The Regulator for Charities in England and Wales
1. A charity’s name is a valuable asset. Its value comes from the confidence that people have in the charity – confidence that is built on the reputation the charity has gained through its achievements and its status as a charity. Charity trustees have a duty to make the best use of their charity’s assets – in practice this means putting assets to work to the best overall advantage of the charity, whilst safeguarding them against damage or loss of value.
2. One legitimate way of taking advantage of the value in a charity’s name is to allow it to be used by, or associated with, a commercial company or product in return for a specified financial or other benefit.
3. Charities are not in a weak bargaining position if they choose to raise funds in this way. Companies are as keen to form relationships with charities as charities are to form relationships with companies. Although the reasons why charities and companies become involved in this type of agreement will not be the same, it is clear that such relationships are beneficial to both parties and charities should not be hesitant in negotiating the best possible return for their part in them.
4. The guidance aims to provide trustees, staff involved in raising funds for a charity and professional fund-raisers with advice on some of the issues that arise when a charity allows its name to be used or associated with a commercial company as a means of raising funds for the charity. It refers to the legal position and best practice issues. We would expect trustees to make use of this guidance in conjunction with independent professional advice.
5. This method of fund-raising can bring a charity considerable rewards not only in the form of substantial new funds, but also through raised awareness leading to a growth in membership, support and influence, and through benefits in kind provided by the commercial partner as part of an agreement. But raising funds from the value in a charity’s name also carries risks. These arise if a charity’s own reputation is put in the hands of another body whose interests are fundamentally different from the charity’s, and whose activities are outside the charity’s control. If a company with which a charity has an association begins to attract, for whatever reason, criticism or disapproval this can rub off on the charity and damage it in the eyes of supporters and the public more generally. Another risk is that current and potential supporters might be put off by what they see as the “commercialisation” of charities – particularly if the benefits to charities from joint ventures with companies are not spelled out clearly.
6. Because of the tax considerations relevant to this type of fund-raising many charities establish agreements between the commercial company and a separate non-charitable subsidiary trading company which it has set up, rather than directly between the commercial company and the charity. This guidance is just as applicable to agreements which are established in this way, and references to charities in this guidance should be treated as including references to their subsidiary trading companies. Where there are differences in the legal position this will be made clear in the text. Advice on the establishment of a subsidiary trading company can be found in our guidance CC35 – Charities and Trading.
7. In this guidance we:
They include:
8. Agreements between charities and companies vary in their detail, but most fall into one of three main types:
9. We recommend that trustees, and staff involved in planning or negotiating agreements with commercial companies, should consider and resolve the points below. In larger charities trustees will take a strategic rather than a practical role – in line with point 10 below they will need to set the overall framework within which the charity pursues (or decides not to pursue) associations with companies. Trustees are, of course, ultimately responsible for the outcome of any agreement into which their charity or its subsidiary trading company enters. The shares in the company are part of the charity’s property, and the trustees must use the rights attaching to the shares in the best interests of the charity.
10. We recommend that a charity develops, for formal agreement by its trustees, written criteria that can be used to judge the acceptability, in principle, of any proposed joint venture. We recommend this whether the charity is already receiving and relying on income from joint ventures with commercial companies, or whether it has no experience of them. Either way, we think this will make it easier for trustees and staff to judge what is in the real long-term interests of the charity and to view the short-term attractions of particular ventures in a wider context. A charity should consider communicating its policy on joint ventures with commercial companies and the principles that it follows in its Annual Report.
11. When creating an internal policy in this area trustees will need to consider, among other points:
12. Trustees need to be satisfied, before entering into a fund-raising agreement, that they have, or that the charity has, the power to do so. They may be personally liable to meet expenditure arising from an agreement if they, or the charity, have no authority to enter into that agreement. In certain circumstances the commercial company may be able to withdraw from an agreement if a charity or its trustees entered into the agreement without the legal authority to do so. Our model governing documents (GD1, GD2 and GD3) contain an example of the sort of power that allows a charity to enter into this type of agreement. A charity that does not already have a power to enter into fund-raising agreements may be able to introduce such a power into its governing document, if it has a power of amendment. If trustees are in doubt about whether they have the power to enter into fund–raising agreements or to alter their governing documents to introduce this power they should contact the Commission for advice or take their own legal advice.
