OPINION: Hot Issue - Should charities be allowed to trade in their own right?

One of the recommendations in the recent review of charity law from Prime Minister Tony Blair's Strategy Unit is for charities to be able to enter into commercial ventures without having to set up a separate company. To protect charities from undue risk, trustees would have to take on a greater duty of care.


At first glance, the Strategy Unit's proposal to enable charities to trade directly is welcome since the trading subsidiary structure has long been regarded as expensive, artificial and cumbersome.

But the duty to structure the trade in a way that ensures charity's assets are not exposed to "significant risk

may well mean that a trading subsidiary will still be used.

In addition, there is no mention of the tax treatment of the trading income. The Inland Revenue is unlikely to be indiff-erent as to whether a charity's income is from its charitable or its commercial activities.

There is also the risk that trustees will undertake trading that they are not empowered or qualified to pursue. The trading subsidiary provided a useful vehicle for a separate board of directors, with expertise in that field of trade. Those competing with charity outlets in the high street will have even more cause to be alarmed.


The Strategy Unit's proposed amendment to charity law will allow charities to undertake all trading without the need for a trading company.

The duty of care will impose upon trustees an obligation to give proper consideration to the need to structure the trade in a way which does not expose the assets of the charity to significant risk and to take proper professional advice.

However the duty of care is an inadequate fig leaf to protect charities from the dangers of undertaking all forms of trading activity through the charity. All commercial organisations isolate risk by structuring themselves as a honeycomb with holding companies and separate subsidiaries.

The current system of forcing trustees to hive off non-charitable trades into a separate company acts as a sensible firebreak to force trustees to consider whether or not to go ahead with the new trade. Removing that firebreak will expose charities to much greater risks.


Many donors and businesses, not to say charities, have never quite understood the need to buy Christmas cards from a trading subsidiary or split the advertising element from the donation in a corporate sponsorship. Therefore at first sight this appears a welcome change.

But, even with extended duties of care placed on trustees, should charities be allowed to sell anything? Could, say, a wildlife charity start manufacturing and selling an environmentally friendly line of soap powders?

One of the overriding issues is improving public confidence in charity and a key test is whether this change helps or not. There is already much public confusion about what charities are actually doing with their money and including a lot more trading in the figures would only serve to exacerbate the position. So an important requirement would be to ensure clear and separate reporting of the pure donated funds position.

So yes, I am in favour of charities being able to undertake more trading but not limitless and only with proper duties of care and a better reporting with more public transparency on what is actually being done with donor funds.


Legislation that makes it easier for charities to generate income is welcome. In the current funding climate, it is essential that, where possible, voluntary and community organisations diversify their funding base.

Certainly charities need to think carefully, because trading will not suit all. Successful income generation is typically built upon mission-related activity such as selling intellectual property. Speculating on trading activities in areas in which the charity has no prior knowledge is not advisable.

Profit is good. It's what you do with the money that matters. Trading to sustain valuable work is not the same as trading simply to increase shareholder value. Charities can legitimately adopt some business principles without abandoning their aims.

Recommendations on trading subsidiaries, Community Interest Companies and reform to Industrial and Provident Society legislation, seeking to develop a more conducive climate for trading, represent an opportunity not a threat.

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