Conflict with your trading subsidiary

Using Conflict as a Catalyst for Change

The Not for Profit sector is dealing with continued challenges from numerous directions including changing legislation and funding issues. On top of this, charities are often constantly battling with internal and external conflicts.

It is essential to understand that conflicts affect all charities, large or small, simple or complex. Trustees have a legal duty to act in their charity’s best interests:

  • they are expected to understand what conflict is;
  • how it affects their organisation;
  • and to deal with any issue appropriately.

We have produced a comprehensive report, Using Conflict as a Catalyst for Change, which is a guide to help you embrace, manage and mitigate conflict within your charity. Our guide recognises that conflict takes many forms over and above the guidance issued by the Charity Commission. It seeks to cover the various types of conflict that you could come across and recognises that some conflict can actually be a positive for charities.

Each month this year we will cover a different topic within the guide, starting with conflict with your trading subsidiary.

Conflict with your trading subsidiary

The best interests of a charity are not always the same as its trading subsidiary

As many charities are finding increasing pressure on their traditional sources of income, there is a need for charities to find new and innovative ways of funding the charity. This can give rise to an increased amount of trading activities. The main reason a charity sets up a trading subsidiary is if these activities are the non-primary purpose (i.e. the trading activity does not directly advance the charity’s charitable purposes) and in excess of the HMRC small trading exemptions.

Trustees need to carefully consider whether to set up a trading subsidiary and how to manage this relationship between the charity they are ultimately responsible for and the trading subsidiary in a way that avoids conflict.

What to do to avoid harmful conflict:

  • Take careful consideration prior to setting up a subsidiary to ensure there is enough assurance to demonstrate that the rewards and benefits outweigh the risks and costs;

  • Appoint a different board of trustees to board of directors;

  • Put agreements in place for any shared resources at market rate;

  • Ensure loans provided by the charity are under a loan agreement with repayment terms and market rate interest;

  • Regularly scrutinise and consider the trading subsidiaries’ results.

Read more in the full guide

We can perform a governance, risk and structure review and provide advice. If you would like to speak to a member of our Not for Profit team, please contact us on 01903 234094.