When should your organisation set up a trading arm?
- When the trading is no longer primary purpose trading (trading not directly linked to the purposes of the charity) but generating income for the organisation a trading arm should be considered.
- Income generated from a trading arm, unlike grant funding, is unrestricted and can be used by the Charity for any charitable activity.
- Developing trading income for an organisation can help improve an organisations sustainability, reducing dependency on grant funding or donations.
- Using a separate trading arm for income generating activity removes risk from the parent charity as the trading arm has its own legal identity.
How do you set up a trading arm?
- Organisations often choose to set up a trading arm of their organisation as either a Company Limited by Guarantee or a Community Interest Company. It is completely up to the organisation and its needs as to which legal structure is chosen.
- A wholly owned trading arm will have its own board of Trustees (or Directors depending on the legal structure) and its constitution which will have a formal link to the parent charity written in to it. Often there will be a small number of charity trustees from the parent charity present on the board of the trading arm.
- To form a Company Limited by Guarantee an organisation would require to complete an IN01 form, which requires to be sent with Memorandum and Articles of Association to Companies House. Guidance and model articles can be found on the Companies House website.
- Community Interest Companies will require to fill out the same INO1 form and a CIC36 form available from the CIC Regulators Website where step by step guidance can be found.
Examples of relevant forms can be found in the Resource Kit Document Library