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Benefits of collaborations between charities and businesses

Mar 2, 2021

Collaborating with businesses can be a huge help to charities as they are able to benefit from a new source of funding and such collaboration helps raise public awareness of the charity and its purpose.

For businesses, collaborating with charities can help increase customer loyalty and reputation. Such commercial collaborations can also lead to increased sales for the business, as their customers will be aware that the charity can indirectly benefit from their purchase of goods and/or services which the business provides. Such arrangements are known as
“commercial participator arrangements”.

What is a commercial participator?

The relevant legislation that governs this area is the Charities Act 1992 (the “Act”). Section 58 of the Act sets out what is meant by the term “commercial participator”. In essence, a commercial participator is an individual or business who:

  • Carries on for gain and is a business that is not a fundraising business (in summary, a business that is (i) carried on for gain and (ii) wholly or primarily engaged in soliciting or otherwise procuring money or other property for charitable, benevolent or philanthropic purposes – for example, a business that is paid to provide fundraising services on a charity’s behalf, using methods such as telephone cold-calling, conducting public collections or seeking commitments from members of the public to make regular donations by direct debit);
  • in the course of 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).

Common examples include:

  • a credit card provider donating a percentage of each transaction to a named charity in return for using the charity’s name to promote its credit card;
  • use of a charity’s name or logo in conjunction with the sale of goods or services (for example, a food manufacturer agreeing to give a charity a certain amount of money for each product sold); or
  • where a charity allows its name and logo to be used in connection with an event (such as a concert or a ball) organised and promoted by a business.

Is the agreement between the charity and the business legally compliant?

Commercial participators must have a written agreement in place with the recipient charity which ticks all the boxes required by the Act and associated regulations (see the Charitable Institutions (Fund-Raising) Regulations 1994 (as amended)).

Some of the legal requirements which need to be complied with are common place such as the requirement to enter into a written agreement which must contain the name and addresses of the parties, but others are more specific, including requirements detailing:

  • how the promotion is to be run; and
  • how the commercial participator must safeguard money or property acquired for the benefit of the charitable institution and transmit it promptly to it.

In addition, the Charity Commission expects all charities (whether registered with the Fundraising Regulator or not) to follow the Code of Fundraising Practise published by the Fundraising Regulator (which acts as independent regulator overseeing the standards expected of all charitable fundraising organisations across the UK).

The Code requires charities to carry out due diligence before engaging in a partnership and ensure that there are no conflicts of interest relating to the partnership. Charities should carry out sufficient due diligence to ensure that they do not engage in any activities which may be harmful to the charity’s values or purposes as this could impact the charity’s reputation and ultimately its ability to raise funds.

What are the consequences of not meeting the commercial participator agreement requirements?

Failure to comply with the above legal requirements has the following consequences:

  • The agreement will not be enforceable against the charity except to such extent (if any) as may be provided by an order of the court. (section 59(4) of the Act).
  • The commercial participator must also obtain a court order to receive any payment to which it is entitled under the agreement (section 59(4)-(5), of the Act). This is unlikely to be relevant in practice, as in most commercial participator arrangements funds pass from the commercial participator to the charitable institution.
  • The charity can seek a court injunction to prevent the commercial participator from representing that charitable contributions are to be given or applied for its benefit (section 59(3), of the Act).

Non-compliance can therefore have a detrimental impact, particularly for the business. Also, the Charity Commission regards non-compliance with charity law obligations as evidence of mismanagement by the charity. This might prompt the Commission to take a keen interest in the affairs of the charity and, potentially, take regulatory action.

Solicitation Statements (Section 60 (3) of the Act)

Whenever a commercial participator makes a representation that a charitable contribution is to be given to or applied for the benefit of a charitable institution, a commercial participator must make a solicitation statement which must clearly indicate:

  • The name or names of the charitable institutions that will benefit.
  • If more than one charitable institution is to benefit, the proportions in which they are to benefit.
  • The amount of charitable contributions to be given to or applied for the benefit of those institutions, known as the notifiable amount.

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. The requirement is there to ensure transparency for members of the public, who need to be clear where their money is going, and to ensure that the commercial participator is accountable for its donations.

Failure to comply with these legal requirements is a criminal offence for the commercial participator, punishable by a fine so it is important that a written agreement is put in place before a commercial participation arrangement begins.

Conclusion

The requirements of the Act are designed with consumers in mind to ensure that consumers are aware of where their money is going. Breach of these requirements can lead to legal and regulatory implications, as highlighted above. Also, any breach of the legal requirements is likely to result in adverse publicity which will be more damaging to the reputation of the business and to the charity involved in the arrangement. It is therefore important that both businesses and charities are alive to the requirements and ensure that they are compliant from the very beginning of the arrangement.

If you have any questions about contents of this article or how we could help you, your business or charity, please contact Alex Collinson or Mark Chapman on 01276 686222 or via email: alex.collinson@herrington-carmichael.com or mark.chapman@herrington-carmichael.com.

This reflects the law and market position at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought in relation to a specific matter.

Alex Collinson

Alex Collinson

Paralegal, Corporate and Commercial Law

Mark Chapman

Mark Chapman

Partner, Corporate and Commercial Law

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