A guide to third sector trading - WCVA

More documents

Recommendations

Info

It’s an idea, but is it business? A guide to third sector trading 1: Getting started 2: First steps 3: Business planning 4: Legal and governance 5: Funding and resourcing 6: Financial controls 7: Managing growth 8: Management and governance 9: Social enterprise 10: Sources of support 5.3 Financing the trading arm Charities which carry out trading activities often have uncertain and ambiguous relationships with the subsidiary trading companies which they set up. It is not too difficult to slip into practices which contradict Charity Commission guidance. Strictly speaking the purpose of the arrangement is to raise money for the charity, though it sometimes looks as if fundraising is a less important aim than extending the range of activities. This section examines the responsibilities of charities in managing their financial responsibilities to the trading subsidiaries. What sort of charity trading? • Trading for fundraising purposes: This section applies to charities which set up and invest in trading subsidiaries for fundraising purposes, rather than for primary purpose trading –see section 4.3. • Primary purpose trading is trading that is directly related to the objects of the charity, and in that case funds which it makes available to its subsidiary would be ‘a charitable application of funds’, rather than an investment of funds for profit. (A charity might choose to set up a separate primary purpose trading company for practical management purposes, but this is certainly not necessary.) Funding options for charities and their trading subsidiaries Start up costs: Charities may invest in starting trading ventures, subject to a number of restrictions and the overall requirement that the investment has reasonable prospects of making a return for the charity. Any action will need to be consistent with the investment duties outlined in Charities Commission booklet CC14. Investment of Charitable Funds: Basic Principles. Types of investment: Charities may invest funds in a trading subsidiary by: • making a loan • purchasing shares (equity investment) 124
It’s an idea, but is it business? A guide to third sector trading 1: Getting started 2: First steps 3: Business planning 4: Legal and governance 5: Funding and resourcing 6: Financial controls 7: Managing growth 8: Management and governance 9: Social enterprise 10: Sources of support • issuing a guarantee • making a donation. Aiming for profit: The Charity Commission points out that a trading subsidiary should become financially viable as soon as possible. • Where financial viability is not anticipated within two years of operation, ‘careful consideration’ should be given to the appropriateness of undertaking the planned trading activity. • Trading subsidiaries of charities are expected to be completely financially self-sustaining within five years. After this time they should not need loan finance from the parent charity in order to operate. General requirements for investments: Charities need to be particularly careful if they are loaning money to or investing in the trading activity. • Before they invest their charity’s money in a trading subsidiary, trustees should confirm that: − the charity has powers identified in its memorandum and articles of association which specifically permit investment in a trading company that it owns − the investment is not excessively speculative and risky − the investment is in line with the charity’s own current investment policy. • Investments can only be regarded as made for the benefit of the charity if they are commercially sound, ie they must be secure and carry a fair rate of return. • Charities should keep records of all investment decisions including why decisions were made. This is because HM Custom and Excise could ask to see business plans and cashflow forecasts for the trading subsidiary and could remove the charity’s own tax exemption unless they are satisfied that the investment was made: − for charitable purposes only − for the benefit of the charity and − not for tax avoidance. Loans: • The advice of the Charity Commission is that an investment in the trading arm by the parent charity should normally take the form of secured loans on market terms. 125
Page 1 and 2:
It’s an idea, but is it business?
Page 3 and 4:
Page 5 and 6:
Page 7 and 8:
Page 9 and 10:
Page 11 and 12:
Page 13 and 14:
Page 15 and 16:
Page 17 and 18:
Page 19 and 20:
Page 21 and 22:
Page 23 and 24:
Page 25 and 26:
Page 27 and 28:
Page 29 and 30:
Page 31 and 32:
Page 33 and 34:
Page 35 and 36:
Page 37 and 38:
Page 39 and 40:
Page 41 and 42:
Page 43 and 44:
Page 45 and 46:
Page 47 and 48:
Page 49 and 50:
Page 51 and 52:
Page 53 and 54:
Page 55 and 56:
Page 57 and 58:
Page 59 and 60:
Page 61 and 62:
Page 63 and 64:
Page 65 and 66:
Page 67 and 68:
Page 69 and 70:
Page 71 and 72:
Page 73 and 74:
Page 75 and 76: It’s an idea, but is it business?
Page 125: It’s an idea, but is it business?
Page 177 and 178:
Page 179 and 180:
Page 181 and 182:
Page 183 and 184:
Page 185 and 186:
Page 187 and 188:
Page 189 and 190:
Page 191 and 192:
Page 193 and 194:
Page 195 and 196:
Page 197 and 198:
Page 199 and 200:
Page 201 and 202:
Page 203 and 204:
Page 205 and 206:
Page 207 and 208:
Page 209 and 210:
Page 211 and 212:
Page 213 and 214:
Page 215 and 216:
Page 217 and 218:
Page 219 and 220:
Page 221 and 222:
Page 223 and 224:
Page 225 and 226:
Page 227 and 228:
Page 229 and 230:
Page 231 and 232:
Page 233 and 234:
Page 235 and 236:
Page 237 and 238:
Page 239 and 240:
Page 241 and 242:
Page 243 and 244:
Page 245 and 246:
Page 247 and 248:
Page 249 and 250:
Page 251 and 252:
Page 253 and 254:
Page 255 and 256:
Page 257 and 258:
Page 259 and 260:
Page 261:
show all

A guide to third sector trading - WCVA

Create successful ePaper yourself

Delete template?

Save as template?