Commercial participation arrangements: What charities need to know

What are commercial participator arrangements?

Commercial participator arrangements are collaborations between charities and unconnected commercial bodies in which the commercial body carries out promotional activities, usually on the sale of goods or services, stating that a proportion of the proceeds will pass to the charity. Such campaigns often crop up around Christmas time, such as the 'Big Knit' collaboration between Age UK and Innocent Smoothies.

The commercial body in such collaborations is known as a "commercial participator", and their role is defined in the Charities Act 1992 (the "1992 Act").

These arrangements offer benefits to both parties, raising funds and awareness for the charity's cause, whilst increasing the commercial participator's goodwill. They can also create significant risks, however, if the parties do not adhere to the regulatory requirements, and it is important for charities to be aware of their obligations before entering into such arrangements. Although the primary burden of compliance rests with the commercial participator, charities could face consequences for compliance failures, including reputational damage.

Please note that some regulatory differences apply in Scotland and Northern Ireland, so charities should ensure compliance with each jurisdiction's requirements.

Key obligations

Charities must comply with regulatory requirements when entering into commercial participation arrangements. Below are some of the key obligations:

Due diligence: Charities must carry out due diligence in relation to potential commercial partners to ensure their values align and that the partnership will not harm the charity's reputation. They must also ensure that any agreements entered into are in the charity's best interests.
Written agreement: The arrangement must be documented in a 1992 Act-compliant written agreement. This is also important from a risk-protection perspective - it is advisable to always document commercial terms in writing, even in relation to long-standing partnerships.
Clear solicitation statement: The amount or proportion of proceeds that will be donated (the "notifiable amount") must be clearly stated at the point of sale (i.e. on the product packaging). Misleading or vague statements can lead to regulatory scrutiny for the commercial participator and reputational damage to the charity.
Monitoring and oversight: Trustees must actively monitor the commercial participator to ensure compliance with the agreement and receipt of the agreed funds. This should include oversight of the participator's use of the charity's intellectual property and any data protection obligations with respect to donor information shared.

The agreement

It is advisable to avoid exclusive agreements where possible, in case another commercial partnership opportunity arises, and the scope of any exclusive agreements should be considered carefully.

A compliant agreement must contain the following:

The parties' names, addresses and date of signing
The arrangement's duration
Provisions regarding termination or alteration of the agreement
A statement regarding the agreement's aims and how these will be achieved
Arrangements (if any) for payment of the commercial participator
If multiple charities are involved, details of how the contributions will be shared
Any voluntary regulation that the commercial participator has agreed to
How the commercial participator will protect vulnerable people and the public from unreasonable intrusions, persistent approaches or undue pressure to donate
How the charity will monitor the commercial participator's compliance
Details of the proportion of the proceeds from each sale that will passed to the charity, or how much the commercial participator will donate overall in connection with the arrangement (a section 60 statement).

This last point is particularly important, as many commercial participator arrangements fail to state the notifiable amount sufficiently clearly to be compliant. Common issues include:

Statements which are too vague, such as 'proceeds' or 'X% of profits'
Omitting to state an estimate of amount to be paid to the charity overall
Stating the overall estimate, but failing to ensure that this figure has been calculated as accurately as possible.

It is also advisable to include the following:

Strong clauses dictating how a commercial participator can use the charity's intellectual property - including a clause necessitating the charity's sign-off for any publications and any product design including their name or logo
Detail of how the charity will receive payments
Audit rights
Detail of agreed distribution channels and what happens to any remaining stock after the agreement ends.

For further details of the terms that should be included in a commercial participator agreement, please see VWV's article on Charities and cause-related marketing - commercial participators.

Lessons from The Captain Tom Foundation

The foundation faced criticism when a gin promotion linked to the charity failed to include a compliant solicitation statement. The lack of transparency about the proportion of proceeds being donated has led to reputational damage for the charity, and this incident underscores the importance of clear and accurate public representations. Trustees must remain vigilant to avoid similar pitfalls.

Practical Tips for Charities

To ensure compliance, charities should consider doing the following:

Seek legal advice: To ensure that any commercial participator agreement is compliant and protects the charity's interests.
Conduct regular reviews: Periodically review commercial participator agreements and monitor the actions of the commercial participator to ensure compliance and alignment with the charity's values.
Be transparent: Ensure that a compliant solicitation statement is provided, accurately detailing the notifiable amount.
Due diligence: Conduct appropriate due diligence into commercial participators to ensure that their values and practices align with the charity's.

Conclusion

Commercial participation arrangements can be a valuable fundraising tool for charities, but they must be approached with care. If you are considering entering into a commercial participation arrangement, you may wish to seek legal advice to ensure compliance and mitigate risks.