Contracting with charities

• Charities can only act within their objects and powers — charities are always set up to achieve specific objectives (such as advancement of religion, relief of poverty, etc.) and must act within the powers listed in their governing document. If the trustees act outside these objects and powers when contracting with you, the contract may be invalid.

• Charities can make a profit! — whilst charities are not allowed to distribute profit, that does not mean that they cannot make a surplus. Charities are becoming increasingly commercially savvy, and you can expect most charities will give particular attention to the payment and termination provisions in the contract. Savvy trustees may also try to limit the scope of their liability to the value of the assets that they hold on behalf of the charity.

• Who is drafting the contract? — many larger charities will have a range of standard-form contracts that they use when contracting with third parties or may have specific bespoke clauses that they need to go into the contract. If you choose to use a bespoke contract or your own standard-form agreement, this is likely to slow down the negotiation process, and it could take longer to complete the contract.

• Who are you contracting with? — you can contract directly with the charity if it is a corporate entity (such as a company limited by guarantee). If the charity is an unincorporated association or trust, you will be contracting with the individual trustees of the charity. In this instance, you will need to ensure that the trustees are all individually named as a party to the contract.

• Make sure the contract is validly executed — if a charity is a corporate entity, depending on the nature of the contract, it can be signed by trustees or other authorised signatories on behalf of the charity. If you are contracting with an unincorporated charity, the situation is different. The general position is that all of the trustees need to sign the contract unless there is a scheme of delegated authority or the charity has passed a section 333 resolution in accordance with the Charity Act 2011.

• Allow time for the contract to be signed — contracts that need to be signed by charity trustees can take longer to complete because most Boards of Trustees do not generally meet as often as a commercial board of directors. It is wise to allow extra time for this when negotiating your contract and any associated project plans or milestones.

Further information

We have a dedicated business law team experienced in acting for a range of private, public and third-sector clients. If you have any queries, please contact Rebecca Ward.