An update from the Charity Commission on non-charitable subsidiaries

This recent investigation related to a complaint made around the way in which the Global Warming Policy Foundation (the “Foundation”) operated.  One element of the complaint concerned the relationship between the Foundation, which is a registered charity, and its trading company subsidiary, the Global Warming Policy Forum. 

A key issue was whether the name of the non-charitable subsidiary was so similar to that of the charity, that it would be difficult for external parties to distinguish between the non-charitable activities of the non-charitable subsidiary and those of the charity.

There had also been concerns that the charity had been providing financial support to its non-charitable subsidiary when it made losses.

In this case, there was no need for the Charity Commission to make a decision on the name, as the charity decided to change the name of the subsidiary to Net Zero Watch so it was clear which entity an outside organisation was working with; and so it could better distinguish its non-charitable campaigns from the activities of the charity.

On the loss-making provision, the Charity Commission found no evidence to support this.

Case notes for Governance leads at charitable Registered Providers 

This case is a useful reminder of the requirements of the Charity Commission’s guidance on relationships between charities and non-charitable organisations and in particular that when naming trading subsidiaries their name should be clearly distinguishable from that of the charitable entity in order that third parties can distinguish the subsidiary’s operations from that of the charitable Registered Provider.  Whilst there is no direct similar requirement from the Regulator of Social Housing, there is a general requirement in the Governance Standard to protect the reputation of the [social housing] sector and to avoid arrangements which inappropriately benefit third parties (here, the trading subsidiary).

Additionally, whilst in this case there was no loss in the non-charity which was being funded by the charity, the Charity Commission would have considered the position more carefully had this been the case.  The Regulator has been similarly critical of charitable Registered Providers “propping up” failing trading subsidiaries. The point here is that where an entity with charitable status wishes to support the losses of a non-charity (including a trading subsidiary), care should be taken and legal advice obtained by the board before doing so, as losses could amount to an ultra vires use of charitable assets.

For more information, please contact Andrew Cowan or Gemma Bell.