Did the Prince's Trust fundraise a political party?
July 2009
Moira Protani and Kenneth Dibble do not agree about the legal authority for the Charity Commission's recent decision
Moira Protani, head of charities and education, Wilsons Solicitors LLP:
The Prince’s Trust Trading Limited, the trading subsidiary of the Prince’s Trust, entered into a joint fundraising venture with Women2Win – an organisation which supports the Conservative Party. The subsidiary collected the proceeds of the venture and paid an agreed share of them to Women2Win. The Charity Commission has concluded that the charity has directly, or indirectly, offered an opportunity to fundraise to a political party [1]. Its guidance update ‘Charities and Political Donations’ [2] says that it is not permissible for a charitable trading subsidiary to make donations to political parties. I disagree and challenge the Commission to state clearly what their legal authority is for this proposition.
Charity law restrictions on party political activities apply to a charity. They do not apply to a non-charitable company even if it is wholly-owned by
a charity. The Charity Commission’s Regulatory Case Report on the Prince’s Trust pays no attention to this distinction and it is, therefore, flawed.
a charity. The Charity Commission’s Regulatory Case Report on the Prince’s Trust pays no attention to this distinction and it is, therefore, flawed.
It is worth remembering why charities establish subsidiary companies. It enables fund-raising projects to be carried out which a charity is not permitted to do as a matter of charity law, in a tax effective way and protects charitable funds from any unnecessary risk. This is encouraged in the Commission’s guidance on fundraising. The subsidiary can raise money without having regard to the legal restrictions imposed on the trustees of the charity. The subsidiary’s aim should be to make as much profit as possible by whatever method the directors see fit and to donate it to the charity in a tax effective way.
The charity, as the member of the subsidiary company, has limited powers. Usually these are to appoint (and remove) directors of the subsidiary, receive the report and accounts and vote at general meetings. The charity cannot interfere with the management of the subsidiary and the day to day decision-making of its directors. That would defeat the point of having the subsidiary. If, as is commonly the case, there is overlap in the identity of charity trustees and directors of the subsidiary, those directors must not act to prevent the company from pursuing a course of action where they have a conflict of interests as this would be a breach of section 175 of the Companies Act 2006. A conflict of interests might exist if they were
concerned about reputational issues for the charity. However, the interests of the company could be prejudiced if they acted to prevent a fundraising venture. In this case, however, the Prince’s Trust confirmed that neither its trustees not the senior management team were involved in the funds-raising project with Women2Win.
concerned about reputational issues for the charity. However, the interests of the company could be prejudiced if they acted to prevent a fundraising venture. In this case, however, the Prince’s Trust confirmed that neither its trustees not the senior management team were involved in the funds-raising project with Women2Win.
On the face of it, the Prince’s Trust Trading Limited did nothing wrong in law. On the contrary, it acted properly and within its powers in entering into a joint venture with Women2Win. Under the section of the Commission’s report entitled ‘Issues for the Wider Sector’, the issues may be correct but they are not relevant to this case. Two issues which are relevant were not mentioned by the Commission.
A charity should protect its good name and reputation. Where, as in the case of the Prince’s Trust, it has a non-charitable subsidiary company established to carry out fundraising activities, the charity trustees should ensure that the use of its name by the subsidiary is restricted in a written agreement to prevent the subsidiary from bringing the charity into disrepute whether through improper political alliances or otherwise. That is one way in which the Prince’s Trust can control the actions of its subsidiary and thereby protect its reputation.
The other way is through the commercial participator rules in the Charities Act 1992. This would have enabled the charity to prevent Women2Win from using its name at its fundraising events if it was perceived that this would harm the charity’s reputation. It would do this by obtaining a injunction to stop the fundraising event.. However, it could not prevent its trading subsidiary from acting under these rules because the subsidiary is not a commercial participator. Parliament expressly excluded wholly-owned trading subsidiaries from the rules.
The Commission’s view that the relationship of the subsidiary company with Women2Win was unlawful is difficult to reconcile with its statement in CC9 that a charity can hire out its premises to a political party. With respect, how can a charity possibly understand what is, and what is not permissible, in these circumstances? In my opinion the Charity Commission’s Regulatory Case Report is wrong in fact and in law.
I recognise that the Commission has not dealt with the specifics of the Prince\'s Trust Regulatory Report. However, there is a wider concern. The case reports and regulatory case reports published by the Charity Commission are quasi judicial in nature and people rely upon them as representing the current state of the law. I hope that I have demonstrated that the Regulatory Case Report on the Prince\'s Trust leaves trustees in a state of uncertainty as to what is and what is not permissible. These reports require more careful consideration before the Commission puts pen to paper. Otherwise there is a danger of building up a body of lore, rather than law.
Kenneth Dibble, executive director of legal and charity services at the Charity Commission:
Moira raises a number of interesting issues here. I will deal with these on a general basis. The Commission’s Regulatory Case Report on the Prince’s Trust sets out the Commission’s position in relation to that charity.
First, the role of trading subsidiaries. Of course charities can set up trading subsidiaries to help them either carry out their work or to fundraise for them. But in either case the trustees must protect the charity’s interest in the charity. The trading subsidiary can only ever exist to support a charity in terms of generating funds or carrying out its activities. The charity could not lawfully hold shares in a subsidiary company unless as an investment or as a means of furthering its purposes (directly or indirectly). The moment its activities start damaging either the charity’s funds or its reputation is one at which the subsidiary has gone beyond both the spirit and the letter of the law.
Secondly, whether charity law applies to both charity and subsidiary. It is clear that it does in key areas. It is quite clear from the unreported case of the Smallpiece Trust v HM Attorney General (22 March 1990) that, for example, a prohibition on trustee benefits also extends to remuneration of trustee directors by a charity’s trading subsidiary.
It’s also important to confirm that yes, charity law restrictions on party political activities apply both to a charity and its wholly owned subsidiary. If a subsidiary donates money to a political party it effectively deprives the charity of the amount of money donated. Hiring out premises for a commercial rate to non-charity organisations – which may include MPs or representatives of a political party – doesn’t lose the charity money and doesn’t, in itself, constitute support of a political party.
Thirdly, who financially benefits? I completely agree there can be, generally, no objection to a charity engaging in a joint venture with a third party where the venture will financially benefit the charity alone. But, outside the usual arrangements with commercial participators, a charity can’t generally take part in a venture intended to financially benefit both the charity and the non-charitable third party if the purpose and effect of that is to financially benefit in a substantial way, in addition, that third party.
If a charity and a political party agree to share the monetary proceeds of a fundraising venture then the benefit to the political party is an inherent part of what the venture is intended to achieve. In participating in this type of joint venture, the charity would be pursuing a non-charitable purpose outside its purposes in providing the political party with an opportunity to benefit.
Finally, reputational issues. There is no problem in principle with joint fundraising between a charity’s trading subsidiary and a third party. But a joint fundraising venture with a political party – even if it’s financially successful – will almost inevitably present reputational issues for the charity. The charity trustees would not have undertaken their duty to ensure the charity’s investment in the trading subsidiary paid off, and to protect the charity’s interests, if the subsidiary’s activities damage both the charity’s reputation and its ability to attract support.
Author: Moira Protani
Moira Protani joined Wilsons in September 2008, is head of the charities department and is based in the firm’s London office. She is an expert in charity law as it affects charities, trustees, donors, businesses and public sector bodies which engage with charities.
She advises on the establishment of charities, trustee powers and duties, schemes, taxation, grant-making, fundraising, mergers, disposal of land and buildings, dealing with the Charity Commission, constitutional and good governance issues.
There are no comments on this article. Be the first to comment.