Commission's advice is flawed, says lawyer

The Charity Commission's guidance for charities setting up trading arms or subsidiary companies to raise funds is inaccurate, according to a partner at specialist third sector law firm Bates Wells & Braithwaite.

The commission's revised CC35 guidance explains the difference between legal obligations and best practice on how and when charities may raise cash through commercial enterprises.

The guidance states that charities are legally obliged to set up trading subsidiaries "when trading (other than in pursuit of their charitable objects) involves significant risk to charities' assets".

But Lawrence Simanowitz, partner at Bates Wells & Braithwaite, said that this is best practice and not a legal requirement. "It should be down to the charity's discretion," he said.

He added that the guidance does not define clearly enough what is meant by risk. "Some events are quite risky," he said. "There is particularly a financial risk."

A commission spokesman said: "The meaning of significant risk is going to vary from charity to charity.

"If trustees do identify significant risk but ignore it, discount it and go ahead anyway, they could be in breach of their duty to act prudently."

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