An introduction to charity corporate foundations

Posted: 20/04/2023

The number of charity corporate foundations (CCFs) continues to grow, especially in light of the current cost-of-living crisis, providing an effective structure for commercial companies to engage in charitable giving. This article provides an easy-to-understand summary for businesses that may be considering setting one up.

What are charity corporate foundations?

CCFs are set up by commercial entities, and are often created to support the business’s corporate social responsibility programme and give something back to the community. It is a way of showing that the business has a long-term commitment to supporting charitable causes.

A CCF will usually receive most of its funds from the business, which may be in the form of donations, or gifts in kind; for example, by providing use of office systems, employees and premises. The donations normally derive from the profits of the business, or from donations by the business’s staff, customers, or contacts.

Where the business allows the foundation to use its office systems, employees, or premises, then it would be sensible for this to be clearly documented in the form of an agreement. This will help ensure that each party’s rights and obligations are clearly set out and demonstrate the CCF’s independence from the business.

The funds donated to the CCF will often be put towards supporting other charities by making grants to them. CCFs regularly work with charities local to the community in which the business operates, and some may form partnerships with charities.

They may also use their funds for supporting their own charitable activities, which can be linked to the business. For example, a registered social housing provider may set up a foundation to help their tenants either in poverty or suffering financial hardship, or a veterinary practice may set up a foundation to neuter and treat stray dogs and cats overseas.

A business setting up a CCF will often involve its employees, in that some of the trustees of the foundation will often be employees of the business. The business will also usually encourage its employees to get involved in volunteering projects, charitable fundraising, or pro bono work to support the CCF or its linked charities. It may also encourage employee participation by offering to match employee donations.

Charitable purpose

A CCF will be set up as a charity and can only be established for charitable purposes. One of the big questions that should be asked before setting one up is: ‘What will its purpose be?’.

A CCF cannot be set up to promote the business itself or be used to build public relations for the business. If a business seeks to promote itself through the CCF, then it may open itself up to challenge from the Charity Commission.

The business also must not have a controlling influence over the foundation. Trustees must always act in the best interests of the CCF, rather than the business, and the CCF must exclusively be for public benefit.

Form of CCF

A CCF may be set up in different forms, with the most common forms being a charitable incorporated organisation (CIO), or a charitable company limited by guarantee.

Whichever form the CCF takes, the key is to ensure that the objects (charitable purposes) are clearly drafted to be charitable and to cover everything the foundation envisages doing. Many CCFs will have wide objects, especially if they are grant making. However, if the charitable purpose is to be aligned with the work of the business, then they may require some careful drafting.

When setting up a CCF, it is worth noting that it can take several months for it to be registered with the Charity Commission. It is therefore sensible to give yourself plenty of time to allow the CCF to become a registered charity.

Trustees

As mentioned above, some of the trustees of the CCF may be employees of the business.

The constitution of the CCF may specifically give power to the business to appoint a number of trustees. It is important to note that trustees must be able to act independently from the business and entirely in the best interests of the CCF. This is particularly important in respect of negotiating and agreeing funding terms with the business, and choosing beneficiaries.

CCFs will often have mixed board composition, made up of both employees of the business, and persons that are unconnected with it. The need to effectively manage conflicts is another reason why it is sensible for the CCF to have trustees that are unrelated to the business.

The Charity Commission will wish to see conflicts of interests between the foundation and the business being appropriately managed, and will want to see in the constitution of the CCF provisions stating that conflicted trustees may not vote on a matter, or form part of the quorum. It would also be sensible to have a separate conflicts of interest policy in place.

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