My 2nd question today! I set up a small volunteer community advocacy self-help group about 3 years ago and we have always worked closely with our local authority. We are the only established charity registered BME-led community group. As such, the local authority seems to always want to use us for their involvement activities and then say they have consulted with BME communities. We thnik that's unfair as we don't have the capacity as a volunteer group to collate all the views of majority within this community. Also, the council have so far refused to fund us adequately enough as they have only given us less than 10% of the funding we requested in the last two years for a outreach development worker post (part-time). Would it be right to start charging the council (and the other service delivery agencies that want to access our clients/users) for our time spent in supporting them to acheive their own strategic aims and CPA (Comprehensive Performance Assessment) objectives? We feel they are using us on the cheap!

sorry this is so long...

We are a well established community organisation, which operates a regular business planning cycle and has a strong trustee board who are engaged with our activities. Our aim, typically, is to reduce reliance on grants and we are clear that developing our existing social enterprise activity is the most viable way forward.

The existing businesses turnover £25k with scope to grow and we now have the opportunity to buy a 3rd business [we have done this before] that is turning over 60k p.a. This is a ‘primary purpose’ business and we are satisfied it fits well with objects and business plan, that we have very good data on the business and the market and that [suitably skilled] trustees are fully engaged in scrutiny/strategic engagement.

The issues I am less clear about relate to structures and governance.

• Trading entity and VAT: The new business takes us over the vat threshold; if we keep the trading activity within the existing charitable structure how will this affect the way we account for income/expenditure? I understand that the 2 small contracts we currently operate would attract VAT [as services rather than grant-funded activities], if we exceed the threshold.
• Would this be the ideal point at which we ‘spin off’ a trading entity?
• What are the pros and cons of various structures for such an entity? CIC? Company limited by guarantee/shares? (i’ve seen your ‘legal models’ document but no reference to CICs)
• Charity commission guidance seems clear on how a company would ‘gift’ its profits back to the ‘host’ charity thus off-setting corporation tax, but would there need to be a very tightly worded set of mem & articles to ensure there was a ‘lock’ on the new organisation? Is there a down-side to this? Is this what the CIC is for?
• Would we manage the new entity by making existing trustees of the charity into Directors of the new company?
• Are we coming at this from the wrong angle altogether? Should there be more fundamental ‘drivers’ shaping how we move forward?

Existing charitable structure: the charity is not currently a limited entity; it is an unincorporated association, which worked well when it was a small, membership-based entity handling small amounts of cash with few staff. If we go ahead with the trading ‘arm’ (on top of funding campaigns, grants and contracts), is this a point when we should be considering a change of structure for the main charity as well? If I were a trustee, should I not be concerned about personal liability in an unincorporated association? Should we wait for details of the new charitable incorporated organisation?

Hi, If a charity which is a company limited by guarantee is looking to set up a social enterprise, what are the key legal considerations? Also is there a limit as to the amount of trading income that can be earned and when would be most appropriate to set up a trading subsidary. Thanks

A local arts centre, who we support with advice and information, is in financial difficulties. They have been approached by an entrepreneur who would like to go into some kind of partnership with them. He is proposing that they exploit their potential to screen films, but this will require a major capital investment, which would have to be raised by extending their mortgage. The entrepreneur is making extravagant claims as to potential income from cinema advertising revenue, for adverts and trailers (£80,000 p.a.). We do not have any knowledge of this area of work, and I wondered whether any of the experts could advise on realistic expectations of income. The proposal is that there would be about 70 nights of screening per year.

The issue concerns an arts charity who own the freehold to their building and their trading subsidiary who run the gallery shop and cafe within the building.

The rent for the gallery shop and cafe have been valued as required on an open market rent. The problem however is that this presumes that the gallery shop could be operated akin to gift shop, which would certainly maximise the commercial return. However if this were to happen the Arts Council and local authority funders have indicated that they would withdraw their funding over 'quality' issues. This funding is all for the charity.

The trading company is not sustainable if it had to pay a rent comparable with a gift shop or its commercial equivalent. The Charity Commission have not been impressed by the dilemma merely repeating that the trustees have a duty to maximise returns and they would be in breach of duty not to do so. The case to date has been that the operating restriction would apply whether the space was occupied by the trading subsidiary or any other arms length tenant.

What is the best way to proceed on this one? The added issue is that if the gallery shop and cafe were to close because of sustainability issues then the charity would receive no rental contribution whatsoever.

I am working with a Charity who want to set up a social enterprise trading arm, they have asked if they can charge interest to the social enterprise as they are basically supporting it 100% financially prior to the social enterprise making any money. I am unsure if they can, but think that they might be able to charge possible management costs or admin support?