Collaborative working has always been a key means by which charities further their charitable purposes - and the nature and scope of such arrangements in the charity sector is as wide and innovative as ever.

Charities work collaboratively not only with each other, but also with other not for profit organisations, local government, other arms of the state and even commercial entities. A collaboration can take many forms, such as a full legal merger between entities, but more commonly other forms of joint working, ranging from shared resources arrangements and joint service delivery to collaborative fundraising campaigns. 

In this article, we discuss some of the legal issues that arise in the context of joint ventures where the parties remain legally distinct.

Trustee duties

The decision to enter into any form of collaboration will sit with a charity's trustees and be subject to oversight by them. In coming to the decision, the trustees must ensure they comply with their duties as charity trustees, in particular satisfying themselves that:

• The collaboration is in furtherance of the charity's charitable purposes and for the public benefit. When working with third parties the risk of 'mission drift' increases as the arrangements can be adapted - either at the outset or over time - to meet the needs of other organisations, which may have subtly different aims and objectives. Trustees should be clear about their objectives in entering into a collaboration and ensure they remain the focus throughout any negotiations and the project itself.

• They have the power (in furtherance of those charitable purposes) to enter into the arrangements. Many charities will have an express power to work collaboratively in their governing instrument, but this will depend on the charity concerned. Equally, trustees should ensure they make decisions in accordance with the processes (and any restrictions) set out in their governing instrument.

• The collaboration is in the best interests of the charity. Trustees must ensure they have all the relevant information to determine whether the arrangement is in the charity's best interests, consider carefully all relevant information (and disregard information that is irrelevant), and take professional advice where required. They must act with reasonable care and skill, in good faith, and avoid arrangements that might place the charity's assets (including its reputation) at undue risk.

• Any conflicts of interest have been appropriately declared and managed in accordance with the charity's governing instrument, relevant policies and the law.

• The independence of the charity is not put at risk.

• Any private benefit is no more than a necessary by-product of carrying out the charity's aims. This is particularly important when working with commercial third parties.

All decision making should be carefully minuted.

In assessing the benefits and risks of a collaborative project, an element of due diligence is likely to be an essential component of decision making. The nature and scope of due diligence will depend on the proposed project. It is also important that the charity understands the third party it will be working with, not only to assess reputational and financial risks, but to ensure that the project has the best chance of success operationally.

The structure

There are many different structural forms to achieve a successful collaboration, including:

• A contractual relationship between two or more parties, and

• The creation of a new legal entity to carry out the activities subject to the collaboration arrangement, often known as a special purpose vehicle (or SPV)

A contractual relationship is ordinarily more straightforward to establish, but will not ring-fence risk away from the organisations involved, which a new legal entity would provide. There are a range of contractual relationships that can be considered, from loose non-legally binding arrangements through to detailed contractual joint venture arrangements that can underpin these relationships. The right option will depend on the parties' objectives and the stage of the collaboration between the parties.

A SPV such as a company or limited liability partnership may assist in ring-fencing risk, but it will come with additional costs and administration and, by its nature, raise control and governance questions, including issues related to managing conflicts of interest. The structure may make it more difficult for the parties to exit the collaborative arrangement easily and is therefore not generally used for shorter term projects.

Depending on the type of project, it may also be important to establish whether the charity itself or its trading company (if it has one) should be entering into the arrangements.

Roles and responsibilities

Once a structure is decided, it is essential that the parties are aware of their roles and responsibilities in relation to it. The arrangements should be clear and unambiguous to avoid any uncertainty. We would expect any collaboration agreement to detail:

• The shared goals, aims and intended outcomes

• How the confidential information of each party is protected. It may be necessary for parties to sign non-disclosure agreements at an early stage as confidential information can often be shared as part of the planning and negotiation stage, as well as in due diligence

• Whether, and on what basis, the parties will be contributing intellectual property to the project

• How intellectual property created as part of the project will be owned

• Who will employ staff working on the project

• How, and on what basis, any premises will be shared (including whether the consent of any superior landlord is required)

• How any liabilities in relation to the project will be apportioned

• Any data sharing

• The obligations of the parties in respect of adequate insurance for the project

• How any tax and VAT issues will be dealt with

• How any disputes between the parties will be managed, and

• Duration and how and when the parties can exit the arrangements

How the project itself is governed will also be an important priority for charities. Where there is a SPV involved, that entity will have its own board, but a charity is likely to require the board to provide sufficient information to it for effective oversight of the project. In other contractual relationships, there may be a contractual 'board' which, whilst unlikely to have any delegated power to bind the participants, assists in managing the project and reporting back to trustees. Charities must ensure they have effective oversight of all their operations, including those carried out with third parties. Those third parties may have different governance arrangements, and, indeed, where they are statutory bodies, different restrictions on how they can delegate to a board with a mixture of delegates from different organisations. This will all need thought when developing the governance.

Often charities can find it helpful to put together the key terms of their agreement in a non-legally binding 'heads of terms' or 'memorandum of understanding' document to ensure that the headline terms are agreed before incurring the costs and administrative burden of a legally drafted arrangement. This can often save overall costs.

Compliance

There are additional legal issues involved in joint-working relationships. We recommend that charities consider:

• Data protection legislation. This is particularly important where the parties will be sharing information as part of the collaboration, and even more so where that information involves personal data;

• Regulatory obligations, particularly where the activities themselves are regulated and require registration and/or oversight by another regulatory body, including the Care Quality Commission or Ofsted. However, all parties should be aware of the charity's obligations in relation to safeguarding and reporting serious incidents to the Charity Commission; and

• Fundraising regulation. Where parties are collaborating to raise funds, the provisions of the Charities Act 1992 in relation to professional fundraisers or commercial participators may apply. If it does, it will require contractual relations to include certain prescribed matters, including provisions for the protection of vulnerable individuals and for particular statements to be made to third parties. In any event, a charity is likely to want to impose obligations on the other party/parties to comply with the code of fundraising practice and ensure it has effective oversight of fundraising carried out in its name in order for trustees to comply with their own obligations. 

We expect collaborative working to continue to be a key part of how the charity sector thrives, but charities should be mindful of their obligations and best practice as part of this process.