A guide to third sector trading - WCVA

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
• the directors’ terms of service, including any remuneration
− the continuation or dissolution of the trading subsidiary.
Directorships and employment:
• Employment of charity trustees:
− Charity trustees may not be employed by their subsidiaries
unless this is permitted by their Memorandum and Articles
of Association or the Charity Commission has given specific
approval.
− A subsidiary company cannot be used as means to circumvent
the bar on trustees receiving payments from the charity.
• Membership of the subsidiary’s board:
− It is good practice for some of the trustees and/or employees
of the charity to become directors of the trading subsidiary
and to monitor its performance. This is to ensure that the
subsidiary is managed in the interests of the parent charity.
− Anyone involved with the administration of both boards has
two distinct responsibilities, and it can at times be difficult
to balance conflicting pressures. It can be important that
this potential tension is clearly understood by all the board
members not just the individual.
Independent or ‘unconflicted’ directors:
• As a matter of good governance, the Charity Commission
recommends that there should be both:
− at least one person who is a trustee, but not a director or
employee of the trading subsidiary (called an ‘unconflicted
trustee’) and
− at least one person who is a director of the trading subsidiary,
but not a trustee or employee of the charity.
• Unconflicted trustees and directors should advise their
colleagues when their dual responsibilities result in conflicts
of interest. This is important to reduce the risk of challenges to
transactions between the charity and its subsidiary.
Handling financial problems in the
trading subsidiary
Protecting the charity’s interest: The interests of the parent
charity must always come first. This will sometimes mean
liquidating or selling a failing trading subsidiary.
The Trustees’ obligation is to minimise any losses to the charity,
irrespective of their loyalty or sense of moral obligation to the
directors and employees of the trading subsidiary.
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