Buying into good causes

“We, Retailer Plc will donate £1 of the purchase price of this product to X charity (charity number 1234).”

Commercial participator arrangements between charities and commercial companies can be a very powerful tool for both parties, resulting in mutual benefits. However, a commercial participator arrangement is not without risk or regulation.

Charities can tie in with commercial participators in a number of ways, including donations on product sales or on the sale of services; and affinity goods or services, e.g. credit cards and insurance arrangements.

The charity is typically given a donation by the commercial participator calculated on product sales or on the use of a service. The commercial partner generally gains from a financial perspective because the demand for the product or service increases due to the association with the charity. Crucially, the commercial partner is also able to demonstrate its community social responsibility by being involved in charitable giving.

Legal framework

The definition of a commercial participator is laid out in s 79 of the Charities and Trustee Investment (Scotland) Act 2005. It can be broken down as follows.

A commercial participator is:

• a person or company;
• who carries on business for profit;
• whose business is not principally a fundraising business;
• as part of their business, they take part in a promotion venture; andduring the promotion, the business claims that charitable contributions will be paid to a particular charitable organisation.

If a company meets the above criteria and is deemed to be a commercial participator it must comply with the requirements set out in the 2005 Act and the associated Charities and Benevolent Fundraising (Scotland) Regulations 2009, which relate to (1) written agreements, and (2) solicitation statements.

Written agreements

The 2009 Regulations require that there must be a written agreement between the company and the charity. The agreement must include:

• the name and address of each party;
• the date of the agreement, the period the agreement is to cover, and any conditions surrounding termination or variation;
• a statement of the main objectives of the agreement/ campaign and the agreed fundraising methods;
• the proportional split between charities if the fundraising is for more than one charity; anddetails of the payment amounts, any remuneration or expenses that the company is entitled to receive, and the manner of determining the amount.

The fine for non-compliance with the requirements on written agreements is £5,000, although the reputational damage of being investigated by the charity regulator (OSCR) could be much greater.

Solicitation statements

The 2005 Act (s 83) and the 2009 Regulations set out requirements for solicitation statements made to the public where a company is claiming to make a donation to a particular charity. These statements are often seen on product labels, clothing tags, advertising material and tickets.

The solicitation statement must contain the following:

• full name of the charity and its charity number(s) (Scottish and English if dual registered);
• the proportional split if more than one charity is to benefit;
• the method by which the amount is to be determined;
• the notifiable amount, e.g. the actual amount that will be paid for each unit sale.

The reasoning behind the requirements is to avoid situations where consumers are led into purchasing products or services on the basis that a charity is going to benefit substantially when in fact the charity receives little or no benefit. Again, the fine for non-compliance is £5,000.

Reputational risks

Aside from the legal considerations, choosing the right partner is fundamental to the success of a commercial participator arrangement. It is recommended that both parties conduct diligence on the other at the outset. This should cover financial status, reputation, any conflicting ethics policies and any historical bad publicity or non-compliance.

An obvious example of a conflict of ethics would be an animal welfare charity and a cosmetic retailer that promoted products tested on animals. A commercial participator agreement betwen such bodies would likely give rise to negative publicity.

Commercial participator arrangements can be a great opportunity for charities to raise funds and for companies to raise their social responsibility profile. They have proved successful for many charities and companies. However, organisations can suffer severe reputational damage by entering into a commercial partnership with the wrong party, and the penalties for non-compliance with the legal requirements are substantial both financially and reputationally.

It is imperative that both parties approach such arrangements with caution and carry out thorough due diligence in advance. It is also vital that the parties put the appropriate documentation in place and, where necessary, seek legal advice.

• Catriona McGowan, senior solicitor, Charity Team, McGrigors LLP