F&GP Meeting November 2017

WR I GLEY S ---- S OL I C I TOR S ----

13 October 2017

Why might GFTUET want to consider transferring the nursery activities to a subsidiary or separate organisation?

Sometimes charities wish to transfer some of their activities into a separate vehicle in order to manage risk (often financial risk, but sometimes reputational or other risk). As GFTUET is a charitable trust, the trustees have unlimited personal liability. This means that were something untoward to happen (e.g. death or personal injury, an abuse claim, or an employment dispute), the injured party might sue the trustees personally. The trustees would have recourse to GFTUET's assets, but if those assets (including any insurance proceeds) were insufficient, then their personal assets (e.g. house, car, savings, etc) would be on the line. Being sued can be stressful for trustees, even where there is insurance cover, as there is sometimes a question mark over whether the insurance will cover a particular claim. One way for the trustees to protect themselves is to put higher risk activities into a separate (incorporated) vehicle, such as a company. Another option would be to incorporate GFTUET itself, which would limit the trustees' potential personal liability, although there would need to be a "due diligence" exercise if the trustees decide to pursue this option, particularly as there seems to be a defined benefit pensions scheme.

What sort of vehicle might GFTUET wish to consider transferring the activities to?

For the reasons discussed above, we would suggest an incorporated vehicle – probably a company, as that seems to be a vehicle which your client is familiar with, although there is also the charitable incorporated organisation (CIO) if they would like the nursery to be run through a separate charity.

Quorn Grange Day Nursery Ltd – a non-charitable subsidiary

Quorn Grange Day Nursery Ltd has been set up as a subsidiary of GFTUET. It is not a charity. The paperwork probably needs a bit of tidying up, as it refers to GFTUET as the sole member, when, properly speaking, it should be the trustees of GFTUET who are the members.

If GFTUET use this vehicle to run the nursery through, it is important to note that:

 Trading subsidiaries pay tax, including corporation tax. They can usually Gift Aid any profits to their parent charity, but there are restrictions on Gift Aiding profits from a trading subsidiary to a charity which may mean that some corporation tax is payable: https://www.icaew.com/~/media/corporate/files/technical/technical%20releases/leg al%20and%20regulatory/tech16%2014bl%20guidance%20for%20donations%20by%20 a%20company%20to%20its%20parent%20charity.ashx .

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