Giving grants to non-charities: risks, boundaries and opportunities

The Charity Commission has published its amended guidance on making grants to organisations which are not charitable, over a year after the period of consultation on its draft guidance closed.

It acknowledges that making grants to non-charities, such as social enterprises, may provide new opportunities for a charity to further its charitable purposes. The guidance makes clear, however, that a charity can make a grant to a non-charity if the grant made is to be used only to further the charity’s own purposes for the public benefit.

So, charity trustees of a grant-making charity must carefully consider the risks of making grants to non-charities, and what steps they should take to ensure charitable funds are used to further the charity’s purposes, before making a grant to a non-charity.

The amended guidance sets out the key steps and issues for charity trustees to consider before grant-making, which can be summarised as:

1. Before making any grant:

• know your charity’s purposes;
• understand and follow best practice for trustee decision-making; and
• put in place appropriate procedures and policies for making decisions about grants. 

2. Before deciding to make a grant to an organisation:

• check whether the organisation is charitable;
• take reasonable steps to assess risks, and carry out appropriate checks on the organisation to ensure its suitability as a recipient of a grant;
• remember that trustees are responsible for grant decisions, even if delegated, and be aware of situations in which special care may be required.

3. When making a grant to an organisation:

• put a grant agreement in place which includes terms to ensure that the grant can only be used in line with your charity’s purposes;
• make sure that the recipient organisation understands and accepts those terms and conditions;
• ensure you put appropriate monitoring arrangements in place; and, most importantly,
• know what steps you will need to take if things go wrong.

A grant to a non-charity will normally have to include restrictions on the use of the grant to ensure it can only be used to further the charity’s purposes, and it will be necessary for charity trustees to make sure the monitoring arrangements put in place are followed.

If charitable funds are not properly applied by a recipient of a grant (whether charitable or not), and the grant-making charity’s trustees have not taken appropriate steps to prevent this, they are most likely to be in breach of their charity trustee duties to safeguard their charity's funds and to act in the best interests of their charity.

In some cases, where grant monies have been applied incorrectly, and the charity trustees have breached their duties, the charity trustees may be required personally to repay sums lost to their charity.

So, it is important for trustees of grant-making charities to make sure they consider the risks and put the appropriate arrangements in place before making any grant, but in particular to a non-charity.