Collaborative Working & Agreements With Trading Subsidiaries

Wednesday 16th May 2012

Karen Collins, Senior Associate

Collaborative Working Overview• Why collaborate?• Legal structure of the collaboration – the options• The first steps – key considerations• Contractual collaborations – Key legal issues

Why collaborate?

“All charities should consider seriously and imaginatively whether there are ways in which

they could do more for their beneficiaries by working together”

Charity Commission CC34

Why collaborate?Advantages include:• Reduction in overheads• Sharing of skills• Reduce duplication of effort

Legal structure – the options

• Contractual collaboration• New legal entity

Legal structure – contractual collaboration• Not a legal partnership• Features of a legal partnership:

• no separate legal personality• no limited liability• no set management structure• carrying on business for profit• accounts/tax• assets are partnership property• partners are agent for each other

Legal structure – contractual collaboration

• Colloquial meaning of “partnership working”• 2 or more charities/organisations• Remain separate entities• Specific project/venture• General sharing resources/costs• Detail set out in a contract

Legal framework – contractual collaboration

Key features of contractual collaboration• No separate legal entity

• no transfer of assets or employees• contracts must be entered into by one or more

participants• Collaboration liabilities are not ring-fenced• Allocation of profit and costs• No set management structure• Cannot raise funds independent of participants

Legal structure – new legal entity• Replacement entity - merger• Additional entity – joint venture company or

limited liability partnership

Legal structure – new legal entity• Key features of LLP

• carrying on business for profit• separate legal entity: can own assets, have

employees• members’ liability is limited to capital

contributions• flexible management structure• can borrow funds• tax• statutory disclosure and filing requirements

Legal structure – new legal entity• Limited liability company – by guarantee or

shares• Key features

• Familiarity• Separate legal entity so can own assets,

employees, enter contracts etc• Can borrow funds• Limited liability• Taxed on own profits• Statutory disclosure and filing requirements

Legal structure – which to choose?• Ability to use relevant structure• Objectives of the collaboration• Relative voting power of each participant• Need to ring-fence the collaboration liabilities

Working together: the first steps• Understanding

• your objectives• your culture• your limitations

Working together: the first stepsChoosing the right partners• The importance of getting it right• The importance of “soft issues”

• Politics• Cultural • Policies• Practical implications – redundancies? Compatible

IT systems?

Working together: the first steps• Be open and up front about

• Fears• Outcomes• Disputes• Exit strategies

• Trust between partners is key

Contractual collaboration: key legal issues• Who is doing / providing what?• By when?• Management / governance structure• How are costs / liabilities / benefits to be shared?• Disputes• Exit / termination arrangements

Trading subsidiaries and trading agreements

Why have a trading subsidiary?• Charity’s ability to trade is limited• Trading subsidiary is a separate legal entity – ring-

fences risk / liability

Why have a trading agreement?• Impose contractual limitations on what TS can do• Terms on which TS can use charity’s assets • What happens to TS’s profit

Trading agreement – key issues• Scope of TS’s activities• Use of charity’s name and trade marks• Terms of use of other assets of charity e.g.

website, premises, staff, equipment• Records• Gift of TS’s profit to the charity• Termination and effects

Cardiff Derby Nottingham

Thank You

Contact Details

Karen CollinsDD : 029 2039 1707 karen.collins@geldards.com