Legal Requirements for Collaborations between Charities and Businesses – What to watch for

Collaborations between charities and the business community can be a great help to charities. They often mean a new source of fundraising and help to raise the awareness of the public about the charity and its purpose. Forging successful corporate links can be a key driver to a charity’s success. 

For the business, they benefit from the enhanced goodwill and brand loyalty from their association with a particular charity. A commercial collaboration can also lead to increased sales as customers are aware that the charity will indirectly benefit.

It is, however, important to bear in mind that an arrangement between a charity and a business may, depending how it is structured, fall within the remit of certain regulatory rules under the Charities Act 1992 and the Fund-Raising Regulations 1994 (as amended) which apply to both the charity and the business if they are “commercial participators”.

What is a commercial participator?  

A commercial participator is a person (be it an individual or a business) who:

• Carries on for gain a business that is not a fundraising business;

• In the course of that business, engages in any promotional venture representing that charitable contributions will be given to, or applied for, the benefit of a specific charity; and

• Is not a company connected with that charity (this would, therefore, exclude a charity’s trading company or group company).

Examples of commercial participator arrangements include: 

• A credit card provider donating a percentage of each transaction to a named charity; 

• A company stating on its marketing material that it donates a proportion of its annual profits to a particular charity; 

• Use of a charity’s name or logo in conjunction with the sale of goods or services by the commercial entity (for example the sale of a gin or beer with a percentage of the profits to go to a named charity); and 

• A building society charity savings account where the named charity will receive a share of interest earned. 

Why is this area regulated?

You may be wondering why it is not up to the business and the charity themselves to decide how they collaborate and on what terms and why legislative requirements apply to this area. It may also seem bizarre that charity legislation can apply to a non-charity and many businesses are not aware of the law governing this area. Whilst it may seem that legislation is putting unnecessary barriers in place for businesses trying to raise vital extra funds for charities, the legislation is designed to help avoid abuses by unscrupulous businesses who may wish to ride off the goodwill of a charity to fill its own pockets and misuse a charity’s valuable intellectual property. 

The legislation aims to:

• ensure that consumers are fully informed about the benefits to the charity as a result of their purchase; and
• ensure that the business and the charity have basic terms agreed; and 
• enable the charity to hold the business to account and to ensure that it receives the benefit it is promised from the collaboration (for example that it receives the correct amount of the promised profits promptly). 

Legal requirements for commercial participation arrangements  

Charities and businesses alike need to be aware of the legal requirements contained in Part II of the Charities Act 1992 and the various fundraising regulations if they are to become involved in a commercial participation arrangement. 

Charities must carry out due diligence before engaging in a partnership and must ensure that there are no conflicts of interest relating to the partnership and that entering into the partnership is in the best interests of the charity. Charities should be careful to ensure that they are not closely associating with a company that is discovered to engage in unethical practices, criminal or other activities that are harmful to the charity’s values or purposes and give careful consideration as to whether or not the arrangement will generate enough funds to cover the costs of the arrangement. 

Where a commercial participation arrangement is in place then a written agreement must be put in place between the charity and the business which must contain certain terms prescribed by the legislation. 

Failure to comply with these legal requirements is a criminal offence for the business and the charity would need to report the issue to the Charity Commission so it is important that a written agreement is put in place before a commercial participation arrangement begins. The law will apply regardless of the label the parties may choose to give the arrangement if the activities fall within the definition of a commercial participation agreement. 

Whenever a representation is made that a charitable contribution is to be given to or applied for the benefit of a charity, a commercial participator must also make what is known as a solicitation statement which must clearly indicate:

• The name or names of the charities that will benefit;

• If more than one charity is to benefit, the proportions in which they are to benefit; and

• The amount of charitable contributions to be given to or applied for the benefit of those institutions

The solicitation statement must accompany each representation. This means that it must be made before, for example, a purchase of goods or services is made so the consumer can view the solicitation statement before making their purchase.

What to watch out for 

From the charity’s perspective, there is a duty to ensure any proposed arrangement is set up and controlled in the best interests of the charity and which protects its assets and reputation. 

It is important that both parties understand their legal requirements and that a written agreement is entered into and an appropriate solicitation statements given. Where both parties will be using the other’s branding on either a product or marketing materials to promote the collaboration both organisations should take adequate steps to protect their intellectual property (via trade mark registrations and brand guidelines for example). It is also important that advice is sought from an accountant to ensure the correct tax treatment is applied to the arrangement (for example to check whether VAT will need to be charged). 

Easy Steps to Compliance

Whilst the legislation may be seen as an extra hurdle to jump through we would always advise parties collaborating (whether the regulations apply or not) to have a clear written agreement in place from the outset to set expectations, to minimise the chances of misunderstandings at a later date and to ensure that an organisation is adequately protecting its intellectual property. Charities that enter into these types of arrangements on a regular basis should have template agreements already in place which can be used to fulfil the requirements of the legislation.