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
4.4 Choosing a structure: charities
A charitable regeneration company running social projects had set up a trading subsidiary so that its expanding
commercial leisure activities could be managed independently on a more businesslike basis. This also seemed like an
ideal opportunity for the charity’s chair, a charismatic leader with business skills who had led its formation, to be
offered a paid job as managing director of the leisure business. But in their enthusiasm the trustees had overlooked the
fact that a charity can only employ trustees, whether in its parent company or its separately managed subsidiaries, if
the memorandum and articles give it the power to do so. Even then, specific Charity Commission approval would be
needed to legitimise the chair’s appointment. The discovery that a distracting bureaucratic process was necessary to put
things right was a painful shock. The chair and his fellow trustees had to ask themselves: was it really in the interests of
running a dynamic enterprise if it would always be subject to the constraints of charity law?
Deciding whether to register a charity
Pros and cons: Most third sector trading activities are associated
with charities (they are either run by charities or by subsidiary
companies owned by charities). But this does not mean that a
charity is the best arrangement for you. Some senior managers say
that it is a boon not to be inhibited by the restrictions of charitable
status. The choice you make can sometimes be as much a matter
of how you feel about your business activities as how you weigh
up the benefits.
Advantages for trading organisations:
• Tax on profits: Registered charities in Wales and England do
not normally pay corporation tax on profits (in Scotland where
arrangements are different the tax system offers comparable
advantages). This is undoubtedly the most significant benefit for
many organisations. It means that:
− a charity which trades can usually retain all its profits
− a non-charitable trading company can donate some or all
of its profits to charity under the Gift Aid scheme without
corporation tax being deducted. (See Section 7.6)
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