13. Once satisfied that they have the necessary power to enter into the agreement trustees must then consider whether Part II of the Charities Act 1992 and the Charitable Institutions (Fund-raising) Regulations 1994 apply to the venture or any element of it. These provisions protect charities against misuse of their name, by prohibiting professional fundraisers and commercial participators from using a charity’s name in a fundraising venture or promotion without the charity’s permission.
The law includes requirements for:
14. These provisions are likely to apply to many licensing agreements and joint promotion agreements as described above. Any charity in doubt about complying with or enforcing the legal requirements applying to particular types of joint venture should take legal advice. Some agreements fall outside the Regulations mentioned at point 13 above. Part II of the 1992 Act and the 1994 Regulations do not apply to fund-raising agreements between commercial companies and charities’ subsidiary trading companies (rather than the charity). Neither do they apply to agreements between a commercial company and a charity, if the payment made to the charity by the commercial company is not a donation (i.e. it is a payment for goods or services provided by the charity to the commercial company, or payments by the company for the use of the charity's name or logo).
15. Even where agreements fall outside the scope of the legal Regulations we strongly advise, as a matter of good practice, that charities and their subsidiary trading companies follow the Regulations as far as possible. In particular we recommend that the terms of the venture should always be set out in a written agreement (rather than being agreed orally).
16. The endorsement of commercial products or services by a charity has the potential to increase sales of, or add value to, those products or services. Is the charity confident (having taken independent professional advice if necessary) that the benefits it is being offered under the agreement reflect its full and fair share of that added value? Is any information available to the charity about the terms and benefits that other charities have managed to negotiate in similar deals? If so, has the charity drawn on this to ensure that it does not agree terms that are less than the best it could reasonably hope to negotiate? What arrangements will the charity make for regular reviews of the costs and benefits of the venture? We would expect a charity to keep the cost/benefit balance of any joint venture with a company under regular review and, if the balance turns against the charity, to have the ability to withdraw from the venture.
17. Will consumers be properly informed about the amounts going to the charity from the venture? In the case of agreements to which the Regulations apply, the law only requires consumers to be told in general terms how the benefits going to charity are calculated. As a matter of best practice, however, charities should aim to give consumers clear and precise information about the amount the charity will actually receive from each purchase. Consumers are more likely to be suspicious of a joint venture when it is advertised in way that makes it difficult to work out how much of funds raised will go to the charity concerned.
18. When a charity’s name appears in an advertisement or promotional offer for a commercial product or service, consumers will regard this as the charity encouraging them to buy the product. Does the advertisement or promotion mislead consumers about the reason why the charity is involved in advertising the product? Often the main or only reason is that the charity stands to benefit financially from product sales. In that case the promotion should not allow consumers to believe that the charity is positively recommending the product as an excellent or effective product of its type. Consumers are most likely to believe this when the product is one that normally is used by, or especially appeals to, people in the charity’s client or beneficiary group. We would expect the charity to retain complete control over the way its name, logo etc is used in advertising and promotions. Does the agreement allow it to do this?
19. The income and profits from many of the fund-raising agreements between charities and commercial companies fall within the scope of income or corporation tax charges. The reliefs available to charities have been extended in the Chancellor’s Budget Statement of 21 March 2000, but these will not apply in all situations. This means that if the agreement is made directly between the charity and the commercial company, the charity’s income or profits from the agreement may be taxed. It may be possible to obtain relief from tax by establishing the fund-raising agreement between the commercial company and a charity’s subsidiary trading company (rather than the charity itself). We recommend that all charities seek advice either from professional advisers or from the tax authorities before entering into commercial agreements involving the use of the charity’s name or logo.