Nick Burrows and Sophie Bird, in our Charities and Not for Profits team, discuss how charities may fundraise through business arrangements, particularly through use of a Commercial Participator Agreement.
Fundraising forms a critical function for charities, as it enables them to generate the necessary income to pursue their charitable purposes. Charity fundraising may take on many forms, from public donations and government grants to business arrangements. Whatever the form, proper fundraising practices are vital for ensuring the success and integrity of fundraising efforts.
This article explores the ways charities may fundraise through business arrangements, focusing on Commercial Participator Agreements (“CPAs”), including what they are and what legal requirements and other considerations apply.
What are CPAs?
A Commercial Participator (“CP”) is defined in the Charities Act 1992 as, in simple terms, a third-party business which, in the course of carrying out its business, represents that it is making charitable contributions to a charitable institution.
A CPA is, therefore, the agreement which governs the arrangement between the third-party business and the charitable institution.
An example of this includes Christmas or other cards which display a charity’s name and logo on the back where the retailer pledges to donate a proportion of the proceeds from the sale to the charity.
Another example of this includes an event where it is advertised that the event organiser will donate all profits from ticket sales to a charity.
It is worth noting that charitable institutions and businesses may also enter into a range of other arrangements, such as a business providing money, skills or other resource to a charitable institution. These arrangements are defined as “commercial partnerships” by the Fundraising Regulator in its Code of Fundraising Practice (“Code”), and in such cases, a commercial partnership agreement would be used to govern the arrangement, rather than a CPA.
It is also important to note that where a charitable institution engages a third party to act as its agent in raising funds from the public on its behalf, that third party is a “professional fundraiser”, and a professional fundraiser agreement would be used to govern this arrangement, rather than a CPA.
What are the requirements for a CPA?
CPAs are tightly regulated by law and the Code with the aim of addressing the potential abuse of charitable institutions’ goodwill by CPs to promote their own businesses.
Accordingly, for each arrangement, a CP must:
- Enter into a written agreement with the charitable institution (for example, a CPA);
- Make a solicitation statement whenever it represents that charitable contributions will be made to a charitable institution;
- Make records relating to the arrangement accessible to the charitable institution; and
- Safeguard funds acquired for the benefit of the charitable institution and pay them over promptly.
In failing to comply with these requirements, a CP commits a criminal offence punishable by fine.
For a CPA to be valid, at a minimum, it must:
- be in writing;
- be signed by the CP and charitable institution;
- contain the following:
- the names and addresses of the CP and charitable institution;
- the date on which it was signed;
- the duration of the term;
- any provisions relating to early termination or variation;
- a statement of its objectives and how these will be achieved;
- if multiple charitable institutions are involved, how charitable contributions will be shared;
- if applicable, a provision to determine payment of the CP;
- if applicable, a provision to determine the charitable contributions made by the CP to the charitable institution;
- details of any voluntary scheme that the CP has undertaken;
- how the CP intends to protect vulnerable people and the public from unreasonable intrusions, unreasonably persistent approaches, and undue pressure to give make charitable contributions; and
- how the charitable institution will monitor compliance by the CP.
What are some other considerations for a CPA?
Prior to entering into a CPA, trustees of charitable institutions should consider:
- Carrying out due diligence on the CP to ensure that an agreement with them is in the best interests of the charitable institution and protects its assets and reputation;
- Whether licences for use of intellectual property will need to be granted to the CP from the charitable institution;
- Whether the charitable institutions has adequate powers in its governing document to enter into the CPA;
- Whether the CPA is compatible with, for example, the charitable institution’s ethical or fundraising policies;
- Negotiating the terms of the CPA to secure a fair deal for the charitable institution, including, for example, a minimum income guarantee;
- Implications on tax treatment of payments to the charitable institution by the CP; and
- Whether ongoing monitoring of the CPA is required, to ensure it remains an effective form of fundraising for the charitable institution.
Overall, the trustees should consider the time and effort required against the potential benefit they will receive from entering into a CPA.
The trustees should also consider where they may need to seek professional legal and financial advice.
Conclusion
Entering into a CPA can be hugely beneficial to the fundraising efforts of a charitable institution, as well as increasing their reputation and reach. However, trustees must be aware of the requirements and considerations.
For further information or legal advice on CPAs, or another area of charity or commercial law, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
