#UK Setting up a corporate foundation: key considerations

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Corporate Social Responsibility is an important issue for businesses, with consumers and investors increasingly concerned about where they spend or invest their money, writes Liz Brownsell, senior associate, Birketts LLP

As a result, many businesses now have well-established CSR programmes. For some, there is a desire to go even further by setting up their own charitable corporate foundations.

There are obvious reputational benefits, as it is a great way to demonstrate the good that the business does within the community. However, there are some pitfalls to avoid, and below are some of the key points to consider.

1. The activities of the foundation must be exclusively charitable

The foundation cannot be established to promote the interests of the business. Its purposes must be exclusively charitable and for the public benefit. It is important to consider the planned activities and ensure that the legal requirements for charitable status will be met. There is substantial guidance on these requirements on the Charity Commission website, or professional advice could be sought.

2. The charity must be independent and the business cannot have a controlling influence

It is important to avoid a misplaced sense of ownership of the foundation. This is a key issue and the Charity Commission will be concerned to ensure that the foundation is sufficiently independent and not controlled by the business. 

The foundation’s trustees have a legal duty to act in the best interests of the foundation, and cannot make decisions based on what is best for the business.

Corporate foundations typically receive the majority of their income from their founding business and often also receive office space, staff time and other resources at the cost of the business. 

This can make it more difficult to demonstrate independence. It is therefore important that funding is gifted to the foundation without conditions on how it should be spent (or, if there are conditions attached, the trustees must be free to negotiate and decline funding if the conditions are not acceptable).

The trustees of the foundation must be able to discuss matters at board meetings without the influence of the business. So, it is not usually appropriate for representatives of the business (who are not trustees) to have the right to attend trustee meetings.

Additionally, the trustees must take care not to use any knowledge gained in their role as a trustee for the benefit of the business where it has been given in confidence.

3. Conflicts of interest must be appropriately managed

The trustees of charities are subject to strict legal duties on the management of conflicts of interest and may not personally benefit from their role. There must be a sufficient number of independent trustees to ensure it will be quorate when any trustees who are employed by the business are conflicted (e.g. when considering entering into an agreement with the business). It is also important to consider whether there is any personal benefit which might need to be authorised.

4. Arrangements for the use of staff, office space, etc. should be documented

As mentioned above, it is common for corporate foundations to be supported by the business with office space, staff time and other resources. It is important that the terms on which this support is provided are clear, and the Commission prefers written agreements to be put in place.

5. Trustees must understand their legal responsibilities

It is common for employees of a business to be asked to act as trustees of the foundation. It is important that anyone taking on this role fully understands what the role entails and the legal responsibilities involved. There is a lot of guidance available on the Charity Commission website, or a training course could be attended.

In conclusion, there might be several business reasons why you like the idea of setting up a charitable foundation associated with your business, but the main reason must always be to do good within the community and you need to be comfortable with the fact that the business will have no say over what the charity does.

• Contact Liz Brownsell on 01473 406383 or via email: liz-brownsell [at] birketts.co.uk 

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