit and that any conflict of interest must be appropriately managed.
- Maintain your charity’s separate identity – The guidance states that charity trustees have a legal obligation “to keep it [their charity] distinct from any connected organisation”. The guidance is particularly concerned with the extent to which a charity might share its identity with a non-charitable organisation, and the potential risks of sharing an identity.
- Protect your charity - A key duty of charity trustees is to safeguard the assets of their charity (including its reputation), and they must protect its beneficiaries, and the guidance sets out the legal obligations of charity trustees, and the best practice, when considering whether or not it is in the best interests of the charity to create (or continue) a relationship with a non-charity.
What do charity trustees need to do now?
The trustees of any charity with a close connection to a non-charity, or a proposed close connection, should make sure they are familiar with the guidance.
Existing arrangements with non-charitable organisations should be reviewed, and steps should be taken as necessary to ensure that the six principles set out in the guidance are being adhered to in any arrangement between a charity and non-charity.
If a decision is taken not to follow the guidance in some respect, it would be prudent to document both consideration of the issue by the trustees, and the reasons for the decision taken.
If the Commission has cause to review the arrangements between a charity and a connected non-charity, it will expect charity trustees to have applied the new guidance, or to be able to explain and justify the charity’s alternative approach, if best practice is not followed.
For more detail on the new guidance, see our briefing.